Decide upon the size of the petty cash fund at each location. This is typically in the range of $100 to $500. Given the high risk of petty cash theft, it is generally better not to create excessively large petty cash funds, even though smaller ones must be replenished more frequently.
Decide upon the locations where petty cash funds will be installed. There may be a single one for the entire company, or perhaps one per building or department.
Appoint petty cash custodians. These are usually administrative staff who are on-site most of the day, and who have sufficient clerical skills to maintain the necessary amount of record keeping with a high degree of accuracy.
Basic process of setting up a petty cash system is:
★ Fund petty cash boxes
★ Replenishment and recordation
The petty cash system must incorporate a sufficient number of controls to mitigate the risks that petty cash will be stolen, or that it will be granted for improper reimbursement requests, or that petty cash expenditures are improperly recorded. You should periodically review the control problems that have arisen, to see if the system of controls should be adjusted to reduce the risk of loss.
Set up locked petty cash boxes or locked desk drawers, including a supply of petty cash vouchers. It may be necessary to create an alarm that will sound if a box or drawer is improperly accessed.
Purchase a set of petty cash vouchers from an office supply store. There is no need to create a custom form.
Enact a procedure whereby an accounting person periodically examines the amount of cash and receipts in each petty cash box to see if the total matches the original amount of funding established for the box, and to reconcile any variances.
Enact a procedure whereby the cashier replenishes the amount of cash in each petty cash box, as requested by the petty cash custodians. This also involves summarizing and recording all expenditures in the general ledger.
Train the petty cash custodians in how to evaluate requests for petty cash, how to fill out vouchers in exchange for cash payments, and when to request replacement cash when cash levels are low.