Internal control is necessary in an organization to protect assets from human error, electronic malfunctions, or theft. Internal control practices also promote precise recordkeeping, timely financial statements, and comply with laws and regulations, all of which encourage efficient operations (Annand, 2018, p. 266). Because of its infrequent use and accessibility, Petty Cash can be easily manipulated if internal controls are not enforced. There are many controls that can be utilized to safeguard the accuracy of petty cash accounts, Maurano (2018) suggests the following five ways:

1. Segregation of Duties – To avoid theft or human error, no one person should have complete control over the petty cash handling process. Authorization, recordkeeping, and accessibility to the petty cash should be the responsibility of separate employees.

2. Secure the Cash – Petty cash should be physically secured and monitored to avoid potential theft or misplacement. This can be achieved by hiding the petty cash in a locked drawer, safe, or box, with a key or code. To avoid mismanagement of funds, only a handful of authorized employees should know the location of the petty cash, and how to access it (key or combination).

3. Accountability – The organization should have clear processes on all cash transactions that employees should be trained on and follow, including who authorizes what transactions, who is in charge of recordkeeping, and disbursements. GAP should be followed, and cash receipts should be deposited as soon as feasible. Shared accountability of the petty cash accounts should help to limit theft, misuse, recordkeeping errors. 

4. Reconciliations – Correct and timely recordkeeping is important in managing the accuracy of the petty cash. Bank accounts and the general ledger should be updated and reconciled regularly to track the cash balance and keep accurate accounting records. 

5. Monitoring – The organization should review and monitor these practices to ensure that they are executing effective internal control. Monitoring will identify if any process are ineffective and should change. Multiple employees should be tasked with regularly reviewing the petty cash to ensure that everything is flowing correctly.

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1 Segregation of Duties Segregation of duties may be a key control intended to attenuate the occurrence of errors or fraud by ensuring that no employee has the power to both perpetrate and conceal err... View the full answer