Question

Petty Cash is easily misappropriated if business processes and internal controls are not established and enforced. Provide and explain a minimum of four controls and/or concepts that will help a company ensure that its petty cash accounts are appropriately used and safeguarded?

Answer 1

Petty as the word says, something which is of little importance. Petty cash is the storage of money used for day-to-day small expenses of the organisation wherein the movement of cash is regular and frequent.

As the movement of cash is regular and frequent, there are always high possibilities of cash being misappropriated.

There must be proper internal controls to keep a track on the cash movement.

Weak controls always creates a opportunity for fraud. Having proper and proper controls is the only way to safeguard petty cash.

Controls that will help a company to ensure that its petty cash accounts are appropriately used and safeguarded  

> Petty cash vouchers : If in an organisation, anyone wants to use petty cash or any bill payment is to be made, there should be a system wherein every petty cash to be used should be requested and recorded on a petty cash voucher and always be approved by and authorised person of an organisation before disbursement of cash.

> Periodic cash counts : Here, the most important point is cash should be counted by someone who is independent of the cash custodian. Verify the cash balance with the petty cash balance in the accounting software of the organisation. Also ensure that petty cash vouchers are available for the output of petty cash. The frequency of cash count should be quick.

> Ask for receipts for the expenses incurred : In an organisation, where employees claim cash for travel ticket, lunch, stay expenses, there should be a system where receipts should be verified.

> Set the spend limit per voucher : The organisation should set the amount limit, exceeding which the amount cannot be approved for petty cash. This will help in avoiding huge payments which can be made through bank and also prevent misuse of cash.

> Cash in a locked box : It is very important to note where the cash is kept and who is having the control over it. The box/locker wherever the cash is kept should always be locked and keys should be with the responsible person who is also under surveillance.