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October 2015 Tip of the Month


Although petty cash is fairly easy to control, many companies are lax in this area.  In turn, they are continuously losing money to dishonest employees who have access to cash.  To have a sound system of internal control, the following practices should be in place:

  • Only specifically authorized personnel should be allowed to utilize authorized petty cash slips for specified expenses and purchases.
  • Each petty cash slip should be signed by the recipient and approved by the recipient's supervisor.
  • Original receipts for purchases should be attached to each petty cash slip.
  • Petty cash should be kept in a locked container or drawer and access should be restricted to the custodian.
  • Petty cash slips should never be received and approved by the same person.
  • The custodian must not be the same person who signs the petty cash reimbursement checks.
  • Petty cash replenishment checks should never exceed the established petty cash balance.
  • Travel and entertainment related expenses should not be paid through petty cash.
  • Purchase transactions that should go through the normal accounts payable payment process should never be put through petty cash.
  • An imprest petty cash system should be in place so that the balance of cash on hand and petty cash vouchers must add to a specified predesignated amount.

We've had clients purchase or we've assisted in developing a simple but effective "Petty Cash Reimbursement Form". The forms are useful in that they allow for the reimbursement through a firm's checking accounts for all out-of-pocket expenditures of rank and file employees as well as management/owners.  This served to provide adequate substantiation for IRS purposes, promoted sound internal control procedures and ensured legitimate deductions did not "slip through the cracks".  You may want to adapt something of this nature to your Company's specific needs.

Not concerned that your controls may be inadequate to prevent petty cash theft?  Maybe it's time to talk to the accountants here at Abo and Company.