2.2: Petty Cash Internal Controls Checklist

The following questions reflect common internal accounting controls related to petty cash. You may wish to use this list to review your own internal accounting controls and determine which areas require further action.

Petty Cash control measures

Petty cash provides a particular challenge to the Accountant. By its nature it involves dealing with many small items from an array of suppliers of goods or services. As the amounts are paid in cash and do not pass through a bank account, the only proof of payment is in the form of a receipt confirmed by a petty cash voucher. There are two major issues here:

1. Maintaining proper records so that the SARS can be satisfied that amounts claimed as expenses and reclaimable VAT are correct; and

2. To ensure that proper control is kept over the cash in the petty cash box.

These issues require a systematic and disciplined approach which includes making sure there is a voucher for each item of expenditure. Each voucher should contain a brief description of the item of expenditure, be signed by the person making the purchase and have a receipt attached whenever possible. A VAT receipt, including the VAT number of the supplier and other relevant details, is essential if VAT is to be reclaimed on the expenditure.

A further control measure depending on the size of the business and the level and type of expenditure likely to be made by petty cash, is to require expense claims and vouchers to be countersigned by a responsible manager. Control of petty cash is supported by the use of the imprest system. The principle is that the petty cash box carries a float – a predetermined fixed amount, known as the imprest. For example this may be R150. At any particular time the petty cash box will contain cash and vouchers (with receipts attached) that together should always total R150.

The vouchers detailing the payments are entered into the petty cash book on a daily basis and at the end of the period – a week or month – the expenditure is totalled, and balance is reconciled and the float or imprest is restored to its predetermined level. To restore the imprest a cheque is usually drawn for the cash and this amount is entered into the Cash Book.

The system has two main advantages

Firstly the petty cash can be checked at any time: any shortfall is immediately obvious by adding cash and vouchers.

Secondly, discipline is brought to the system so that expenditure has to be recorded (and reconciled to the balance) whenever a ‗top-up‘ is required. Maintenance of proper accounting records has become more critical now that the more responsibility for tax is placed on the business itself. SARS insists that adequate records must be kept.