Petty Cash Abuse CAN Happen In Your Business Former Oxford Director illegally makes Petty Cash her personal pocket book!  Over $2000 in Petty Cash funds were used to buy CD's, magazines, even pay personal parking tickets.  Diana Durr, former Executive Director of the Oxford Visitor and Convention Bureau, Butler County, OH, committed numerous incidents and types of money fraud and abuse between January 2008 and May 2012, when she finally resigned her post.  The recent release of audit results, determined by the State's auditor, revealed that the abuses totaled close to $10,000.[1] Think it can't happen in your business?  Think again.  It starts innocently enough and then continues to mount over time.  An employee uses their position with the company for personal gain by misusing the company's resources or assets - fraud![2] Examples:  1.  the administrator of a company's Petty Cash fund sees nothing wrong with borrowing $5.00 to buy lunch, and will pay it back tomorrow; 2.  Tomorrow comes and goes and the administrator needs $25 to put into his tolls debit pass.  He says he'll get the receipt and put it in the box but never does.  3.  Next he needs gas to be able to finish out the week getting back and forth to work and takes another $40.00 telling himself he'll pay all of the above back on Friday because it's payday.  All are examples of using his professional position to gain something personally through the use of company assets.  Regardless of whether the money is paid back, he is mis-using a company's asset. Control fraud by: 1) deciding exactly what can be processed through Petty Cash;  2) have proper supporting documents such as receipts dated and marked paid; 3) secure Petty Cash funds such as lock box and safe; 4) regular reconciliation;[3] 5) have one person as administrator and have a second person regularly perform a second reconciliation. Why You Need A Petty Cash System.   A properly funded and administered Petty Cash system is essential for many businesses.  Such a system saves money by not having to pay for everything with checks or having to chase down receipts to match up with a debit or credit statement.  It also provides a way to control the slow leak of cash out of a business' budget and cash flow due to the ease of using a debit or credit card.  Also, when you have to manage actual "CASH", you FEEL the money.  You get a chance to really THINK about whether certain purchases are necessary before they are actually made.  Such a system will also save money on gasoline and time running to the bank every time all you need is change for your cash register. Getting Your Petty Cash System Started.
Buy a lock box, safe or both in which to place and keep your Petty Cash (PC) funds. Decide for what purpose(s) your PC will be used.  The main purpose of a PC is to pay for items whose dollar amount is so small it would not be worth writing a check.  It is also used for items that are both low in cost and purchased often.  Examples might be gasoline, stamps, small office supplies, make change for your main front office cash register. Decide on the total amount to be kept on hand. Decide what denominations of dollars and rolled coins you need or want in order to make proper change. Buy a PC voucher book similar to the one at the right.  These can come spiral bound and with original and a duplicate copy.
  The PC voucher book is to be used when money is removed from PC to make purchases in advance of a receipt.  More on how to use PC voucher book later in this article.  Write a check for the total amount you've decided to keep as PC funds. Cash the check and get the denominations you want or need. Put the funds in the lockbox and or in the safe.
Bookkeeping For Your PC System.
Your bookkeeping starts with the recording of the check written and cashed to provide funds for your PC system.  Record the check in your recordkkeeping or bookkeeping system. If you're just starting your bookkeeping, first setup a general ledger account for your physical bank checking account called "Bank Name - Last 4 digits of bank account number". Next, set up an asset bank account called "Petty Cash". Debit "Petty Cash" account. Credit "Bank Name" account.  Administering The Funds From Your PC System. Cash may either be paid out of your PC system in advance to make a purchase, or your PC system can serve as a method of providing a reimbursement for out-of-pocket purchases, or both. NOTE:  At all times the amount of the cash, the coins and the receipts or outstanding vouchers must add up to the original amount with which the PC system started.
 Out-of-pocket purchases.  You or your employee need to make a purchase.  Your PC system is approved to reimburse out-of pocket purchases.  Establish and communicate a policy whereby reimbursement will ONLY be made if approval has been obtained for the purchase PRIOR to the out-of-pocket purchase being made.  And out-o-pocket purchase made without this approval will NOT be reimbursed.  This is a control mechanism.  No matter how important an employee think a purchase is, you cannot sacrifice the business' budgets and cash flow at the expense of every well intentioned employee.  If you do not establish this policy, communicate this policy and consistently apply this policy, your Petty Cash could very quickly go out of control. Once approved, an out-of pocket purchase is made.  The employee returns with both the receipt AND the purchase.  The purchase is inspected to be certain it is the item for which the approval was given.  It must be determined it the item was purchased within what was estimated to spent for the item.  And that no other items besides the approved purchase were made. Once the purchase is confirmed, the receipt is handed in to the PC administrator. The administrator places the receipt in the PC lockbox and/or safe and provided reimbursement in the exact amount of the receipt.
Balancing or Reconciling Your PC System. Depending on how frequently you are in and out of your PC, decide how often you want to balance. Daily?  Weekly?  Monthly? Usually, no less than monthly. Reconciling and replenishing your PC can be done at the same time or at different times.  Decide how often you want to replenish PC.  Don't let yourself get low.  Always keep enough on hand to take care of business for the next day or week, depending on when you normally go to the bank.  For instance, if you make daily deposits of daily sales receipts, then replenish the PC at the same time.  If you do your depositing weekly, then replenish PC weekly.  We'll talk about how to replenish PC in a moment. Design a sheet to track dates, cash amounts, coin amounts, receipt amounts, total, over/under notation, and the initials of the person doing the balancing.  If you own your business and it is small, then you may be the only one to do the balancing.  If you manage the business, you may wish to designate someone else to administer and manage PC.  Then you should also set up a system whereby they balance it one day.  You balance it the next.  This is a set of bookkeepers Cheltenham controls for the protection of yourself, your business and the employee who is managing your PC. Count the amount of currency remaining in the PC lock box and/or safe. Count the amount of rolled change remaining. Count the amount of loose change remaining. Count the totals of all receipts and/or outstanding vouchers. Add all the counts together.  The amount of the cash, the coins and receipts and outstanding vouchers must add up to the original amount with which the PC system started.  NOTE:  Establish a policy whereby the Petty Cash administrator is held personally responsible if Petty Cash does not balance.  If they are indeed the only person, other than yourself, in and out of Petty Cash, then any mistakes are truly those committed by that administrator.  This will make them more attentive to details in counting and reimbursing in exact amounts.  There is sometimes a tendency for administrators to "round" because they do not want to deal with the details of a penny here or there.  That is not only a poor practice, but also an illegal practice which basically could look like either the business is stealing from it's employees (by shorting reimbursements) or vice versa.  If, when Petty Cash is balanced, the total is LESS than the amount known to be kept on a regular basis in Petty Cash, then investigate as to why this may have happened and recover the money as appropriate.  If the missing amount cannot be properly traced and reconverd, normally the administrator pulls the difference out of their own pocket and reimburses Petty Cash back up to its original amount.  This is, of course, because it was that person's responsibility to properly administer Petty Cash including correctly adding and subtracting.  If the administrator was not held responsible, theft and fraud could occur.  If, when Petty Cash is balanced, the total is MORE than the amount known to be kept on a regular basis in Petty Cash, then investigate as to why this may have happened, and dispense the money as appropriate to bring the Petty Cash back to its original balance. Â
Replenish Petty Cash. Set a deadline date by which all PC vouchers must be matched with purchase receipts and when reimbursements of all out-of-pocket purchases have been completed. Remove all receipts.  Total the receipts. Make out a check in the amount of the receipts.  Cash the check.  Put the check in the PC lock box.  And you are ready for the next week or the next month, however you have decided to replenish your PC system. Record The Receipts In Your Recordkeeping or Bookkeeping.  Again, if you are just starting out, set up an expense account for each type of expense your receipts represent. For example, you may have a receipt for your lock box, a receipt for fuel, a receipt for tolls, and a receipt for copy paper. You can add the lock box and copy paper receipt together and setup an expense account for "Office Supplies". Debit "Office Supplies" expense. This is where your money went. Set up an expense account for "fuel". Set up an expense account for "tolls".  OR, you can set up one for ALL vehicles expenses. If you wanted, you could also set up separate sub-accounts under vehicle expenses. One for fuel and one for tolls, etc.  Depending on the information you want to capture. Debit the appropriate expense account for ONLY the total of the receipts that represent each separate expense account.  Credit your "Bank Name" account for the total amount of ALL receipts. This is where the money came from.   Your debits now equal your credits in your bookkeeping system. Once again, set up and properly manage a Petty Cash system.  Soon you'll start realizing its convenience, the controls it provides on your budget and cash flow, and one more way to  SAVE money in your small business.  And proper controls over your Petty Cash will stop fraud
and abuse in your business. http://www.infobarrel.com/How_To_Setup_Use_And_Bookkeep_Your_Petty_Cash