Petty cash floats are not as prevalent because of alternatives, including purchasing cards (P-cards), automated teller machines (ATMs), debit cards, credit cards, Apple Pay and other electronic means of payment, and expense claims. Nonetheless, a significant number of organizations still maintain petty cash floats in, for instance, schools, daycares, not-for-profits (including many that work in the community or have a large client or volunteer base), small businesses, hotels, and businesses in remote locations.
Here are seven essential controls for organizations that still maintain petty cash floats:
- Consider alternatives to petty cash. Also consider ways to limit the volume of transactions processed through petty cash.
- Set a predetermined limit for each float and increase it only if a business case justifies it. Closeout or reduce under-used floats.
- Secure the float by keeping it out of sight and in a locked box, safe, filing cabinet, or drawer. Only the custodian should have access to the float, and ideally, each float should have only one custodian. If multiple custodians are necessary, implement additional controls over handing off and maintaining accountability for the funds.
- Use an imprest or revolving system to maintain the predetermined float balance. Under the imprest system, the float is a predefined amount that is replenished periodically as funds are used. Replenishment is only for the amount used and merely takes the value of the float to the predefined level and no more. Mathematically, a petty cash float is:
F = C + V + R
F is the float
C is the remaining cash in the float
V is the value of vouchers for cash disbursed and for which the custodian is awaiting receipts
R is the value of receipts returned to the custodian to support petty cash expenditures
The custodian must submit “R” to accounts payable to replenish the float.
The custodian must maintain appropriate supporting documents to satisfy the above imprest formulae. Any deviations from the formulae likely indicate misuse of funds or other control breakdowns.
- Set limits on the types of expenses that may be reimbursed from petty cash. For instance, prohibit the use of the float to cash personal cheques or pay payroll expenses. Also set dollar limits on the individual amounts that can be reimbursed from petty cash. Prohibit splitting a single expense into multiple reimbursements to circumvent the dollar limit. These controls help to ensure that employees do not bypass other controls over expenditure, for instance, those that limit employee loans or require the approval and proper processing of payroll and other expenses.
- Do not comingle petty cash funds with other cash or receipts, for instance, sales or cash register revenues. Keep petty cash funds completely separate. It is a control weakness and improper use of the petty cash float to include additional monies or receipts beyond the predetermined float limit. Comingling undermines controls over both petty cash and sales or other receipts.
- Include procedures to ensure the recording of petty cash expenditures in the proper general ledger accounts, such as value-added tax and specific expense categories (not miscellaneous or sundries).
Meeting your duty of care
Implement controls over petty cash floats to prevent fraud, abuse, and misuse. Phase out petty cash floats with better options, for example, purchasing cards, if those options are practicable. See FN 2.02 – Petty Cash, FN 2.03 – Company Credit Cards, FN 2.15 – Purchasing Cards and many other policies in the Finance and Accounting database in PolicyPro.
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