How to manage Petty Cash Reconciliations and Controls around Petty Cash

Let’s simplify petty reconciliation & cash control

Some South African businesses have weak controls over petty cash.  Business owners assume that petty cash is a small amount of money, therefore there is no need to pay attention to controls over how it is spent. What they don’t know is that over time, if controls are inadequate, they can lose a significant amount of money. 

What is petty cash?

According to Debitoor, Petty cash reconciliation can be defined as the process of verifying transactions that involve petty cash funds. 

Petty Cash reconciliation ensures that funds are being used appropriately, in addition, it’s an important internal control for fraud prevention.

It’s important that your business reconciles its petty account frequently. Reconciling your accounts—from your business’s bank cash to its payable accounts allows you to accurately track your financial situation.

Reconciliation process

The process begins with counting up the amount of cash on hand at the end of the month and using it as the ending balance for the petty cash account. Next, receipts are reviewed and verified as appropriate and complete.

Each receipt is logged as a withdrawal from the petty cash account. The ending balance should be equal to the beginning balance that was carried over from the previous period, plus any additional cash deposits — less the sum of all withdrawals.

When discrepancies occur, an investigation is conducted. This can involve examining who had access to funds, looking for missing receipts, and tracking down undocumented deposits. In cases where discrepancies are the result of fraud, additional internal controls are designed to prevent further occurrences.

What Should You Do

1. Assign responsibility – Have one or two people who will be responsible for taking care of petty cash, from collating and filing of receipts to logging them in the system. Having someone accountable for the total expenditure makes it easier to keep track of such a tricky task. You could have several people who are in charge but remember the more people involved the more complicated the process could be so try and keep the number of people responsible at a minimum.

2. Create guidelines – Make them suitable.      guidelines on how you’ll handle petty cash and make this a company policy so that all your employees are clear on what they need to do and how the process works afterward. To ensure consistency whilst maintaining your books and petty cash account, make sure your dedicated staff is trained on how to maintain the account to eliminate the risk of confusion.

Internal Controls

It is essential for companies to set up a good internal control system that keeps track of all cash inflows and outflows from the petty cash account. For instance, any employee who requires such cash should be required to write their name, the date, time, and the specific amount and description of the transaction. All these details are usually completed through a petty cash voucher/worksheet. These worksheets come in different forms but generally require similar information. 

It’s crucial to record all petty cash transactions accurately. Don’t allow errors to creep in and distort the reality of your company’s fiscal health. 

Find out how we can help you, and talk to one of our accountant’s email info@mgt-accounting.co.za