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Banking and Financial Institutions

Banks and Money Management

Every bank has internal processes, such as cash drawers and third-party audits, for controlling funds within the banking system.

The processes of the Federal Reserve trickle down to local banks and even to local branches. Banks must ensure that they have enough reserves at a given time and that they are fulfilling the requirements of the Federal Reserve. Every bank has internal processes for controlling funds within the banking system so that everything is in line with Federal Reserve policy. The Federal Reserve monitors banks, but local banks also make it their purpose to ensure that Federal Reserve policies are upheld; otherwise, they may be at risk of being fined or shut down.

One of the control mechanisms practiced at individual banks is cash drawers, which allow only one person access to the funds contained in them. Cash drawers are used to audit transactions on an individual basis and to ensure that each employee handles funds correctly. Tellers are responsible for their own drawers, while management is responsible for reporting any irregularities or shortages. Ideally, the drawer will balance at the end of the day, but there are times when that does not happen. The drawer is audited at the start of the day and again at the end of the teller's shift to ensure accuracy.

Auditing is also used as a control in banks. A third-party company is enlisted or hired to audit a bank to ensure that all reserves and practices are correct and in place. Such an audit usually happens once a year. A bank's practices must be in compliance with the standards of the Federal Deposit Insurance Corporation (FDIC), the government corporation providing deposit insurance to depositors in U.S. commercial banks and savings institutions, as well as with the standards of Federal Reserve policy. If a bank is not in compliance, it may be fined, penalized, or possibly shut down.

Another internal control is the separation of duties, which allows only certain people to do certain tasks and prohibits any one person in the bank from doing all tasks. Balance checks are yet another internal control; this involves the checking of one employee's work by a different employee. Internal control teams perform document monitoring and account monitoring, wherein the team reviews every document received and sent as well as every account opened to ensure that nothing is missing. In some banks, the bookkeeping department performs internal controls by ensuring that paperwork is filled out correctly and providing proof of information and details when needed.

Key Internal Banking Controls

In addition to external regulations, banks have internal controls such as audits, account and document monitoring, balance checks, and separation of duties, which are designed to help control funds within the banking system.