(b) Internal control weaknesses – petty cash
Weakness
The petty cash balance is approximately three months expenditure. This is excessive and will increase the possibility of petty cash being stolen or errors not being identified.
The petty cash box itself is not secure; it is placed on a bookcase where any member of staff could steal it.
Petty cash appears to be used for some larger items of expenditure (up to $500). Vouchers are only authorised after expenditure is incurred indicating that some significant expenditure can take place without authorisation.
Petty cash vouchers are only signed by the person incurring the expenditure, indicating a lack of authorisation control for that expenditure.
Petty cash only appears to be counted by the accounts clerk, who is also responsible for the petty cash balance. There is no independent check that the petty cash balance is accurate.
When the imprest cheque is signed, only the journal entry for petty cash is reviewed, not the petty cash vouchers. The accountant has no evidence that the journal entry actually relates to the petty cash expenditure incurred.
Petty cash vouchers are not pre-numbered so it is impossible to check the completeness of vouchers; unauthorised expenditure could be blamed on ‘missing’ vouchers.
Suggested control
The petty cash balance should be $2,000, being about one month’s expenditure.
When not in use, the petty cash box should be kept in the branch safe, or at least a locked drawer in the
accountant’s desk.
A maximum expenditure limit (e.g. $50) should be set before which prior authorisation is required.
All vouchers should be signed by an independent official showing that the expenditure has been authorised.
The counting of petty cash should be checked by the accountant to ensure that the clerk is not stealing the cash.
The petty cash vouchers should be available for review to provide evidence of petty cash expenditure.
Petty cash vouchers should be pre-numbered and the numbering checked in the petty cash book to confirm completeness of recording of expenditure.
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