How-to guide: A smarter way to manage petty cash

A how-to guide for fast and efficient management of everyday office expenses

There’s nothing petty about the potential consequences of failing to manage those everyday office expenses. Outdated and inefficient petty cash systems leave businesses exposed to the risks of fraud, error and compliance failings. It’s to protect against these risks that more companies are choosing to switch over to digital ways of working, providing a faster, simpler and more secure way to manage petty cash costs.

This guide highlights the problems posed by our traditional approach to petty cash and shows how your business can easily make the move the switch to a simpler, faster and more effective digital system.

There’s nothing petty about business risks

The dictionary definition of the word ‘petty’ is something that’s ‘of little importance; not worth giving attention to’. And it’s this perception of petty cash as being a trivial area of company costs that makes it such a notoriously difficult area to control. Because there’s really nothing ‘petty’ about the scale of real-world losses that continues to be caused by the inefficient systems we’ve traditionally relied upon to handle the reimbursement of everyday office costs.

The Association of Certified Fraud Examiners estimate that a typical organization will lose 5% of its annual revenue to fraud; that’s a global loss of $3.9 trillion each year. In the UK, a 2016 report found that petty cash mismanagement and fraud was the cause of £1.8/$2.3 billion annual losses.

It’s perhaps not surprising that this occurs when so many petty cash setups are still reliant on office cash boxes containing handwritten notes, IOU messages and mountains of small change.
With a lack of central administration or proper accountancy checks, it’s the perfect area for error and deceit to take hold.

The purpose of this guide is to show how to move your company’s petty cash setup into the digital age, to create a simple and fuss-free system which will boost efficiency and shield your organization against compliance risks.

What is petty cash?

It’s a term used to describe the small fund of money that’s allocated to cover everyday office expenditures. Typical uses within a business would be to provide funds for office purchases such as bottled water for a meeting room or small amounts of office stationery.

The most common method used to manage these costs has been the imprest system. This involves a cash fund being set up to act as a ‘float’ – allowing employees to quickly access the
money needed to cover minor costs.

A record is kept in a petty cash register of any money taken out with receipts to show what has been purchased. When the cash falls below a certain level, the person in charge of petty cash requests for the float to be ‘topped up’. When this happens, the petty cash ‘curator’ ensures that the amount being paid in balances against the various costs that have been taken out.

The petty cash problem in expense management

In theory, the imprest system is perfectly sensible; it’s an accounting method which provides the speed and flexibility needed to cover day-to-day miscellaneous office costs. But in practice, it has a number of fundamental flaws. These flaws are not so much caused by the accounting system itself as the inefficient methods that are typically used to administer it. Here’s a look at some of the most common problems with traditional petty cash setups:

Weak management controls

To provide quick access to funds, the imprest system is designed to work outside of the normal accounting checks and balances for expenses. It means that finance teams have little knowledge of day-to-day petty cash expenditures, with checks only carried out whenever a float top-up is requested. It creates a dangerously fuzzy area of company costs with finance professionals unable to access accurate and up-to-date information on spending. It’s this lack of real-time monitoring which makes petty cash so susceptible to errors and fraud.

Reliance on curators

With minimal top-down monitoring, the effective management of a petty cash system is reliant on the person tasked with acting as ‘curator’. This is somebody, often with no accountancy training, who are expected to ensure that costs are legitimate and accurate records are properly maintained.

The natural tendency over time is for standards to slip. This is exasperated by staff turnover and periods when curators are absent. When a float falls out of sync, the temptation is also for a curator to hide the problem with ‘creative’ accounting.

Paper-based processes

The homespun nature of traditional petty cash setups, with their money boxes, handwritten notes and bundles of paper receipts creates unavoidable inefficiency. Trying to tally handwritten notes in a petty cash register with bundles of crumpled receipts is a time consuming and error-prone process.

It creates a slow and cumbersome way of working for claimants, petty cash controllers and overseeing finance teams. The time and resources required to manage these costs mean that companies will often adopt a pragmatic approach and simply account for a certain level of petty cash losses each year.

However, ‘minor’ losses quickly accumulate, particularly when multiplied by the number of petty cash setups in operation throughout an organization. With outdated paper processes and a lack of effective central administration, out-of-control costs are inevitable.

A smarter way: digital expense management

There are few areas of business which have benefited more from digital technology than expense management. The move from paper-based ways of working to digital processes has transformed the way organizations are now able to manage and monitor employee costs.

These benefits include:

  • Faster processing: 25% faster than paper-based systems
  • Real-time management: Instant access to spending information
  • Compliance controls: Point of entry policy checks and alerts
  • Mobile convenience: Smartphone app allows on-the-go management

But for many businesses, these benefits don’t apply to their petty cash setups which still operate outside of the organization’s main finance and accounting systems. It’s a problem that Webexpenses has addressed, allowing petty cash to be fully integrated into a company’s main expense management setup even if they have offices across the globe. The system allows finance teams to keep control of petty cash costs in the same way as any other employee expense.

Here’s a look at how it works:

Improved management control

The system provides all the digital tools needed to keep effective control of petty cash. It does this by creating a digital version of the float which a curator or claimant can update whenever money is put in or taken out.

The use of a smartphone app allows any paper receipts to be instantly converted into a digital image. It’s quick and easy for claimants and virtually removes any reliance on paper processes for finance teams. Crucially, it provides the same level of information and control over petty cash costs as any regular employee expense. Finance teams are able to centrally monitor the state of each office float, rather than having to rely on sporadic updates.

It effectively shines a light on those kinds of day-to-day business costs which have previously remained in the shadows. In doing so, it reduces the risk of error and fraud and boosts efficiency.

Reduced reliance on curators

While a digitally managed imprest system still needs to be managed by an office-based employee, the administrative burden placed on them is greatly reduced. With central monitoring, finance teams can set -up the system to provide an alert whenever a petty cash claim falls outside of a predefined limit. It allows any potential issues to be addressed before they’re allowed to become resource sapping problems.

The system can also provide employees with on-screen reminders and compliance checks relating to petty cash whenever they make a claim. It’s a way of making sure that compliance
becomes an ever-present part of employee workflow.

Removing paperwork from petty cash

The advantages of removing the need for paper-processes from petty cash are felt throughout an organization. For claimants, it’s a quick and hassle-free way to provide all of the information that’s required.

For petty cash curators, automated processes mean they no longer have the time consuming and error prone tasks of manually updating documentation. Finance teams can expect to reduce processing times by around 25% when switching from a paper-based petty cash setup.

Better reporting and auditing

A symptom of a badly managed petty cash system is the lack of accurate information available on individual costs. The tendency is for all small office costs to be classified under an all-encompassing ‘miscellaneous’ category.

Without effective controls, this category can become a dangerously muddy area of accounting with the exact nature of each individual cost being hidden. It’s one of the reasons petty cash has been so susceptible to fraud. A digital system allows any number of categories to be created, to accurately represent the exact costs. It provides finance teams with all the data they need for effective reporting and proper control of company costs.

Moving petty cash into the digital age

Digital management tools mean there’s no longer any need for businesses to still be operating misfiring petty cash systems. With a properly configured expense management system, petty cash can now be fully integrated into an organization’s digital ecosystem.

It allows businesses to move away from the risks and inefficiencies inherent with paper-based processes. To move away from biscuit tins, handwritten notes and harassed employees – to a fast and efficient digital way of handling petty cash.

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