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Internal Control Management: Why You Need Controls For Your Petty Cash System

June 03, 2024

While cash transactions are few and far between in many businesses today, it is still a good rule of thumb to keep cash on hand for small, miscellaneous expenses. Make sure you have a petty cash management system in place. Here’s what you should know.

Does your organization have the right internal controls in place to safeguard assets? Check out our blog, 5 Internal Controls for Handling Cash in Your Organization. One area you will want to monitor is petty cash. Here are some key considerations.

What is petty cash used for?

Common uses of petty cash include:

  • Small repairs
  • Emergency situations
  • Employee reimbursements
  • Postage/delivery fees
  • Office supplies
  • Miscellaneous expenses

What are the benefits of having a petty cash fund?

  • Quick & Convenient- avoids the inconvenience of writing a check
  • Employees don’t have to wait for reimbursement
  • Less oversight required
  • Control and Accountability: It helps in maintaining control over small cash expenses within an organization. Without a system in place, it's easy for petty cash to be misused or lost.
  • Tracking Expenses: It allows for the tracking of small expenditures that may not be suitable for the regular accounting system. This tracking is essential for budgeting and financial reporting purposes.

How can you effectively manage petty cash?

Establish a Petty Cash Fund: Determine the amount of petty cash needed based on the frequency and volume of small cash expenses. This fund should be kept in a secure location, such as a locked box or drawer, to prevent unauthorized access.

Appoint a responsible employee to oversee the petty cash fund. As petty cash custodian, this person is responsible for issuing cash, recording transactions, and reconciling the fund.

Develop clear guidelines outlining how petty cash should be used, who can access it, and the documentation required for expenditures. Communicate these policies to all employees to ensure consistency and compliance. Provide training to employees on how to use petty cash responsibly and in accordance with established policies. Encourage accountability and emphasize the importance of accurate record-keeping.

Develop reimbursement procedures: Generally it’s a good idea to have employees submit expense receipts to the petty cash custodian, who then reimburses them from the petty cash fund.

Keep detailed records of all petty cash transactions: Include the date, amount, purpose, and recipient of each expenditure. Use pre-numbered petty cash vouchers or logs to track transactions systematically.

Require employees to provide receipts for all petty cash expenditures. This helps verify the legitimacy of expenses and serves as documentation for accounting and auditing purposes.

Reconcile the petty cash fund regularly: This ensures that the balance matches the recorded transactions. Compare the total of cash on hand with the sum of receipts and remaining funds to identify any discrepancies.

Conduct periodic audits of the petty cash fund to verify its accuracy and compliance with policies. Audits help detect errors, discrepancies, or potential misuse of funds.

June Landry CTA

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