Cash Larceny, Part Seven

Alteration of accounting documents in imprest fund accounts (continued)

By Joseph R. Dervaes, CFE, CIA, ACFE Fellow
Fraud's Finer Points

Almost all organizations use a petty cash fund to disburse funds to employees who make miscellaneous purchases on their behalf. The fund's custodian must always have a sufficient amount of money on hand to pay for routine expenses of the organization. Most petty cash funds involve only a small amount of money. But, fraud examiners shouldn't be misled by the amount of the fund itself when assessing the risk of fraud. The true fraud indicator in a petty cash fund isn't necessarily the size of the fund itself, but rather the amount of funds that are cumulatively disbursed through the account each year. Significant disbursements can be made through small petty cash funds. 

Here are some standard procedures for petty cash funds:

  • The authorized imprest fund amount should always equal the amount of all temporary advances to employees and the amount of funds on hand and in the bank.
  • Typically, the authorized fund level for a petty cash fund is maintained at about 2 1/2 times the amount of monthly expenditures made through the fund.
  • The petty cash fund should be reimbursed at least monthly and at the end of each accounting year.
  • Someone independent of the bank account custodian should receive the unopened monthly bank statement from the bank and reconcile it promptly with all the supporting documents present.
  • Petty cash fund expenses should be for official organization purposes only.
  • All petty cash expense documents should be marked "paid" to preclude their reuse on subsequent reimbursements.
  • Organizations should use prenumbered cash advance forms when custodians send employees on purchasing trips. Employees must sign these forms to acknowledge accountability for the funds advanced to them. After the purchase transaction has been completed, employees return any unused funds and a receipt for the transaction to the petty cash custodian. The custodian completes the cash advance form to indicate the results of the transaction and retains it on file for reference and audit.

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