Question

Should you implement some controls on petty cash? Why?

If so, what controls could be used for petty cash?

Would you use petty cash in your business? Why?

Answer 1

Implementing controls on petty cash

Petty cash is intended for small payments, but in many businesses, petty cash becomes the primary fund for making cash payments.Many businesses have weak controls over petty cash. They assume that because it’s a small amount of money, they do not need to pay attention to controls over how it is spent.Businesses have lost significant amounts of money over time because of a lack of control over petty cash spending. Weak controls over cash in an environment where employees are often hard pressed for cash creates a tempting opportunity for embezzlement and fraud. Having strong controls over petty cash is the surest way to deter potential criminals from embezzling petty cash.

Simple steps for controls over petty cash are as follows-

1. Decide on a float and when to replenish

2. Segregation of roles of personnel

3. Define the expense limit and approval matrix

4. Use petty cash vouchers for all petty cash transactions

5. Demand receipts to back up the expenses claimed

6. Review and approval of petty cash reimbursement request

7. Periodic cash counts

Use of petty cash in business

To reimburse employees for items they have bought for your business

To pay for small purchases which require cash, such as food for the office lunch or coffee supplies, or for parking.

To meet day to day small expenses not requiring special approval