Custodial Fund Procedures
- Change Fund: Established for the sole purpose of making change for customers. The authorized amount should not exceed what is needed to support required cash drawers.
- Petty Cash Fund: Established for departmental use for incidental and emergency purchases where alternative means (e.g. Procurement Cards) are not feasible. The authorized amount should never exceed one month's transactions.
- Revolving Fund: Cash advances to a custodian for use in the operation of a contract, grant, study program, or similar endeavor. The project must be one that due to geographical separation or other acceptable reasons cannot use the normal university procedures of requisition, purchase, invoice and payment. The authorized amount should never exceed one month's transactions. An invoice, cash register tape, sales ticket from seller, or a Payee Certification must support every purchase of supplies or services. The supporting document must indicate the date of purchase, payee name, amount paid, and description of the purchase. Revolving Funds are not to be used in place of Petty Cash Funds or Procurement Cards. If you are paying human subjects please contact Human Subjects/IRB Compliance Services.
A Custodial Fund Agreement form must be completed by the individual interested in being a custodian. This form must contain the following information:
- Type of Fund being requested (petty cash, revolving, change fund, etc.)
- Purpose of Fund
- How the Fund will be safeguarded
- KFS Account information
- Amount being requested
According to the Custodial Fund Policy I-560:
"A custodian must be an employee of the university who is a department head, fiscal officer, or account manager.** The custodian must accept personal responsibility for the safety, proper usage, and return of the funds entrusted. The actual handling of the fund may be delegated in some cases, but responsibility for the fund remains with the custodian."
** There may be exceptions to this, but a custodian cannot be a grad student. They must be full-time employee. The handling of the fund can be delegated to a grad student, but the responsibility remains with the custodian.
The agreement must contain the signature of the custodian, fiscal officer and account manager. If a grant account will be charged for fund expenses, the contracts & grants analyst must also sign to approve the fund. If you have any questions about the form, please contact the Custodial Funds Coordinator.
The Custodial Funds Coordinator will either approve or suggest alternatives available within the normal procurement systems of the university (purchase orders, procurement cards, disbursement vouchers, credit cards, internal billing, operating loans or operating advances).
Custodians now have the option of using a prepaid Visa Check Card using the same program as the IU Paycard. The custodial fund vendorid will be linked via ACH to a temporary bank account. The custodian may use the card at any ATM to withdraw cash instead of using their own accounts. Reimbursements would immediately refund the temporary bank account. Email Bryan Keleher for information.
Upon fund approval, the Custodial Funds Coordinator will establish the fund custodian as a payee within the KFS and initiate a Disbursement Voucher (DV). The Payee ID generated will be used for all future reimbursements for this Custodial Fund to properly track fund activity.
There are several reasons a Custodial Fund would need to be modified. Here are a few examples:
- Custodian change
- Request for Increase in fund
- Change in grant account number
- Purpose of fund changes
- Closing or Decreasing a Fund
- Change in contact, phone, email, etc.
To report these changes, the Custodian needs to complete a Modify Custodial Fund Agreement form. This amended agreement will act as the formal agreement between the Custodian and the university.
Listed below are the steps that need to be followed in order to operate a Custodial Fund properly:
- Receive initial disbursement check that created the Custodial Fund.
- If the requested payment method is "F" or "W", a Foreign Draft Fee/Wire Transfer Fee will be charged to the department account for the fee involved. A consent form may be required for drafts or wires sent out of the USA.
- Disbursements are not to be made for:
- Frequent purchases from the same vendor, which can be handled by use of a blanket purchase order
- Payments to individuals for wages
- Personal cash advances
- Cashing personal checks
- For more guidance refer to IU Purchasing Policy.
- Your department will create a Disbursement Voucher using the original Payee ID number assigned when the Custodial fund was created.
- Payment Reason should always be "Revolving Fund Reimbursement".
- Enter the total amount for which you have receipts. Each receipt must clearly show the seller's name, date of purchase, and a description of items purchased. In the event a receipt is lost, the Custodian must include a signed explanation and the same information that is required for receipts. Continued submissions without receipts may result in closing the fund.
- For more guidance on submitting receipts for reimbursements refer to FMS Accounts Payable.
- Expenses submitted for reimbursement should be broken down into the appropriate expenditure by object codes. Do not use general, vague, miscellaneous object codes if a more detailed one exists which will more accurately reflect the nature of the expenditure being reimbursed.
- Send the Disbursement Voucher and supporting documentation to appropriate address on the Disbursement Voucher cover sheet.
- Submit all receipts for reimbursement as described above. If you are located on a regional campus (Not IUPUI) it might be quicker to hold this reimbursement check in FMS. Contact Bryan Keleher for specific instructions
- Upon receipt of this reimbursement check, complete a Cash Receipt (CR) for the amount of the check plus any cash funds on hand. The total of your deposit should equal the total authorized custodial fund amount which was originally advanced to the custodian..
- The General Ledger Account used on the CR document will be the custodial fund account which originally disbursed the funds, not the departmental account.
- The object code to use on the CR document is 8001.
- In the CR Description Field, include the name of the fund you are closing and the associated Payee ID number.
- Forward a copy of the Cash Receipts document and a Modify Custodial Fund Agreement form, showing the balance as zero, to the appropriate Custodial Fund Coordinator.
A monthly custodial fund reconciliation is required for ALL custodial fund accounts to document the security of the cash. The total of all paid receipts, reimbursement invoice vouchers in transit, and cash on hand must agree with the authorized amount of the fund at all times. Cash should be counted daily. Reconciliations are required because the funds are not subject to the normal accounting controls.
All domestic Custodial Fund reconciliations are due on a monthly basis. For Custodial Funds with activity outside the USA, reconciliations must be submitted every 2-5 months as required. An annual review of ALL Custodial Funds occurs to confirm that funds are compliant with applicable policy and procedures. Any fund which fails to comply, including not submitting the required Custodial Fund Reconciliations on a timely basis, may be subject to more detailed review by FMS or Internal Audit.
Change Funds, Petty Cash Funds, and Revolving Funds - Complete the Indiana University Custodial Fund Reconciliation form.
Revolving Fund with a university bank account - The Custodial Fund Reconciliation for funds with IU checking accounts form must also be accompanied by a copy of the bank statement, cancelled checks, a list of outstanding checks (date, check number, amount, and payee) and any other information that is pertinent. The Custodial Funds Coordinator will review these reconciliations; however, the Custodian is ultimately responsible for the accuracy of the reconciliation.
Audit of a Fund
Custodial Funds must be made available upon request of the Internal Audit Department and external auditors who will make periodic audits to aid the department in proper handling of the funds. Internal Auditing will determine that the Custodian is the one named in the university records and the funds are accounted for.
Important Bank Account Information
In very specialized circumstances, a revolving fund may require its own university checking account. Per IU policy VI-52, all university bank accounts may only be set up by Treasury Operations. Contact the Custodial Fund Coordinator for more information.
Custodial funds with university bank accounts require daily monitoring by the department and detailed attention to the monthly bank account reconciliations.