If your organisation does not have a petty cash policy, managing the finances of your not for profit will be like running blindfolded through Sherwood Forest.  You know something should be there but you can’t see a thing.

If you’re tired of running blind you will need to start drafting a petty cash policy.  In the tips below you will find some guidelines which should help you in setting up and managing the petty cash for your not for profit organisation.

  • Think about the practical detail. Include clear guidelines about what petty cash should  and should not be used for, record keeping, how much the float should be, the process for reimbursements, who has authorisation and security issues.
  • Make sure petty cash is used for minor purchases that are small and one off.  For example, it may be used to reimburse someone for parking meter money, purchasing a pen or a piece of stationery or milk.  It should not be used for normal day to operational issues such as regular stationery purchases, payment of accounts that should go tracked through an accounting system or large purchases.
  • Ensure purchases are accurately recorded:  Include the name of the person, the amount, GST if applicable, the general ledger code, the date, what it was for and the amount.   After each transaction ensure the petty cash float amount is reconciled and balanced after each transaction.  If there are variations then they should be noted and reported immediately with an explanation as to why there is a variation.
  • Reimbursements should only occur with a receipt.  In general if there is no receipt then there should be no reimbursement.   If there was no opportunity to be given a receipt, for example from a parking meter, then simply have the person write out a note explaining the details of the transaction and ensure it is approved prior to making a reimbursement.
  • Be clear about every purchase. If the details on a receipt are not clear about what it is for then a note should be written on the back of the receipt explaining the purchase.
  • There should only one or two people authorised to manage the petty cash system and access the tin.  These people must be responsible for compliance with the policy.  If you have too many people you will find the system will break down, procedures will not be followed and amounts will not be accounted for correctly and go missing.
  • How will it be reported? For small organisations the petty cash reconciliation and how it has been used should form a report to the volunteer treasurer and committee of management.  The type of report for the treasurer may be more detailed and include a review of the transaction and reconciliations to ascertain how it has been used and how often it has been replenished.  The treasurer’s report to the committee of management may be a brief summary indicating compliance or noncompliance with the policy and any details of relevant issues such as large purchases, unauthorised transactions or other anomalies.
  • How will you secure the petty cash?  The petty cash tin should be locked at all times and only accessible by the authorised people.  Don’t have a system where everyone knows where the tin is kept or where the key is located.
  • Keep the petty cash tin in safe and secure location.  If you are going to be burgled the thieves will find your petty cash tin in obvious locations such as desk drawers, locked filing cabinets, fridges or cupboards.  If you have a safe then use it but if not, try hiding it in an unusual but practical location.  The risk of loss through burglary is also another reason for not having a large petty cash float.

When you’ve worked out all the details you can start to write up your policy.  Once the policy is approved by the committee you will find that your blindfold falls away and you can clearly see where your petty cash is going.