ORIGINATING AGENCY: OFFICE OF MANAGEMENT AND BUDGET

NO.: 05-06-OMB

EFFECTIVE DATE: 8-16-04

EXPIRATION DATE: INDEFINITE

SUPERSEDES: 96-10-OMB

SUBJECT: GUIDELINES FOR THE ESTABLISHMENT AND OPERATION OF SPECIAL AND CONFIDENTIAL FUNDS

ATTENTION: DIRECTORS OF ADMINISTRATION AND CHIEF FISCAL OFFICERS

FOR INFORMATION CONTACT: LESLIE A. NOTOR

PHONE: (609) 292-5040

I. PURPOSE

This Circular Letter revises and clarifies certain aspects of the operation of special and confidential funds. Special and confidential funds are not to be confused with petty cash funds.

II. SPECIAL FUND

A special fund is a checking account not maintained on the State system, which is funded from an appropriation account, authorized by the Office of Management and Budget (OMB), and used by a State department or agency for the expenditure of funds from a specific program. A special fund will be authorized only when the use of a payment voucher, a petty cash fund or an off-line system is not appropriate.

III. CONFIDENTIAL FUND

A confidential fund is a special fund, as defined above, used for the expenditure of funds from a program that is confidential in nature, e.g., funds to support undercover investigations.

IV. ESTABLISHMENT OF THE SPECIAL OR CONFIDENTIAL FUND

A request to establish a special or confidential fund is made by an agency's Assistant Commissioner or Director of Finance or Administration, using the request form attached. Indicate that the request is for a new fund by placing a check on the appropriate line at the top of the form. The agency must detail the nature of activity and provide justification for the fund and fund amount. Indicate specifically why the use of a payment voucher, petty cash fund or off-line system is not appropriate. The form must be properly completed, signed, and dated.

If authorized, the fund will be assigned a payee identification number and OMB will prepare a check to establish the fund. The check along with a copy of the approved request form will be sent to the agency. It is the requesting agency's responsibility to request the opening of a bank account by OMB's Cash Management Unit, in accordance with Treasury Circular Letter 00-12-OMB, Banking Services. A copy of the approved special and confidential fund request form must accompany this request.

V. OPERATION OF THE SPECIAL OR CONFIDENTIAL FUND

1. The special payee identification number must be referenced on every payment voucher submitted for reimbursement of the fund.
   
2. Special or confidential funds should be reimbursed as frequently as possible.
   
3. Internal controls must be established to ensure that expenses are incurred in conformance with the authorized purpose of the fund. Documentation of these internal controls must be maintained by the agency.
   
4. The following certification language should be inserted on every payment voucher processed for fund reimbursement:

   "Reimbursement is requested for expenses incurred by ____________ Special/Confidential Fund for the period _____ to ____. These expenses were incurred in conformance with the authorized purpose of the fund. Adequate internal controls have been established for the fund, documentation of which is maintained by the agency and is available for audit by the Office of Management and Budget."

5. A special or confidential fund is subject to audit by OMB.

VI. ANNUAL REAUTHORIZATION

Special and confidential funds must be reauthorized annually. OMB will send reauthorization packages to the agencies in April for the following fiscal year. The reauthorization package must be submitted to OMB no later than June 30. If the documents are not received in a timely manner, future reimbursements may be delayed. The following items are to be submitted with the reauthorization package:

1. A fund reconciliation for each special and confidential fund, certified by both the preparer and the agency's approval officer. This fund reconciliation must reconcile the most recent bank statement and cash on hand, as applicable, to the authorized amount of the fund. A blank reconciliation form is provided in the reauthorization package.
   
2. A copy of the bank statement used in the above reconciliation. 
   
3. A request for reauthorization for the new fiscal year, using the form attached. All information required on the form must be completed. At this time, the amount of the fund should remain the same. A request for an increase or decrease to the fund amount should be submitted separately by memorandum to the Manager of Accounting Bureau, OMB, by the agency's Assistant Commissioner or Director of Finance or Administration.

It is the responsibility of the administering agency to ensure that periodic audits of each special and confidential fund are performed. Audit reports are required in accordance with the following schedule:

ANNUAL DISBURSEMENTS	AUDIT FREQUENCY
$500,000 or more	every two years
$100,000 to less than $500,000	every three years
Less than $100,000	every four years

To determine the next period to be audited, the fund disbursements during the last period audited should be measured. For example, if the fund was audited for the year ended June 30, 2002, and disbursements for that year were $90,000, the next period to be audited would be the year ended June 30, 2006. If disbursements in 2002 were $110,000, the next period to be audited would be the year ended June 30, 2005.

OMB may require more frequent audits than indicated by the above schedule. Additionally, an agency may request of OMB that the fund be audited less frequently than indicated. OMB will determine if the agency request contains sufficient justification for approval.

The audit report is to be submitted to OMB no later than 180 days after the audit period. The audit report will identify the auditing standards used in performing the audit and give positive assurances that the fund was operated in compliance with this Circular Letter and expenditures were made in accordance with the authorized purpose of the fund or, if applicable, report the instances of non-compliance.

VIII. CLOSE-OUT OF FUND

After final reimbursement is made to the special and confidential fund to return it to the authorized amount, the following items must be submitted to OMB:

1. A copy of the check drawn against the special and confidential bank account for the amount of the fund.
   
2. A copy of the cash receipt document to reimburse the State account.
   
3. A final fund reconciliation and audit. The agency should close the bank account in accordance with Treasury Circular Letter 00-12-OMB.

_________________________
Charlene M. Holzbaur
Director 

SPECIAL AND CONFIDENTIAL FUND REQUEST/REAUTHORIZATION FORM