Internal Control Policy-Financial
CITY OF SHOREWOOD, MINNESOTA
INTERNAL CONTROL POLICY
The City of Shorewood seeks to balance its internal accounting control in such a way as
to ensure public confidence and maintain the integrity of its financial systems and assets,
without unduly inhibiting the ability to efficiently carry out its mission.
I. Cash Disbursements
Goal
The goal of the City Council in establishing an internal control system for cash
disbursements is to safeguard the assets of the City and to ensure an appropriate level of
fiduciary responsibility.
Objective
The objective of the City Council in meeting this goal is to ensure that cash is disbursed
only upon proper authorization of management for valid governmental purposes, and that
all disbursements are properly recorded.
Procedures
1. Segregation of Duties
No financial transaction shall be handled by only one person from beginning to end.
a. Payment of all claims shall be authorized by the appropriate department head,
the Finance Director, the City Administrator, and the City Council.
b. Checks shall be signed by the Mayor and the Finance Director. In the absence
of one of the above, the City Administrator shall be designated to sign checks.
All checks, including payroll checks shall require two signatures.
c. Payments shall be coded and recorded by the Senior Accounting Clerk. In the
absence of the Senior Accounting Clerk, the Finance Director may code and
record payments.
d. Financial reports and bank reconciliations shall be prepared by the Finance
Department and presented to the City Council on a periodic basis.
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e. Supplies shall be ordered on a monthly basis, or sooner if needed, by the
following authorized individuals:
~ Administration Department
~ Public Works Department
Recepti onist/Secretary
Public Works Director
f. Supply orders for Administration shall be inventoried, upon receipt, by the
following authorized individuals:
~ Administration Department
~ Public Works Department
Recepti onist/Secretary
Public Works Director
In the absence of the person authorized to take inventory for a specific
department of the City, the following individuals are authorized to perform
occasional inventories of supply orders:
~ Administration Department
~ Public Works Department
Finance Director
Designated Employee
g. Checks shall be properly verified for authorization and signature and prepared
for mailing by the Senior Accounting Clerk.
2. Accounting Controls
The following common internal controls relate to paying bills:
a. All disbursements, except those from petty cash, will be made by pre-numbered
checks.
b. It is not permissible to draw checks payable to Cash.
c. Under no circumstances will blank checks be signed in advance.
d. A disbursement voucher shall be prepared for each invoice or request for
reimbursement that details the date of check, check number, payee, amount of the
check, description of the expense account to be charged, authorization signature,
and be accompanied with related source documents. In accordance with M.S.
471.38, subd. 1, et. seq., the voucher must contain the following declaration: "1
declare under the penalties of law that this account, claim, or demand is just and
correct and that no part of it has been paid. "
e. Expenditures must be approved in advance by authorized persons.
f. All signed checks will be mailed promptly by the Senior Accounting Clerk or
Recepti oni st/Secretary.
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g. The individuals authorized to sign the checks shall review each cash disbursement
voucher for the proper approval authOlization and supporting documentation of
expense.
h. Vouchers will be marked "Paid" and include the date paid, the check number and
the amount of the check.
1. Invoices and requests for reimbursement will be checked for accuracy and
reasonableness before approval.
J. A monthly cash disbursement journal will be prepared that details the date of the
check, check number, amount of check, and descliption of expense account to be
charged.
k. Unpaid invoices shall be maintained in an unpaid invoice file by the Senior
Accounting Clerk.
I. Purchase orders shall be pre-numbered.
m. Expense reports for travel related expenses shall be submitted on a timely basis.
n. Checks by which claims are paid shall have printed on the reverse side, above the
space for endorsement: "The undersigned payee, in endorsing this check declares
that the same is received in payment of a just and correct claiTn against the City of
Shorewood, and that no part of it has heretofore been paid. "
o. In accordance with M.S. 471.425, subd. 2, claims of the City shall be paid within
35 days from the date of receipt, or as otherwise stipulated by the terms of a
contract. Claims not paid within this time frame will be subject to penalty and
interest charges assessed by the vendor, as provided for in M.S. 471.425, subd. 4.
p. Disallowed claims shall be so marked and kept in a file for an appropriate time
period.
II. Payroll
Goal
The goal of the City Council in establishing an internal control system for payroll
disbursements is to safeguard the assets of the City and to ensure an appropriate level of
fiduciary responsibility.
Objective
The objective of the City Council in meeting this goal is to ensure that payroll
disbursements are made only upon proper authorization to bona fide employees, that
payroll disbursements are properly recorded, and related legal requirements (such as
payroll tax deposits) are complied with.
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Procedures
1. Segregation of Duties
Payroll checks should be written in keeping with the procedures for all other cash
disbursements as noted above. Additional requirements related to the payroll function
to be performed by persons who are not payroll check signers are as follows:
a. The Senior Accounting Clerk shall hold unclaimed paychecks.
b. The Finance Director shall review the payroll register and the Senior
Accounting Clerk will post payroll to the general ledger.
c. The Finance Director will review payroll-related tax withholding, deposits and
repOlting and prepare reports of same for the City Council.
d. The Senior Accounting Clerk shall prepare year-end W-2's to employees and
the Finance Director will review same.
2. Accounting Controls
The following common internal controls relate to payroll:
a. Time sheets are required to document employee hours, including overtime,
and leave time.
b. Time sheets must be signed by the employee and the employee's immediate
supervisor authorizing payment for work.
c. Employment records will be maintained for each employee that detail wage
rates, benefits, taxes withheld, and any changes in employment status.
d. Payroll-related taxes, including employer share, shall be withheld and paid to
the appropriate government agency on a timely basis.
e. The Finance Director will review and sign all payroll tax returns.
f. Written personnel policies shall indicate the leave time allowed for vacations,
holidays, sick leave and other benefits.
g. A list of payroll checks wlitten, with appropriate taxes withheld, will be
maintained in a separate payroll register.
h. Generally, overtime must be authorized by the appropriate depmtment head
before it is worked. Emergency exceptions may be authorized by the City
Administrator.
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III. Petty Cash
Goal
The goal of the City Council in establishing an internal control system for a petty cash
fund is to safeguard the assets of the city and to ensure an appropriate level of fiduciary
responsibility.
Objective
The objective of the City Council in meeting this goal is to provide guidelines for the use,
safekeeping and repOlting standards of the petty cash fund, while allowing for small
purchases or reimbursements to be made from said fund.
Procedures
1. Segregation of Duties
The petty cash fund is available to staff to make small purchases or reimbursements,
in cash, for items such as stamps, office supplies, parking, etc., using the following
guidelines:
a. The Receptionist/Parks Secretary shall be the custodian of the Petty Cash
Fund and will be the only person to have access to the cash.
b. The custodian of the Petty Cash Fund shall be responsible for reconciling the
fund on a quarterly basis and submitting an expense report to the Senior
Accounting Clerk.
c. The Finance Director will make the appropriate entries to record the expenses
and will arrange for replenishment of the Petty Cash Fund.
2. Accounting Controls
The following guidelines will govern the use and keeping of the Petty Cash Fund.
a. The Petty Cash Fund will not exceed the amount of $100.
b. The Petty Cash Fund will be kept by the custodian in a locked box. The box
shall be kept in a secure place. The custodian will be the only person with
access to the funds.
c. Payment for items costing over $25 must be made by check rather than
reimbursed through petty cash.
d. Withdrawals from the Petty Cash Fund will be made only by completing a
Petty Cash V Ollcher. The voucher must state the date and amount of the
withdrawal, the reason the cash was withdrawn, the expenditure Accounting
to which the expense should be charged, and the name and signature of the
person receiving the cash.
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e. Supporting documentation (receipts, invoices) must be attached to each
voucher.
f. Unannounced counts of petty cash and change will be made on occasion by
the Finance Director.
g. No staff member shall be allowed to cash personal checks, including pay
checks, in the petty cash funds of the City.
h. Under no circumstances shall staff members be permitted to bOlTOW from
petty cash funds for personal use.
III. Cash Receipts
Goal
The goal of the City Council in establishing an internal control system for cash receipts
is to safeguard the assets of the City and to ensure an appropriate level of fiduciary
responsibility.
Objective
The objective of the City Council in meeting this goal is to ensure that all cash intended
for the City is received, promptly deposited, properly recorded, reconciled, and kept
under adequate security.
Procedures
1. Segregation of Duties
No financial transaction shall be handled by only one person from beginning to end.
a. The Receptionist/Secretary will be responsible for receiving all cash payments
to the City, whether by mail or in person. In the absence of the
Receptionist/Secretary, the Parks Secretary, Deputy City Clerk, or Finance
Director may receive cash payments.
b. The Senior Accounting Clerk will be responsible for depositing cash receipts
daily and coding and recording the same in the general ledger accounts of the
City.
c. Financial repOlts and bank reconciliations shall be prepared by the Finance
Department and presented to the City Council on a periodic basis.
d. Invoices for utility services shall be prepared by the Senior Accounting Clerk
or Utility Billing Clerk. Invoices for other city services shall be prepared by
the Senior Accounting Clerk or Finance Director. An accounts receivable
register for utility billing will be maintained by the Utility Billing Clerk. All
other accounts receivable will be maintained in a register by the Senior
Accounting Clerk.
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e. Depmtmental Cash: The following individuals are authorized to receive cash
payments in the individual departments of the City:
~ Building & Planning Depmtment
Recepti onist/Secretary
All other departments of the City typically do not receive cash. In the absence
of the person designated to receive cash payments, the depmtment head of the
depmtment will receive the payment.
The following individuals shall record the receipt of the cash payment and
arrange for the transmittal of the funds from the individual departments of the
City to the Senior Accounting Clerk:
~ Building & Planning Depmtment
Recepti oni st/Secretary
In the absence of the person authorized to record and transmit cash payments,
an employee will be designated by the depmtment head to perform the duties.
2. Accounting Controls
a. All payments to the City shall be accompanied by a pre-numbered cash
receipt, stating the date of the receipt, the amount of the receipt, a description
of the item or service being paid for, and a description of the revenue account
the revenue should be allocated to.
b. A monthly cash receipts journal will be prepared that details the date of the
receipt, receipt number, amount of receipt, and description of the revenue
account to be credited.
c. The pre-numbered receipt shall be two-pmt. The first part will be given to the
payer, the second part will be retained with the payment and given to the
Senior Accounting Clerk for recording and filing.
d. All cash receipts will contain the signature, or at least the initials, of the staff
member receiving the payment.
e. An accounting of change given for cash should be noted on the receipt.
f. Cash shall be deposited in the City's bank account on a daily basis. Under no
circumstances shall payments, whether by cash or other instrument, be kept
longer than one week.
g. Cash receipts shall be kept in a safe, vault, or similar secure place.
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h. Cash receipts shall be reconciled on a monthly basis by the Senior Accounting
Clerk.
1. Payments made in cash shall be received by the Senior Accounting Clerk and
the Receptionist/Secretary. The cash shall be counted and verified by both
staff persons. The receipt shall indicate that the payment is a cash payment
and will contain the signatures of both staff persons.
Adopted by the City Council of the City of Shorewood this 26th day of February,
2007.
Approved:
Chris Lizee, Mayor
Attest:
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