Why is petty cash so problematic?
If you were an auditor looking to uncover some juicy discrepancies in a company’s accounts, a good place to start would be petty cash payments. Because petty cash remains one of those accountancy areas that finance teams still struggle to get to grips with.
One of the biggest challenges faced is the perception that managing ‘petty’ expenses, as the name, may suggest, is something of relatively low importance. But the consequences of failing to properly control these everyday office expenditures are far from ‘petty’.
In 2016, a study by the Argos retail group estimated that UK businesses are losing £1.8 billion each year to petty cash related errors and frauds. Even the smallest of losses can become a major cost when accumulated over time.
So what makes petty cash so problematic for finance teams and how can organisations regain control of those everyday office expenditures? This is what’s tackled by expense management provider webexpenses in their latest white paper, A Smarter Way to Manage Petty Cash.
The report identifies how the traditional accounting method used to manage petty cash, known as the imprest system, is effective - the tools used to administer it are not.
Here’s a look at some of the common problems identified with petty cash systems:
Inadequate management controls
To enable quick and flexible access to funds, petty cash usually operates outside of an organisation’s main expense system. This means that expenditures are handled without the same checks and balances as normal employee expenses.
Overreliance on ‘curator’
The effectiveness of traditional paper-based petty cash setups depends largely on the abilities of those office-based staff tasked with managing them. A large administrative burden is placed on these ‘curators’ as they struggle to maintain a balanced float and an accurate record of claims.
Inefficiency of paper-based working
When petty cash systems are reliant on paperwork and form filling, it creates a time consuming and error prone process for claimants. curators and finance teams. The resources required to properly manage a paper-based system means that many companies take a pragmatic approach and simply account for a certain level of petty cash losses each year.
The various problems caused by the traditional ways petty cash has been administered are removed when companies switch to a digital management system. A system such as webexpenses allows petty cash to be easily integrated into the main expense system.
It does this by creating a digital version of the petty cash float which is used to record any money that’s put in or paid out. Employees are able to use a smartphone app to convert any paper-receipts into a digital form.
By doing so, it virtually removes the need for any paperwork with automated processing and central finance teams able to monitor costs across multiple offices.
Digital management of petty cash also provides access to of the tools used to effectively manage and monitor ordinary employee expenses. Policy reminders can be provided to claimants via on-screen notifications and automated alerts can be set to warn a finance team whenever a claim breaches a certain limit.
It effectively provides a business with the ability to shine a torch on an area of company finances which has previously existed in the shadows. It’s dragging petty cash away from yesteryear’s cash box full of IOU notes and into a system that’s readymade to handle today’s digital business environment.
You can read the full white paper report here.