Petty Cash Management System & Policy

8/10/2019 Petty Cash Management System & Policy

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G H U L A M M U RTA Z A , C IA , A C C A

S E N IO R A U D I TO RZ U L F IK A R A B A D D E V E L O P M E N T A U T H O R IT Y


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DefinitionsThe Policy StatementSalient Features of PolicyPetty cash management processInternal Controls for FundRoles and responsibilities for petty cashResponses received summary

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key terms used in petty cash

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Cash Advance: An advance of amount from a petty cash fund

account for the purpose to pay for approved business expenses.

Petty Cash Reimbursement request: A request to reimburseamount from petty cash fund account used to pay for authorizedbusiness expenses where cash for such expenses may not be

available at the time the expenses are incurred.

Petty Cash Reconciliation: Petty cash reconciliation is aformal review of petty cash records, to see if there have been

any undocumented disbursements. It is an example of detectivecontrol to verify that all disbursements are recorded and are for

business purpose.

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THE CORE POLICY

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A petty cash fund may be established only by making a request to, andreceiving approval from, Competent Authority. The Departments may establisha petty cash fund to handle small, unanticipated purchases from vendors when

immediate payment is required, and the formal procurement systems areimpractical or cannot be used.

Petty cash must not be used to pay vendors when a purchase order, orpayment voucher can be used. The department using the petty cash fund must

ensure that all petty cash purchases and reimbursements adhere to the Authority and government of Sind procurement policies and procedures.

The Managing Director is the competent authority and has purview overestablishing, setting limits for, and closing departmental petty cash funds and

over allowable expenditures and reimbursing petty cash funds.

The Authoritys approved petty cash funds provide cash advances in certainsituations. However, the petty cash funds cannot be used for payroll advances.

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Limits, persons and timeframe

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A departmental petty cash fund at accountsdepartment under custody of Accounts Officer is

limited to PKR 100,000.

Another petty cash fund in the administrationdepartment under the custody of Assistant Director Administration amounting PKR 20,000 is limited.

Individual petty cash expenditures may not exceedPKR 7,000.

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The Petty Cash Custodian, the Petty Cash Authorizeralong with the Petty Cash approver are responsible forlimiting the use of the fund to legitimate and allowable

business related expenses.

The Authority related business petty cash allowableexpenditure is defined as one that meets following

conditions;i. Expense is incidental.

ii. Normal purchase and procurement process cannot befollowed.iii. Expense is of small amount worth PKR 7,000 or less.

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In compliance with polices related to defalcation and loss event, any shortagesover PKR 0.1 rupees as the result of theft, fraud, defalcation, or other

irregularities should be reported to the competent authority and the topmanagement not later than the first business day following the discovery.

Travelers have 15 days from the completion of travel (the due date) to submitthe appropriate documentation to Petty Cash Fund Custodian and settle thecash advance.

Thirty (30) days after the due date, Petty Cash Fund Custodian will charge theindividual for the unpaid balance as bad debt and the Competent Authority will

be notified of outstanding cash advance balances.

The other cash advance holders should settle their advance within 7 days bysubmitting expense receipts and/or returning balance to the fund custodian.

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The petty cash reconciliation should be madeon every replenishment date.

Need to sign acknowledgment on petty cashreceiving form while submitting receipts.

In order to record transaction with details and tomaintain a complete log of petty cashtransaction, Receiver cash signs the demand

book with date.

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Establishing or Closing Petty Cash Fund The competent authority must nominate a person to act as authorizer

for the petty cash fund.

The competent authority with consultation of concerned departmentalhead (in which fund is created) must designate an individual to act asthe petty cash custodian.

The department head (in which fund is created) mentioning the pettycash custodian and petty cash authorizer must sign and submitthe petty cash fund request. This request must be submitted to

Managing Director Competent Authority, which has the final authorityto establish a fund.

In order to increase or decrease the amounts or close a petty cashfund, the request in writing must be submitted to competent

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AdministrationDepartment

Finance Departmentand/or Fund Custodian

MD / The CompetentAuthority

Demand Book is kept Expenses ordisbursements arerecorded for approval

The custodian screensand makes thedisbursements andafter the approval.

Receiving forms,Reconciliations andvouchers are prepared.

All disbursements andadvances are

approved

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Information Flow Diagram

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The Information flowdepicts the petty cash

management process for

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The Petty Cash Custodian is responsible for managing hisdepartmental petty cash fund and is the only person in the

department who may disburse cash. The custodian isresponsible for balancing and reconciling the departmental petty

cash fund on replenishment date.

The Petty Cash Authorizer is responsible for verifying theappropriateness of expenditures, if solicited for, and authorizing

the petty cash fund reconciliation.

The Petty Cash Custodian, the Petty Cash Authorizer along withthe Petty Cash approver are responsible for limiting the use ofthe fund to legitimate and allowable business related expenses.

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Petty cash may be used for allowable Authoritypurchases only after it is determined that

payment cannot be made by purchase order or

payment voucher. The Authority relatedbusiness petty cash allowable expenditure isdefined as one that meets following conditions;

a) Expense is incidental.b) Normal purchase and procurement process cannot be

followed.c) Expense is of small amount worth PKR 7,000 or less.

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In addition, Petty cash may not beused for;

Petty cash must not be used for recurringexpenses requiring fixed amount ofmoney at a certain fixed time.

Reimbursements to cash checks. To make salary advances or loans. Payments to a single individual or entity

exceeding PKR 7,000 per transaction.22


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The fund is to be reconciled at least monthlyand on replenishment date. Count the cashon hand and add up the receipts, the totalshould equal the authorized amount of the

fund. If there is an overage or shortage wascaused by carelessness on the part of the

custodian, the competent authority will makea determination as to whether to replace the

custodian.

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At any point intime the total ofthe cash count

plus vouchers inthe petty cashdrawer should

equal thetotal in the Petty

Cash Fund.

Petty Cash Drawer

Petty CashVouchers Rs

Total of the established Petty CashFund

(Assumes no decrease or increase in cash due toerror or theft.)

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It is the responsibility of the custodian to reportto the petty cash authorizer that the petty cashfund is larger than needed. A rule of thumb tofollow is that the fund should turn over every

four weeks, i.e. every four weeks the totalamount of the fund should be replenished. A

balance in excess of four weeks could indicate

extra funds that should be deposited with theDDO Account and documentation processed todecrease the fund.

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Safe guarding the fund


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The Managing Director, as competent authority has the purviewto require the use of any forms and procedures considered

necessary for proper internal control of petty cash funds.

The Zulfikarabad Development Authority, with respect to pettycash must adhere to the following internal controls at a

minimum.

There shall be at least three people handling petty cash anddemand book:

A petty cash custodian who is primarily responsible for the petty cash

funds, signs receiving forms, and disburses the actual cash; An authorized official or employee nominated as authorizer for reviewingreconciliations and approving replenishment request; and

An authorized official or employee nominated as approver who reviewsand approves payments and disbursement vouchers, but does not have

the authority to sign checks or disburse actual cash.

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The reconciliation of the petty cash fund on monthlybasis and on replenishment date should be prepared

and kept on record for audit purpose.

All the petty cash disbursement should be listed onDemand book and are approved by the competent

authority.

The bills or invoices for reimbursement or for cashadvance should be endorsed by the personrequesting petty cash.

The internal audit should perform periodic review ofpetty cash record and reconciliation along with

surprise cash counts.

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The cash advance or reimbursement recipient is responsible for: requesting a cash advance or reimbursement from Petty Cash Fund Custodian; using the cash advance for qualifying Authority business purposes; returning unused cash advance funds as soon as possible; and Settling the cash advance within the prescribed time frame.

Ensuring petty cash payments requests are within the prescribed rupee amounts. Getting approval from departmental head for cash advance request prior tosubmitting it to Competent Authority, where department send a request for cash;

guaranteeing repayment of the cash advance,

The Petty Cash Fund Custodian is responsible for: reviewing petty cash receiving request forms; initiating collection of any unsettled petty cash advances; and Sending reports of unsettled cash advances to the Competent Authority; Preparing reconciliations, replenishment request and updating and/or informing

accounts department for updating of record. Safety and security of the safe.

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Responses to the policydocument


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R e s p o n s e s r e c e

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Reference to SPPRA procurement systemsare not in use so petty cash is used. (Dir.Ops).

Who will prepare the voucher in theprocess. (Dir. Ops).Legitimate and allowable businessexpenses should be classified or listed.(Dir. Ops).

Every procurement is covered by SPPRA and thesekind of purchases are termed as petty purchasesby SPPRA.The person demanding cash will fill the receivingvoucher but the custodian has main role as without proper filling and signing cash will be notdisbursed.A frame work based approach is taken forclassifying expenses as business related allowableby giving definition of that instead of giving list ofpossible expenses type.

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Why the receiver of cash also required tosign on the demand book. (Dir. Ops).The investigation of losses due to fraudand irregularities found is too much forsmall amounts. (Dir. Ops).

The receiver of cash and for whom cash isapproved can be two different person alsothe date of approval may also be differentthan the cash receiving date, therefore, in

order to completely record the transitionactivity we require signature of receiver.The presence of fraud and / or irregularity isenough ground to start investigation ifcompetent authority would like.

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Reconciliations monthly or onreplenishment. (Ac Off).Finance wing is ready for surprise cashcount provided it is approved bycompetent authority. (Ac Off).There should be additional column for preaudit in demand book.(Ac Off)

Only on replenishment date.Approval is requested.There should be proper cost-benefitanalysis before deciding on issue.Furthermore, the petty cash and demandbook is under periodic review of audit.

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There is contradiction in the content ofPara 6-2 and Para 10-1.(Ac Off).

Now removed.

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End of Presentation

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Petty Cash Management System & Policy

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