“Show me the money!” The immortal words of Rod Tidwell and Jerry Maguire (played by Cuba Gooding, Jr. and Tom Cruise in Jerry Maguire) are not just a pop-culture catchphrase. They are a motto your business should live by. In an increasingly electronic world, it’s easy to focus on electronic transactions while losing sight of cold, hard cash. Whether you have a small petty cash fund to take care of day-to-day needs or a large petty cash fund to provide advances or check cashing services for employees, is important to evaluate and test your controls over cash on a regular basis.
Petty Cash Management
Best practices for petty cash management include:
- When determining materiality, look at the total activity going through petty cash in a given period, not just the balance at month- or year-end. An account with a $10,000 balance at month-end may have $45,000 of activity throughout the month.
- Petty cash is not a free-for-all. Know where, to whom, and for what your petty cash is being used. Ensure that standardized, adequate, and consistent documentation is retained with proper authorization from an individual independent of the disbursement process. Documentation should include:
- Name of individual receiving the disbursement;
- Date and time of disbursement;
- Purpose of disbursement;
- Amount of disbursement;
- General ledger expense account for the disbursement;
- Signature of individual receiving the disbursement;
- Receipt documenting the expense related to the disbursement (if reimbursement rather than advance); and
- Signature of independent individual approving the disbursement.
- Ensure that each disbursement and receipt from/to petty cash is booked to the proper account at the time it is disbursed/received. If entries must be booked in batches, ensure that there is adequate support to retrace the transaction if needed.
- Count petty cash and reconcile to the general ledger on at least a monthly basis.
- Review separation of duties. The employee with physical custody of the petty cash should not be recording related activity in the general ledger. The employee with the power to approve and record fund disbursement should not physically disburse the cash.
- Perform surprise cash counts on a periodic basis and investigate any variance between expected and actual cash.
Petty cash management is just one aspect of cash management that should be evaluated on a period basis. It all boils down to: “Show me the money!” Trust your employees, but verify that controls and systems in place are functioning properly. Take a few minutes every quarter to count petty cash and review procedures – an ounce of prevention is worth a pound of cure.
Schneider Downs has significant experience in evaluating internal controls and fraud risks. For more information about Schneider Downs’ business advisory services, please contact Joel Rosenthal at 412-697-5387 or email@example.com.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.