Petty Cash, and Why It Goes Wrong

The fix is a system, not more supervision.

The imprest system

The only method that works. One fixed float, say AED 3,000.

At any moment, cash in the tin plus receipts for what has been spent must equal AED 3,000. Always. That is the whole control.

To top up, you submit the receipts and receive exactly the amount they total, bringing the float back to AED 3,000.

The strength of this is that it is self-checking. If the tin plus receipts does not equal the float, something is wrong today, not at year end.

What goes wrong without it

Cash gets topped up on request, in round amounts, without the receipts being counted against it. There is no moment at which the balance is proved.

Losses in that system are invisible, because nothing is ever supposed to reconcile.

The rules that matter

One custodian. Named, and the only person with the key.

That custodian does not also approve their own reimbursements, and does not also reconcile the account.

A receipt for everything, no exceptions. An IOU is not a receipt.

A limit per transaction, above which it goes through the bank. AED 500 is a common place to set it, and it keeps the float doing what it is for.

Count it unannounced, by someone other than the custodian, at least quarterly.

Why it matters for tax and audit

Every petty cash payment is a business expense you are claiming.

An expense without support is not deductible in any defensible sense, and your auditor will treat a large unvouched cash balance as a finding.

Small individually. Material as a year's total.

The uncomfortable pattern

Look for receipts that are always just under the approval limit. Look for the same supplier appearing weekly. Look for months where the float was topped up more often than usual with no change in activity.

None of these prove anything. All of them are worth asking about.

Should you run petty cash at all

Increasingly, no.

Company cards with per-person limits, or an expense app, give you an automatic record, a named spender and a date, without anyone holding cash.

The reasons to keep a float are narrow. Genuinely cash-only suppliers, and remote sites. If neither applies, closing the tin removes the whole problem.

If you are closing it

Count it. Reconcile it. Write off the difference and record why. Then move the spend to cards with limits.

The write-off is uncomfortable and it is better than carrying an unexplained balance into an audit.

Where we fit

We reconcile petty cash as part of bookkeeping and flag the patterns above. If the float has not been counted in a year, that is where to start.