The Pitfalls of Petty Cash

By the Auditor of State’s Office

Thursday, April 7, 2016

Petty cash funds can offer local governments an easy method of payment when the need arises to make small, occasional purchases.

Paying with petty cash for low-cost items like postage stamps or office supplies usually requires less time and effort than the government’s normal purchasing process. Without adequate monitoring and internal controls, however, petty cash can increase an entity’s risk of misuse, theft or fraud.

Unfortunately, the Auditor of State’s office sees the consequences of poor petty cash oversight far too often. In an audit released on April 12, auditors noted $312 that had no supporting documentation to support expenses made from a village’s petty cash account. The finding resulted in a finding for recovery against village officials.

In another audit, released in 2013, auditors discovered that the former Executive Director of the Oxford Visitors and Convention Bureau in Butler County spent $322 of the bureau’s petty cash on personal expenses including parking tickets, alcohol and a CD. The expenditures were not considered to be for a proper public purpose, and the misused funds were included in a larger finding for recovery against the individual.

Local governments using petty cash funds can avoid similar scenarios by crafting policies that incorporate risk assessment and fraud prevention techniques. An effective policy should establish a maximum amount for the fund that is low enough that it does not tempt sticky fingers, while remaining high enough that it does not require frequent replenishing.

The policy should specify which employees are authorized to use the fund and include a statement indicating that they are responsible for any unauthorized expenses. Additionally, the policy should segregate duties between those authorized to use petty cash and a designated employee, such as a fiscal officer, who writes the checks to replenish the fund.

A common audit finding related to petty cash is a lack of documentation. To ensure the fund’s paper trail does not run cold, all authorized employees should provide detailed vendor receipts for every transaction. 

The fiscal officer or other fiscal personnel should maintain a petty cash log documenting all purchases and deposits made to replenish the fund. The designated employees and management should periodically review the receipts to ensure that purchases are for a proper public purpose. They also should regularly compare the fund balance with the receipts supporting the checks issued to replenish the fund. Any shortages identified could be an indication of fraud.

While there are always risks involved with petty cash, these guidelines can help local governments that use the funds to fortify common risk areas and deter those looking for quick cash.

If misuse, theft or fraud is ever suspected at your entity, contact the Auditor of State’s Public Integrity Assurance Team at 1-866-Fraud-OH or email your tip to fraudohio@ohioauditor.gov.

This article was first published in the Ohio Township Magazine.