What is Petty Cash?

• A petty cash fund is a reserve of money that an individual or organization keeps on hand to make small purchases quickly and conveniently. The "petty" part emphasizes the incidental nature of these purchases, as opposed to core outlays like capital spending or labor costs. The "cash" part reflects that petty cash funds historically kept as cash-on-hand as a faster and cheaper alternative to issuing a company check, although nowadays many organizations use debit cards as well as hard cash.
  
  

Examples of Petty Cash

• Petty cash covers purchases like office supplies, postage, working meals, local business travel, emergency costs such as generator fuel and relevant magazine and newspaper subscriptions. Sometimes petty cash covers office milestones like holiday parties or a product launch celebration.
  
  Most organizations place significant restrictions on petty cash. These restrictions include many personal expenses, such as commuting and private meals, as well as large expenses like business travel and office renovations.
  
  Individuals sometimes set aside petty cash funds in their personal budgets to cover miscellaneous incidental expenses like a pack of gum or a bottle of hand sanitizer.
  
  

Potential for Abuse

• The personnel authorized to use petty cash funds generally have wide discretion on what they can buy, and can make those purchases with little or no consent from a higher authority in the organization. Under these conditions the funds can disappear easily, a little bit at a time, on inappropriate or unnecessary purchases such as luxury office equipment or alcohol. Without good oversight, a petty cash fund can become a growing black hole where money goes to vanish.
  
  

Preventing Abuse

• It takes a lot of effort to guard against petty cash abuse. Clear guidelines help explain what kinds of expenditures are allowed and what kinds are not. Strong accounting practices keep track of individual petty cash purchases. Regular auditing checks those purchases for appropriateness. Restrictions on who can use the petty cash fund limit the number of people who have the opportunity to commit abuses.