Question

You are the newly appointed financial manager of Sami Partners company UAE. When you reviewed the working of finance department, you found that the department doesn’t have proper internal control system to monitor the payment of Petty cash in the company. You realised that the current system may leads to leakage of cash , you are planning to establish an internal control system to address the issue.

Available information for you:

• Senior manager sanctions some amount cash to the cashier daily to pay all expenses

• Neither voucher is maintained nor accounting records by the cashier because transactions for small amounts

• Whatever money left with the cashier may give back to the senior manager in a weekly basis.

Question: You are required to frame an internal control system based on the available information. You may use a chart or model to illustrate your answer.

Answer 1

Absence of Internal Control over petty cash is not good because it may lead to leakage of cash. TO Maintain a strong internal control over petty cash following should be done:-

1. Firstly there should be a limit on maintenance of minimum amount of cash to be kept at all times and refiling to be done whenever there the balance is below minimum limit.

2.The individuals including their suobdinates should be selected who will be at all times be accountable for maintaining the petty cash.

3. There should be a proper authority of the individual who will be entrusted with the responsibility of verifying and sanctioning the expenses.There should be a two tier authentication process to maintain transparency and accountability.

4. Any petty expenses should be present along with the proper documentation and evidence​ to get them sanctioned.In case of proper evidence the same should be rejected.

5. There should be a proper accounting ledger for petty cash and expense sand it should be updated in time to time basis to ensure transparency.

6. Weekly and Monthly report containing details of payment received, expenses incurred and balances done should be submitted to senior manager on timely basis.

7. At the weekend the remaining cash with the cashier should be submitted to the senior manager or it should be kept in a lock box maintained for the same.

8. There should be a reconciliation of the report submitted with those in the system master.In case of differences it should be looked into and the reasons for the differences should be identified.

9. There should be a proper record of the log of the payments issued to the cashier.

10. There should be a proper and systematic maintenance of the records to be helpful at the time of audit.