The custodian should be maintaining a record of all transactions along with receipts that support the expenditures. To further strengthen the disbursement process, the petty cash replenishment request should be reviewed by the accounts payable auditor, and should include all the support of the expenditures to detect if improper petty cash expenditures have occurred, and to ensure the expenditures are consistent with law. Replenishment of the fund should include all supporting documents as to the nature of the expenditure. Disbursements should be supported by original itemized receipts. Petty cash should not be used to pay invoices for goods or services that would be subject to quotes or bids as per General Municipal Law, pay for employee wages, or be used for advances or loans to anyone. Purchases made with petty cash funds or that are being reimbursed through petty cash should follow the district’s purchasing policy and procedures, which includes not paying sales tax on purchases and purchasing items that are considered school related. To ensure the funds are properly managed, payments need to be controlled. In a small operation, where complete segregation of duties is not possible, active supervision and oversight become even more important components of an effective internal control system. Replenishments should require the approval of a supervisor who is independent of the cash disbursement process. Reconciliation of the fund should be performed by someone who does not have the ability to disburse funds. While a back-up custodian is often assigned, restricting access to the petty cash fund is the best way to prevent unauthorized use or theft of petty cash. As the petty cash custodian, this employee should handle all petty cash transactions and should secure the fund in a locked location separate from other cash. Responsibility for the petty cash fund should be assigned to only one employee. Dollar amount thresholds, examples of permitted purchases, support documents and approvals required, and replenishment procedures should be included. The purpose of the policy should be to inform employees of the specific procedures that are to be followed for the disbursement of petty cash, as well as the permitted uses of the fund. The first place to start is by having a Board approved policy for petty cash funds that includes specific procedures that are to be followed. Here are four key points to consider to protect your petty cash and ensure your district is reducing the risks associated with petty cash. Poor controls over petty cash create doubt in the auditor’s mind about other sensitive areas that may also be lacking internal control and are thus more susceptible to theft or fraud. The effectiveness of the internal controls over the petty cash fund is usually a good indicator for how well the internal controls function in other areas of the organization. In addition, adequate controls over the petty cash system are required to prevent unnecessary and improper payments. The Board is responsible for establishing effective cash disbursement policies and procedures to ensure that disbursements are properly documented, audited and approved. Payments made from petty cash should not circumvent the district’s purchasing policy and procedures. Generally, the Board appoints a treasurer or custodian responsible for the petty cash fund at the beginning of the school year, and indicates the dollar amount of each of the petty cash funds. School districts often establish low-dollar petty cash funds (typically $100) for various district administrators to use for the purchase of materials, supplies, or services under conditions requiring immediate payment or for emergency purposes. If school district management does not ensure there are strong internal controls over the petty cash fund that include Board approved policies and procedures, separation of duties, acceptable uses for disbursement, and proper and timely reconciliation, an employee may take advantage of the lack of controls leading to theft of cash and/or improper or inappropriate expenditures made using petty cash. And since petty cash funds are typically low dollar amounts and not material in nature, auditors do not spend much time reviewing this area. That’s because fraud tends to happen more often in the cash disbursement cycle than in the cash receipt cycle. From an audit perspective, the petty cash fund is not so petty.
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