Very probably you have a cash box in your office somewhere, with a small amount of money in it. You probably use this sporadically. For instance, when someone needs to run to the shop quickly to buy something very minor. In most organizations, petty cash is not something big in terms of financial transactions, and they do not use cash very regularly. That makes it all the easier to handle properly, of course. On the other hand, it also makes it seem so insignificant that managing cash very often does not receive the attention it deserves. This while cash desperately needs some loving attention. It is after all one of the weak spots in terms of checks and balances, and thus very sensitive to fraud and irregularities. Or to the mere suspicion of things not being in order. That is why I want to give you some pointers how to handle petty cash properly.

Lock and Key

First of all, you want to make sure that not everyone can take money or papers out of your cash box. Probably your box has a lock and key. One person should be responsible for handling the key. Make sure that not everyone knows where the key is. If possible, keep the cash box in a lockable cabinet, whose key is with the cash box key keeper.

Procedure

Secondly, you need to design and write down a procedure for how cash is being used in your organization. When can a cash payment be made? Under what conditions? Who by? How? This should of course not become a 30-page manual. But people do need to know about it, and writing it down helps in bringing clarity.

When you design a procedure, think about how you can create as much certainty as possible about what happened. Who paid in cash? To whom? What was paid for? What was that used for or where is it or who has it now? Who approved the cash payment? When did all this happen? The easiest way to keep track of this is by using a standard form, that is dated and signed off by the people concerned and then checked by someone else. In addition to keeping the documentation around the purchase, obviously.

Register

Aside from the procedure above, involving the actors in the cash disbursement, you need to put in place a procedure for the back end. What will the person responsible for cash management do, when and how? Who will check this? Most organizations have a cash register in place. Here, the person responsible for the cash box records all transactions. That includes recording when cash is put into the box (by whom, when, why, etc.) as well as what was paid out of the cash box, including making sure that all the paperwork is there (see also my blog on what is an expense to avoid common mistakes). The register usually includes a calculation of the cash balance.

Count!

You must regularly check that the steps in place to keep track of what happens in the cash box are followed consistently. You can do this through regular cash counts. Cash counts are mostly done on the last day of the month or the first day of the next month. The person responsible for the cash box and their manager, independent of each other, are usually the ones to do a cash count on the same day. They then both date and sign one cash count form.

????

If the cash count does not match the cash balance as per the register, you must see if you can find out what happened. Maybe you did not record an expense. Sometimes the receipt can be in the cash box, as someone thought they would register it properly later. The same can be true of cash received. Or you could have made an error in recording the amounts (you may see how easy it is to write 67 instead of 76 or vice versa…). Or you could have made an error in the calculation of the cash balance. If you do a monthly check, and do not use cash much, it should not be hard to figure out where the mistake is and to set it right again.

Don’t forget

Despite the procedures and forms you have in place, and the monthly cash counts, cash remains a tricky part of your financial transactions. So you should make sure you have procedures in place and perform checks on them regularly. For instance, you can do an impromptu cash count, mid-month. Or you can make a cash request that goes against the rules as written down and see what happens. Will the responsible person refuse you?

In addition, make sure cash is used only as and when absolutely necessary. That it is easier for others to receive cash does not make that absolutely necessary.

Be sure that you have every right to stand up for having neat and proper procedures and principles around finance management in your organization. You are not speaking for your own interests, but for the greater interest of maintaining the credibility of your organization. That is important enough to sometimes put up a petty fight over how to handle petty cash properly, I am sure.