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How to protect a growing business from the perils of petty cash

How can you avoid the management of everyday office costs such as milk, stationery and postage becoming a problem?
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With all the pressures and strains of running a growing company, should you really care about who’s buying the office milk? For many companies, the simple answer has been…nope.

It’s an attitude that has helped to make petty cash expenses such a potential hazard for companies as they start to scale-up. It’s a seemingly benign area of company finances which can deliver a painful bite.

A 2016 study by the Argos retail group found the UK companies are losing in the region of £1.8bn each year to petty cash mismanagement and fraud. The weaknesses are regularly highlighted in court prosecutions, such as the 2016 case of a Cardiff council worker found guilty of stealing £35,000 from petty cash funds.

So how can the management of everyday office costs such as milk, stationery and postage become such a problem?

The main risk comes from the fact that petty cash is typically the least managed and monitored area of costs. Most businesses use a traditional imprest system with a float of money allocated to an office.

An employee will be designated as the “curator” and placed in charge of the cash box containing the float. They keep track of any costs going in or out and request a top-up whenever the float dips below a certain level.

In theory, it should be a perfectly adequate system. In practice, petty cash is dangerously prone to mismanagement and a breeding ground for errors and fraud. Here’s why:

Weak management controls

To provide quick and flexible access to funds, the imprest system is designed to operate outside of the normal accountancy checks and balances. A finance team is only likely to check on spending whenever a float is being topped up.

This lack of effective monitoring is what allows problems to grow. Even the smallest of illegitimate costs can develop into seizable losses over time.

Reliance on employees

With little top-down monitoring, a traditional petty cash setup places a great deal of importance on the curator. This is a role, however, that is often allocated to employees with little or no accountancy training.

It means that petty cash setups are prone to becoming chaotic with curators unable to balance expenses against the amount in the float. To cover this, there’s a tendency for employees to resort to “creative” accounting.

Paper-based process

A typical sign of a mismanaged petty setup is a cash box containing a muddle of small change, scrunched up paper receipts and handwritten IOU messages. The reliance on paper-based processes makes trying to keep track of costs a slow and error-prone task.

Rather than accurately recording each cost, there’s a tendency for petty cash costs to be lumped into an all-encompassing ‘miscellaneous’ category when it comes administration.

As a business grows, the risks posed by each of these inherent problems is magnified with multiple office floats in operation and no effective centralised control of costs.

Petty cash goes digital

To protect against these risks, more companies are now looking to replace the traditional paper-based world of petty cash with smarter, faster and more secure digital setups.

Webexpenses is one of the digital management systems that allows petty cash to be fully integrated into the main expense setup. It works by providing a virtual equivalent of the cash box.

It gives a finance team the ability to monitor costs in real-time – rather than relying on sporadic updates. It also means that all of the normal checks and balances can be applied.

Systems can be configured so that an alert is triggered whenever petty cash payments exceed preset limits. Policy reminders can also be delivered at point-of-entry to claimants.

It provides a fast, flexible and centralised way to manage costs which is equally effective handling the simple petty cash needs of a start-up or all the complexities of a global operation.

Webexpenses provides a smarter way to manage and monitor employee expenses. Find out how it can handle your petty cash by requesting a free demo.

This article is part of a wider campaign called the Scale-up Hub, a section of Real Business that provides essential advice and inspiration on taking your business to the next level. It’s produced in association with webexpenses and webonboarding, a fast-growing global organisation that provides cloud-based software services that automate expenses management and streamline the employee onboarding process.

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About Author

Adam Reynolds

Adam Reynolds is CEO of webexpenses, a fast-growing global expenses management software provider. With an extensive background in software and leadership, he joined webexpenses as head of sales in 2013. He became the CEO of webexpenses in 2015, and now oversees all business functions from technical and product development to customer services. Webexpenses software is used in over 70 countries throughout the world, and with an office in Sydney and an office opening in the US later this year, continues to grow internationally.

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