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Tools & Tips

Petty cash policy: Do I need one and how do I write one?

It’s the stuff of every petty cash custodian’s nightmares.

A couple of employees demand reimbursement from the petty cash fund after buying something wildly inappropriate, and manage to lose the original receipts. You now have to work late to send those ‘telling off’ emails to out-of-pocket colleagues.

It’s a situation where having a petty cash policy comes in handy. 

What is a petty cash policy? And why is it so important?

A petty cash policy is a document that outlines a company’s expectations on how employees will use the petty cash fund, and explains how the custodian keeps the fund secure and safe.

It’s often shared in employee onboarding documents and handbooks so everyone is on the same page. Some companies will expect their employees to only use petty cash as a last resort, for others it may be a part of their standard routine – namely getting fresh office coffee every Wednesday.

What are the risks of not having a petty cash policy? 

Ultimately petty cash policies protect company’s from malicious intent and poor cash management. With a proper petty cash policy it will be easier to to notice if someone is intentionally trying to steal, or accidentally ‘leaking’ money away. 

Without a well thought through petty cash policy you’re at risk of spending petty cash more than you need to, or not noticing if any goes missing. 

How to make your own petty cash policy

A good place to start is by asking finance stakeholders, like the CFO and Head of Finance, if they have any preferences for what petty cash policy best practice looks like. 

You can then take their answers, and combine them with recommendations from your own research and knowledge about the company. Following a template is a great way to come up with a first draft of a policy to share with the rest of your team.

A simple petty cash policy template

Start by describing what employees should and should not use petty cash for at your company. There are lots of ways you can limit spending, for example:

  • How long the spending is going to exist, like “Do not use petty cash for projects that last over 6 months”.
  • The purpose of the spending, like “Do not use petty cash for travel”.
  • The amount being spent, like “Do not use petty cash for transactions over £50”.

Go on to explain the reasons behind the policy, such as reducing the likelihood of misuse, theft or mistakes. Make it clear who must comply with the policy (such as all businesses and affiliates of the company, or one particular department.) 

This forms the policy part of the document; you can now go on to describe your procedures.

The role of the petty cash custodian

  • Define the number of custodians, this is usually one per fund though it can be two.
  • Explain the responsibilities of the petty cash custodian(s).
  • Share who appoints and approves the petty cash custodian(s).

How to keep petty cash funds safe

  • Direct how to store the money; best practice is to use a petty cash box that locks.
  • Instruct the reader on how the box is stored, often in a locked drawer or cupboard.
  • Make clear any expectations around discreteness, for example, that the location of the petty cash box and key doesn’t become common knowledge.
  • Share if the account will be randomly audited, or audited at set regular intervals.
  • Decide if you allow employee reimbursement from the petty cash fund, or if the custodian must dispense the cash before spending.

How to use the petty cash in the fund:

  • Establish the total amount of cash needed in the fund at any given time.
  • Write out the procedure on who and what needs prior approval for petty cash spending.
  • Explain how your company documents petty cash spending, such as petty cash vouchers, petty cash books and original receipts
  • Define the maximum transaction amount.
  • Describe how and when to replenish the fund.

The procedure for reconciling the petty cash fund:

  • Explain who reconciles the petty cash account. Some policies expect the custodian to do this, whereas others specify it must be someone else for security reasons.
  • Clarify how often the fund must be reconciled, often this is a minimum of quarterly unless the fund is used up faster.
  • Describe how to reconcile it, this may be manually in an expenses book or by using a particular piece of software.

What to do if cash is missing from the fund:

  • Recommend double and triple checking that money is missing before taking further action.
  • Share who the custodian must contact if the problem needs escalating.

How to open or close a petty cash account:

  • Write out who needs to approve a new petty cash account (for businesses that need multiple petty cash funds for different buildings, countries or departments.) 
  • Set a precedent for how often to re-examine the petty cash policies, this is often once a year.

The petty cash custodian

  1. Each petty cash fund must have one custodian appointed and approved by the CFO. 
  2. The cash custodian is responsible for filing petty cash vouchers, dispensing petty cash funds and logging receipts in the petty cash log book. 
  3. The petty cash custodian must pass reconciliation on to the department head.

Keeping petty cash funds safe

  1. The petty cash fund must be stored in a locked box in a locked drawer and cupboard. Keep the keys separately, and only share their location with the custodian and head of finance. 
  2. The custodian must be discreet when retrieving funds to ensure the location of the box and keys does not become common knowledge. 

How to use the petty cash fund

  1. The petty cash fund must total £500 at all times between cash and petty cash vouchers. 
  2. The designated petty cash approver must approve all use of petty cash funds before they’re released…

You get the idea! If you’re looking to read more examples try Harvard’s formal offering (did you expect anything different from such clever cloggs), or Wentworth’s minimalist approach.  

Forget problems caused by petty cash with Pleo

Sounds like a lot of work doesn’t it? That's why at Pleo, we don’t use petty cash. 

We automate our expenses using our nifty little petty cash app: Pocket. Pocket creates virtual petty cash so you can reconcile as-you-go in the same place as all your other business expenses.

No paperwork, no problems: Find out more about managing your petty cash with Pleo.

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