Question

Petty Cash is easily misappropriated if business processes and internal controls are not established and enforced. Provide and explain a minimum of four controls and/or concepts that will help a company ensure that its petty cash accounts are appropriately used and safeguarded?

Answer 1

PETTY CASH

Petty cash is the small amount of cash kept in business for day to day functions/ for giving change to customers or patients in business. It is also known as cash in hand. It is sometimes used for the small purchases where, cash is needed. Petty cash is the small amount of cash kept by the business for it's payment of minor expenditure and minor purchases during day to day operations . For the recording of such cash items, company usually prepares an recording/book called petty cash book.

- WHAT ARE THE DISADVANTAGES / MISAPPROPRIATIONS OF PETTY CASH

• Since there is no proper records for recording such cash items, there is a high chance for the occurance of accounting errors. If it is in the case of big companies/companies in larger size , such recording will not be made possible, therefore petty cash will be threat to the company.
• Sometimes employees may use such petty cash for their personnel purposes.Such transactions aren't be recorded in any of the books of accounts of company and will be treated as theft of petty cash. And sometimes the amount that is kept for the purposes of business will not meet it's need, since the cash was used by the employee for his personnel purposes.   
• Petty cash leads to overspending on purchases. It also initiates the custodian of over petty cash amount and there by the theft of such amount.
• Yet another major concern on petty cash is theft of amount. Since there is no proper control over the cash and cash dealings , there is a high chance for the theft of cash , even by the custodian of such cash.

- WHAT ARE THE MEASURES / CONTROLS FOR PROPER UTILIZATION OF PETTY CASH

• Seperation of authorities : Company can make a differentiation in the authorities through the seggregation of duties on petty cash. It means that , company have to make sure, the person who approves petty cash is not the custodian of petty cash.   
• Proper security for custody : The petty cash have to be kept in a well secured place. Either it can be kept in a box with lock or could be at the locker of table where the custodian is siting. And also the cashier must be responsible for making supporting invoices for the payments through petty cash.
• Define the expense limit : Company can define the maximum expense limit of petty cash usage. It means a certain amount can be limited to the usage of it's operations through petty cash, and also can authorise a person for it's proper usage.   
• Decide on the float of petty cash : It is ome of the main measure, that the organization have to decide how much amount have to be kept as petty cash. Such assessment helps to reduce misappropriation and overusage of money.   
• Use of petty cash vouchers : Yet another step can be the use of petty cash vouchers for every single petty cash transactions in the business. A system have to create for the petty cash disbursement.