PETTY CASH FUND IRREGULARITIES

Thieveries from the petty cash fund are usually taken for granted because they are petty.

Modus Operandi

Every company has its own petty cash fund to take care of small cash disbursements. Cash in any amount is too tempting to handle. Consequently ,minor dishonesties have their beginnings in the petty cash fund. The following are typical cases.

It was Friday, three days before payday. An employee needed some money for his date with his girl on that very day. All his friends in the office were broke but not the petty cash custodian. So, he cashed his unfunded personal check from the petty cash fund with a promise to redeem it on payday. He paid paid his debt but several days after payday. The practice became habitual until at one time he had several personal checks as part of the large petty cash fund.

The custodian of the petty cash fund also needed some money for the weekend to spend some happy hours with his friends. Anyway, he thought it would not harm the company to temporarily borrow some cash from the fund since he intended to repay it later. Moreover, the custodian thought of making some more money by raising the amounts of some petty cash vouchers after they had been audited for a long time, the prospect of discovery was unexpected. The petty cash fund was usually taken for granted because the amount was petty.

Detection and Prevention

When a surprise cash audit was made, the petty irregularities emerged. The internal auditor noted the unauthorized temporary borrowings, the padding of some suppliers' invoices and the corresponding petty cash vouchers paid from the fund.

As a corrective measure, the petty cash fund was reduced to an amount sufficient only for the daily requirements of the business. Cashing of personal checks was strictly prohibited. The custodian of the petty cash fund as well as the maker were asked to restore immediately the amount of money taken by them from the fund.

To discourage alterations, the petty cash vouchers were required to be prepared in link, indelible pencil or typewritten and the amount written in words before they were approved for payment for someone in authority. Original invoices of vendors were required to be attached to the petty cash vouchers as supporting documents to prevent duplicate payment on a copy of an invoice.

In replenishing the petty cash fund, the cash disbursement section was required to check the vouchers thoroughly for any alternations and improprieties. To preclude the possible re-use of paid petty cash vouchers for second payments, the vouchers at the time of replenishing were all cancelled by a rubber stamp indicating the date of payment as for example, "Paid on May 12,1980".

Frequent unannounced inspections of the vouchers in the petty cash drawer and the balancing of the fund by the auditor or a responsible official were done to discourage employees from obtaining unauthorized cash advances. As a safeguard and to deter the petty cash custodian from increasing the amount of an invoice after its payment, then entering the increased figure on the books and pocketing the cash difference, all paid purchase invoices were checked occasionally to ensure that the totals had not been altered. As a precaution, the petty cash custodian was reassigned to a job that gave him no access to cash or receivable records. The erring employees were strictly warned that repetition of any dishonest act would warrant termination of service.