By Brett Driscoll
Have you considered the cost and effort involved in maintaining Petty Cash tins in your business? If you have a medium sized organisation, or a widely distributed small to medium sized business, then it is likely that you run several of these Petty Cash arrangements.
A prime example is a client of ours with a geographically distributed business, running more than 20 locations throughout Victoria. Each of these sites have their own Petty Cash float holding between AUD$500-$2,000, with the total amount of cash at any given time being up to AUD$30,000. Not only is this arrangement messy, but it is also a security risk and an unnecessary temptation.
The Financial Controller has no visibility of the cash on hand, how often it is frequented, or where it is distributed and by whom.
How Does a Petty Cash Tin Work?
In an average organisation; each Petty Cash float will vary in size depending on the frequency of disbursement, remoteness from Head Office, bank accessibility (for the purpose of cashing cheques) and any policies that may be in place.
Each float is used day to day for minor expenditure and when it is at a level where it is regarded as 'time to refresh', a reconciliation process will take place before it can be replenished.
Receipts are recorded on a form or in an Excel spreadsheet, the float is reconciled (perhaps) and the form will then be sent to Head Office. The Accounts Payable team will then check the detail, create a journal entry and raise a cheque which is posted out to the site. The cheque is then cashed (when the opportunity arises) and the tin is refilled.
The time taken to refresh a Petty Cash tin is at best two days, but in many cases is more likely to be 4-5 days. In the interim period, the float can be drained and employees may end up using their personal money in the hope of reimbursement.
So, What are the Alternatives?
There is a method available that will improve the efficiency and security of your company's Petty Cash process. Your source of funds can be either via cheque, or more efficiently; through the use of a Petty Cash-Assigned Corporate Card.
By using the Expense Creation function in ProMaster, each Petty Cash holder has a 'claim' account, enabling them to enter a Petty Cash receipt for costing purposes. The debit of this amount offsets the credit balance that is held in the Petty Cash tin and also reconciles to ProMaster - simple!
How it all Works:
Account Set Up: Petty Cash officer has a ProMaster profile with either a Corporate Card or a Cash Claim account. This account manages both the credits and debits of the Petty Cash tin.
Source of Funds: Cheque or Cash Advance on Corporate Card. Credit balance increases and is the same as the balance in the Petty Cash tin.
Corporate Card: A Petty Cash specific card may be assigned to the site/office manager:
- It should be restricted for use at ATM's only (Single Merchant type code, profiled by the issuing bank).
- Have a daily limit set to ensure only small quantities of cash may be extracted each day (eg. $200 per day).
- Exception reports can monitor frequent ATM withdrawals by card.
Tracking Funds in GL: A common Balance Sheet account provides detail of the amount of the cash advance or the cheque deposit:
- A Cash Advance transaction is Auto-Posted on import and costed automatically against the Petty Cash tin account (cost centre) and the Balance Sheet account, and against the Trade Creditor for the Card Programme.
- The Cashed Cheque has already been processed in the GL and credited to the Suspense Account for Petty Cash.
Entering the credit:
- For a card, this is a Cash Advance transaction on the Corporate Card either via an ATM or over the counter.
- For a cheque, once cashed the details are entered through a 'Credit Received' window and this increases the credit balance.
Receipt presented for Petty Cash reimbursement: A claim is created.
- Details are entered (eg. expense type, short description for GL, amount, tax, tax reciept flag?) and costed to the relevant cost centre.
- The Petty Cash account credit balance decreases by the value of the claim and is visible as a running balance on the Homepage.
Coding: A set of Expense Types can be set up for the users specifically managing Petty Cash. Business Rules can prevent non-Petty Cash tin holders from using Petty Cash specific Expense Types.
Approval: This is a policy approval function:
- A supervisor of the Petty Cash officer can review the expenses.
- A threshold can exist (eg. $10) where approval is not required and it will move directly to 'waiting GL Post'.
Posting to GL: Approved Petty Cash claims will be exported to General Ledger as expense lines and offset the Balance Sheet account.
Suspense Account: The Suspense Account for the credit is offset by the value of the Petty Cash Journal total. It is not debited to the Trade Creditors as this has already been done when the Cash Advance was posted.
Compliance: Periodically either end of month or prior to a new credit being raised, a Document Control Report (DCR) will be produced.
- This documents all the processed receipts for the account. It is printed, receipts attached and a decleration to be signed.
- Sent to a central point for audit and record keeping (either AP or site location).
- No receipt can exist on two DCR's.
Reporting: A report for Cash Balances will show the total of all Petty Cash tins in real time. This may be viewed at the local (Petty Cash tin holder) or at the Controller Level.
Audit: The Cash Balance report shows details of all credits and all receipts settled for a given date range. The evidence of this will be found on the DCR.
Exports: Regular Export for Corporate Cards:
- Cash Advance - Credit Trade Creditors (bank) and Debit Petty Cash Balance.
- Petty Cash Claims - Credit Petty Cash Balance and Debit Expense Account
Exports: Regular Export for Cashed Cheque:
- Cashed Cheque - No export. As settled it increases the Credit Balance amount for that account and the cheque drawn debits the Petty Cash Balance.
- Petty Cash Claims - Credit Cash Balance and debit Expense Account.
The Resulting Benefits:
- Reduced cash on site with more frequent access to funds.
- Restricted cash access through low daily imits on ATM-only cards.
- On-line, real-time reporting of Petty Cash disbursements and balance.
- Uses the same Export journals to post values (some extra accounting added to post balances and Cash Advances correctly is required).
- A visible audit trail.
- Production of accurate exception reports
- Less time spent administering Petty Cash.
- Reduced cost of processing, increased security and the production of quality data for analysis and monitoring.
Contact Inlogik today about managing your Petty Cash more efficiently.