When people think of petty cash, the traditional petty cash ‘tin’ springs to mind; a money box containing the business’ float for those smaller purchases such as stationery or refreshments. Often accompanying the tin is a petty cash book that acts as a ledger for all money taken out and going into the tin. Although this method has been widely accepted for a number of years, it is hard to control and can often even leave businesses out of pocket.
Risks of poor management
Poor petty cash management can have a significant impact on the bottom line for any business – be it a start-up or a major organisation. One retailer has estimated that businesses are losing £1.8bn each year through petty cash fraud and inefficiency. Keeping track of this outdated paper-based form of management is the source of many headaches for finance teams, as well as presenting time management challenges for employees. Incomings and outgoings aren’t tracked automatically, meaning much of its use relies heavily upon the honesty and conscientiousness of employees. Lines can be blurred and boundaries are easily stretched, meaning there’s a great deal of trust placed in the workforce – something that FDs and CFOs can’t directly control. Even with close monitoring by HR and all management working collaboratively, it is still near impossible to guarantee the rules won’t still be bent.
There have even been numerous high profile case studies of employees committing fraudulent acts through expenses and petty cash, costing their business. For example, in a 2016 case, a Cardiff council worker was found guilty of stealing £35,000 from petty cash. The fact that it was possible for one worker to extract this amount of funds through this system underlines the extent of its vulnerabilities, but this is often underestimated. For many – even illustrated by the name – petty cash is considered a ‘small’ aspect of a business’s accounts management, which results in a lack of scrutiny and monitoring and quite often in a huge cost to the business through fraud and theft. It is therefore important that businesses are aware of the new solutions available that can help to manage this process more effectively.
The new solutions
One major technological development which lends itself perfectly to solving the issues around petty cash, as well as wider business finance management, is cloud-based software. Online solutions enable the float to be controlled through one central system, which houses a digital record of receipts and therefore all ingoing and outgoing expenditure. This digital system also provides an automatic warning whenever the float doesn’t tally with the outgoing, affording the finance teams plenty of time to rectify the costs and keep the books in balance, and enabling them to report updates immediately to the wider management team.
These cloud-based technologies have transformed business over the past ten years. For finance teams, for instance, cloud-based software has simplified many of the basic bookkeeping tasks and frees up their time to analyse figures, thus making it easier to see where improvements can be made. The cloud allows businesses to have remote access to their system and be accessed across several devices. The result is immediate and effective as employees can manage expenditure on the go.
One of the key benefits of cloud based systems for finance teams is the centralisation of the business’s expense management systems. The technology effectively shines a light on the day-to-day business costs that had previously remained in the shadows, reducing the risk of fraud. It provides finance teams with the tools to track and report any cash or expenses being taken in and out of the business. The ability to keep a digital record of receipts provides an audit trail to tally up the company expenditure on expenses and petty cash, so finance teams no longer have to worry about finding a taxi receipt from the previous year to prove to HMRC where the cash has been spent.
These new solutions not only benefit the finance teams managing the costs, but also the employees. Cloud software allows employees to use their smart phone and apps to instantly convert paper receipts into a digital form, reducing the risk of losing bundles of paper receipts which can be frustrating and time consuming for employees and finance teams alike. The cloud also empowers employees to keep track of their purchases as well as providing the finance teams with the ability to provide reports and monitor the businesses’ petty cash purchases. This even contributes towards the sustainability goals of a business – scaling back on the need for paper based recording methods.
Although petty cash by the nature of its name can be regarded as a small financial aspect of a business, it can, if inefficiently managed, have a big impact. It important this is treated as a key element of the wider expenses management solution, working in synch with other areas of the business in order to protect the bottom line, and cloud-based digital environments will help to foster this.
By Adam Reynolds, CEO of webexpenses