Good petty cash controls keep a small fund honest with five rules: a fixed imprest float, one named custodian with the only key, a voucher and receipt for every payout, surprise counts by someone else, and a short list of what the fund may never pay for. Each rule is cheap, and together they make any shortage visible and traceable.
The imprest float: the petty cash control everything else rests on
An imprest float is a petty cash fund with a fixed total, for example 300.00. At any moment, cash in the box plus vouchers for money spent must equal that total. When the fund runs low, it is topped up by exactly the amount of the vouchers, and the float returns to 300.00.
The fixed total is what makes the fund checkable. Without it, the only question anyone can ask is "how much is in the box?", which has no right answer. With it, every count has an expected result, and a difference is a number someone must explain.
Set the float at roughly what the business spends in petty cash over two to four weeks. A fund that is too large tempts misuse and hides small losses. A fund that is too small gets topped up so often that review stops happening. Record the float amount in a ledger account and change it only with written approval.
Replenish by check or bank transfer made out to the custodian or drawn as cash, recorded against the expense accounts on the vouchers. Never top up the fund from cash sales or customer payments, because that money never passes through the bank and the receipts trail breaks.
Why should one custodian hold the petty cash box?
One custodian should hold petty cash because shared access makes a shortage impossible to trace. If three people have the key and the box is 40.00 short, nobody can be held to account, and everyone knows it. One custodian, with one key and a locked box in a locked drawer, owns the fund.
Name a backup custodian for holidays, and count the fund together when it changes hands. Both sign the count. The handover count is the line that splits responsibility between them: anything missing afterwards belongs to the person holding the box.
The custodian should not be the person who approves replenishment or records petty cash in the books. Keeping custody apart from approval and recording is the same split that applies to all cash, and the person holding the box should never also be the one checking it.
Petty cash receipts and vouchers for every payout
Every petty cash payout needs a voucher signed by the person receiving the money, with the original receipt stapled to it. The voucher records who, what, why and how much. The receipt proves the purchase. Without both, the custodian has nothing to show for the cash that left the box.
The IRS makes the same pairing in its guidance for small businesses. IRS Publication 583 says that each time you pay from the fund, you should make out a petty cash slip and attach it to the receipt as proof of payment.
Each voucher should show:
- Voucher number, pre-printed or assigned in sequence;
- Date and amount;
- Payee and what was bought;
- Expense account code;
- Signature of the person who received the cash and initials of the custodian.
Where no receipt is available, such as a parking meter, the recipient writes an explanation on the voucher and a manager initials it. Allow this rarely. A fund where many vouchers carry no receipt is a fund with no control.
How to count the fund and fill in the reconciliation form step by step, including what to do when it comes out over or short, is in counting the petty cash float by denomination.
Surprise counts and replenishment review of petty cash
A surprise count is an unannounced count of the petty cash fund by someone other than the custodian. It checks that cash plus vouchers equals the float on a day the custodian could not prepare for. Replenishment review checks the vouchers each time the fund is topped up, before any money goes back in.
Run surprise counts at random intervals, a few times a year, by the owner, controller or an outside reviewer. The custodian is present and signs the count. A count announced the week before tests nothing, because a short fund can be made whole for one afternoon.
At each replenishment, the reviewer looks at the vouchers before signing the replenishment check. They should look for:
- vouchers with no receipt or a photocopied receipt;
- several payouts just under the per-item limit on the same day;
- receipts dated well before the voucher;
- the same supplier paid repeatedly from petty cash when it could be invoiced;
- the custodian receiving payouts and approving them.
Mark each reviewed voucher so it cannot be submitted again in a later replenishment.
Petty cash review needs the same evidence as any other review: a dated, signed count sheet and initialled vouchers. What makes a review count as evidence is covered under missing or rubber-stamp review in the cash control deficiencies auditors report most.
What should petty cash never pay for?
Petty cash should never pay wages, contractor fees, personal loans, cash advances, or anything large enough to go through payables. Those payments need approval, tax reporting or a vendor record that petty cash cannot provide. Write the exclusions into the policy so the custodian can refuse without argument.
A short policy checklist, with example limits:
| Rule | Example setting |
|---|---|
| Float amount | 300.00 |
| Maximum single payout | 50.00 |
| Allowed uses | Postage, small office supplies, parking, minor refreshments for meetings |
| Never allowed | Wages, contractor payments, cash advances, loans, IOUs, gift cards, personal purchases |
| Custodian | One named person, plus a named backup |
| Receipts | Original receipt for every payout over 5.00 |
| Surprise counts | At least quarterly, by someone outside the fund |
| Replenishment | Only by check or transfer, reviewed against vouchers |
IOUs leak cash quietly. An employee "borrows" 40.00 and leaves a note, and the note sits in the box as if it were cash. Ban them outright.
For recurring small spending, a company card with per-card limits and receipt rules often works better than cash, and leaves a statement trail. Corporate card controls for limits, receipts and review covers that alternative. If you are weighing a tool for the wider month-end work, such as petty cash, cards and bank accounts, the questions to ask before buying account reconciliation software help separate what a tool automates from what stays with a person. PreciseBankFlow focuses on the bank statement side, matching the replenishment checks and transfers on the statement to your ledger. More is on the PreciseBankFlow home page.