Proper Use of Petty Cash

Date: 05/01/2021

The purpose of petty cash is to provide funds for salespeople, maintenance workers, and other employees to obtain low cost items, services, emergencies, avoid costly paperwork, or administrative expenses. The petty cash system is frequently abused by charging items or services that can be obtained economically if they go through the purchasing operation.

Employees and workers also charge items to expense reports in order to go around the proper system. For example, an employee may obtain a certain brand because he prefers it over what the purchasing department would buy for him at a lower cost.

The excess cost incurred by these work arounds may not be realized by management unless an audit of charges and expenses are carefully reviewed and reported to purchasing personnel. Even when a supplier has a contract with the official buyer, the supplier may not honor the lower price the buyer negotiated when a different employee buys a product included on the agreement.

A purchasing or accounting clerk should notify the appropriate buyer or purchasing manager of unauthorized products purchased through the petty cash or expense report system. The dollar amounts, the type of product, and the offender should be recorded.

A form letter can be sent to all employees, including managers and executives, informing them of the proper procedure and explaining why the inappropriate one is detrimental to cost control. A separate letter should be sent to those who abuse the system informing them that they have broken the rules and that they should not continue to do so.

Management is sometimes inclined to look the other way when the rules have been broken by a favored employee, but this can become a costly mistake in the long run.