Petty cash

Petty cash systems demand a level of care that is disproportionate to their actual financial importance. This is because of the element of "moral hazard": amounts of hard cash kept on the organisation's premises represent a level of temptation to theft and fraud not shared by most other aspects of the operating systems.

Commercial businesses can take a hard-headed cost-benefit approach.  If it costs them more to stop theft than to contain it at an "acceptable" level, then that it what they will do. Charities, however, have to have a more stringent approach.  This arises from their stewardship position - other people or organisations have entrusted them with money to use for specific purposes directed at public good.  Therefore, a profit-maximisation approach is not the only or even the most important of the organisation's objectives.

Effective petty cash system

The elements of a good petty cash system are these:

Policy on size of petty cash float

The amount of petty cash float should be decided by a responsible official in accordance with the organisation's procedures.  To establish the appropriate amount, the following need to be considered:

• Average amount required per week or month over the last year
• Maximum amount required
• Difficulty of replenishing the cash - how far is it to the nearest bank?

It should be as low as practicable.

Accounts with regular suppliers and service providers

Possibility of minimising requirement by having, for example, an account with a local taxi firm and/or couriers, purchase of tea and coffee etc through stationery and office suppliers rather than on an "as and when" purchase at the local shop.

Separate system for wages

Wages should not be paid through the petty cash system, both for security and Inland Revenue compliance.

Use of imprest system

Organisations should run an imprest system which is where a fixed amount is drawn from the bank and paid into petty cash. After that, cash should only be issued against a Petty Cash Voucher.  This means that, at any point, there should either be cash, or cash plus vouchers, to the total of the petty cash float. At the end of the week (or month) the vouchers are removed and the cash made up to the original amount.

Trained staff

Staff should know who may countersign vouchers and up to what amount.

Spot checks

There should be occasional surprise counts of petty cash.  If there are several petty cash locations, then all should be checked simultaneously to avoid cash being switched around the building and counted twice.

Receipts where possible

Receipts should be attached to the vouchers wherever possible.  However, it should be recognised that in certain cases (parking meters are an example) this may not be possible.  An explanation should be provided instead.

Expenses

Expenses of regular staff should normally be paid through the wages system.  However, it is not reasonable to expect a volunteer to incur expenses and then have to wait perhaps over a month for repayment.  It may appear a trivial amount objectively, but it could be significant to the individual concerned.

Whatever the system for reclaiming expenses is, it should be clearly laid down in a financial procedures manual.  All staff and volunteers should be aware of what the procedure is.  It should be explained and adhered to.  Scrupulous records must also be kept in case of queries by the Inland Revenue.