When you think about the overall picture of company spending, petty cash may not seem very important – it is “petty,” after all – but it still deserves attention. Typically, this is a small amount of cash that is used to pay for office supplies, coffee runs, and other small daily purchases too minor to demand an expense report. A process generally overseen by an office manager or assistant, usually just a receipt or even a notation is enough to justify such a small expense.
There are two ways that petty cash can be dispersed. Sometimes employees make purchases and are then reimbursed from petty cash afterwards. Other times, employees take petty cash in advance and later add a receipt documenting the expense.
What’s wrong with Petty Cash?
It’s up to senior management to decide if the company should keep cash on hand for small purchases. However, there are risks associated with petty cash, including the possibility for theft of funds. Employees could embezzle the funds for personal expenses or “borrow” cash by removing some at the beginning of replenishment and returning it at the time of reconciliation. In a process where adjustment of disbursed funds takes place at a later date (e.g., the end of a month), there is a risk that human error may go undetected on the date of adjustment.
P-Cards and Better Cash Management Solutions
Many companies have switched to purchasing cards, otherwise known as a P-Card, which is a type of company charge card that allows goods and services to be purchased without using a credit card. These cards are often issued to employees who are responsible for making purchases or payments on behalf of their company.
Suppliers usually accept P-Cards for payment, and all the transaction data is captured by their point-of-sale (POS) system, and then transmitted through the card network.
Specific procedures for petty cash disbursement vary, but if your P-Card program is set up and monitored properly, it is one of the least risky payment methods that an organization can use. Organizations should review their P-Card program on a regular basis, examining goals, controls and risks.
Company P-Card programs can be set up to enforce managerial controls and spending limits. When a company has a spend management system in place like ExpenseWatch, it can help mitigate the risk of employee misuse of petty cash or P-Cards.
ExpenseWatch helps establish company spend policies and accountability for spending, which automates things like receipt documentation and transaction approvals. P-Cards policies can be established and continually monitored so that steps can be taken to strengthen the control of the environment as a company grows.
Luckily, the days of keeping a metal petty-cash box for company expenses are nearing an end. For more information, fill in the form on the right and one of our specialists will reach out to your shortly.
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