Petty cash is a small fund of cash that nonprofit organizations keep on hand for making small, everyday expenses that are impractical to pay by check or electronic means. Properly managing petty cash is essential to ensure transparency, accountability, and accurate financial reporting. Here are the proper procedures for handling petty cash in a nonprofit organization:
1. Establish a Petty Cash Fund:
- Determine the appropriate amount for the petty cash fund based on the organization’s needs. This amount should be reasonable and reflect the types of expenses that will be covered by petty cash.
2. Designate a Custodian:
- Appoint a responsible employee as the petty cash custodian. This person will be responsible for managing the petty cash fund, disbursing funds, and maintaining proper records.
3. Document Policies and Procedures:
- Create a clear and concise policy and procedure document outlining how petty cash will be managed. Include details about allowable expenses, approval processes, documentation requirements, and reconciliation procedures.
4. Obtain Approval for Petty Cash Fund:
- Seek proper approval from management or the appropriate authority to establish the petty cash fund and set the initial amount.
5. Segregate Duties:
- Implement segregation of duties by ensuring that the custodian is not the same person responsible for approving expenses. This separation of responsibilities helps prevent misuse of funds.
6. Reimbursement and Documentation:
- Employees who need to make small cash purchases should provide proper documentation for each expense. This could include receipts, invoices, or other supporting documents.
7. Disbursement of Petty Cash:
- When an employee needs petty cash for a legitimate expense, they should submit a petty cash request form along with the supporting documentation. The custodian reviews the request, approves it, and disburses the cash.
8. Recording Transactions:
- The custodian should record each petty cash transaction in a petty cash log. This log should capture details such as the date, payee, purpose of the expense, amount disbursed, and the account code to which the expense will be charged.
9. Regular Reconciliation:
- Periodically (usually monthly), the custodian should reconcile the petty cash fund by comparing the cash on hand with the total of recorded expenses in the petty cash log. Any discrepancies should be investigated and resolved.
10. Replenishing the Fund:
- Once the petty cash fund is low due to disbursed expenses, the custodian submits a request for reimbursement to replenish the fund. This request includes the total of expenses incurred and supporting documentation.
11. Audit and Oversight:
- Periodically review the petty cash procedures and transactions to ensure compliance with policies. This might involve internal audits or oversight from higher management.
12. Financial Reporting:
- Include information about the petty cash fund, its balance, and any changes in the fund in the organization’s financial statements or internal reports.
13. End-of-Period Reconciliation:
- At the end of a fiscal period, conduct a thorough reconciliation of the petty cash fund. Ensure that all transactions are properly recorded, accounted for, and supported by valid documentation.
By following these proper procedures for petty cash management, nonprofit organizations can maintain accurate records, prevent misuse of funds, and uphold transparency and accountability in financial matters.