Withholding of Collection

The best way to keep people honest is to have them watch each other.

Modus Operandi

The unusual way for a cashier to temporarily cover up cash shortages is to withhold his collections by not depositing them in the bank nor reporting them to his head office.

A branch cashier of a subsidiary was able to pocket undetected most of his collections during the month by willfully not sending his daily collection report to his head office.

In another case, a certain municipal treasurer was found with a cash shortage amounting to P20 million. To avoid prosecution, the treasurer flew to the United States the day he was suspended by his head office for his failure to remit P9 million as the head office's share in the town's revenue accumulated collections for two and a half years. A cash shortage of P3 million was due to uncollected cash advances to twenty eight officials including the municipal treasurer and other employees of the municipality. A substantial portion of the fund shortage (P8 million) was used in the payment of questionable vouchers purporting purchases of school supplies apparently undelivered. Some vouchers were in the names of fictitious suppliers.

The municipal treasurer obviously took advantage of the poor supervision and weak control resulting from the lack of rotation of duties in the disbursement operations. The large unauthorized cash advances to other officials and the influence on the resident auditor had covered up and perpetuated the irregularity.

Detection and Protection

The fund shortage was discovered by the head office when the municipal treasurer could not remit to them their share of the town's revenues. In most instances, misappropriation of government or private company funds can be discouraged by strictly requiring the cash custodian or cashier to deposit daily all collections of the previous working day. All collections should be receipted by prenumbered official receipted by prenumbered official receipts and listed on a daily collection report to be supported by deposit slips authenticated and dated by the depository bank. The cashier should transmit daily to his head office the original copy of his collection report with copies of the official receipts and deposit slips. The daily collection report should be numbered consecutively to easily detect any missing report. On the other hand, the head office should check daily the consecutive numbers of the official receipts issued by the cash custodian so that any unauthorized usage or missing number can be easily detected and investigated.

The depository bank should be required to mail directly to the head office's auditing department their monthly statement for independent checking and reconciliation of the records of the cashier. To rotate duties and disclose possible defalcation, the cashier or treasurer should be strictly required to take full yearly vacation leave. People tend to remain honest so long as somebody is checking them. So, the home office auditors should conduct at irregular intervals, surprise audits of the cashier's cash accountabilities. To prevent absconding individuals from taking refuge abroad, the country should have an extradition treaty with the major countries of the world especially the United States. An effective means of discouraging conspiracy to do wrong among all levels of management is an anonymous letter to the top executive.