A government’s treasurer or finance director generally controls its bank accounts. By definition of their job description, this person takes responsibility for the transactions and reconciliations of these accounts. But, have you ever found where another department has opened its own bank account? Many questions may come to mind:
Departments will open their own bank accounts for a few reasons, but most of the time it is to exercise control over the specific funds in the account. One example is a police department that receives donations for a K-9 or DARE fund. The idea is that these donations should only be used for those specified purposes; as a result, the department prefers not to turn those monies over to the treasurer for fear of the unspent funds lapsing or getting lost in the operations of the general fund. While these accounts often start out small, they can grow and become more significant with time.
Ideally, you will want to establish procedures that prohibit opening new bank accounts with your government’s name, a derivation of the name, or EIN except by authorized personnel. The first step is developing a financial policy or adding a clause to your investment policy that provides guidance and authority for opening new accounts. It is important to share this information with your banks so they can properly flag your accounts to help prevent unauthorized activity. As a best practice, periodically contact your banks and ask them to search the government’s name or EIN and provide a list of accounts. Compare this list to your own to identify any new accounts and follow up as needed.
Find out the background of this account and determine if it is appropriate to keep it segregated from the rest of the government’s funds or if it should be closed and deposited into the general account. Whatever your decision, the account should be reported in your general ledger along with related deposits and disbursements in order to accurately present the department’s operations. These special purposes can be addressed in the annual budget to ensure that there are funds appropriated to them as long as a balance in the bank account remains. Work with the department to determine the appropriate general ledger reporting and line items for budgeting to bring everyone in agreement.
For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our team.