Risks Associated With Petty Cash Funds

by Steven Symes - Updated September 26, 2017

Petty cash funds are used within organizations to cover minor expenses such as small amounts of office supplies, postage, visitors’ parking expenses or taxi fares. Petty cash funds are often kept as cash in the workplace. Because of the liquid nature of a petty cash account, a different set of risks exists for petty cash funds versus other funds inside of an organization.

Personal Loans

An employee who has access to the petty cash fund may think it's acceptable to use the fund as a short-term personal loan resource, taking money from the fund to pay bills or cover other personal expenses until he gets paid. Such transactions aren't recorded and could lead to outright theft of the petty cash funds. At the very least, the funds aren't available for legitimate uses during the employee’s "loan" period.

Check Cashing

When a petty cash fund is housed in a bank account, an employee with access to the account may try to cash personal checks against the account. Banks may have policies in place that prevent the cashing of personal checks, but the risk that an employee will cash a check that has insufficient funds exists. When the bad check comes back, the funds are pulled from the petty cash fund, causing complications until the situation is rectified.

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Expenditure Record

Because a petty cash fund circumvents the usual expenditure reporting procedures within an organization, the risk for misappropriation of the petty cash funds is increased. Keeping the ledger or record of petty cash disbursements with the fund further increases the risk of misappropriation. The record of petty cash disbursements shouldn't be kept with the petty cash, and it shouldn't be maintained by anyone with access to the petty cash fund. Having another party record expenditures helps prevent abuse of the fund.

Unauthorized Access

Petty cash funds are liquid assets, so access to this money should be limited to one person to avoid multiple custodians who can blame each other for missing funds. The single keeper of the petty cash funds needs to be held responsible for keeping the money in a secure place. The box that the cash sits in needs to have a lock — a cashier’s drawer is a sensible option — to help deter unauthorized access. To further secure the petty cash fund, the box should be kept in a secure location such as a locked closet, desk drawer or safe that only the petty cash fund’s custodian has access to.

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