A petty cash audit tests whether the imprest system is operating as designed — a fixed float topped up only to the extent spent and evidenced by vouchers — and looks specifically for vouchers without adequate support, purchases deliberately split into smaller amounts to stay under an approval threshold, and reconciliation that happens irregularly or only when the auditor asks for it. The control weaknesses here are usually simple and repetitive rather than sophisticated, which is exactly what makes sample-based testing effective if it covers enough of the period.
How the imprest system is supposed to work
Under an imprest system, the petty cash custodian starts each period with a fixed float — say ₹25,000 — spends against it during the period, and is reimbursed exactly the amount spent at the end of the period, bringing the float back to the fixed ₹25,000. The float itself never grows or shrinks; only the mix of cash and submitted vouchers inside it changes.
- The float amount is fixed and reviewed periodically for adequacy, not left to drift upward whenever the custodian asks for more.
- Every payment out of the float is supported by a voucher before or at the time cash leaves the box, not reconstructed afterward from memory.
- Reimbursement is made against submitted, approved vouchers only — cash in equals vouchers submitted, never more.
- A different person authorises and reviews the reimbursement than the person who holds and disburses the float.
Common practice, not a requirement
A written petty cash policy stating the float amount, the approval limit per voucher, the categories of expense permitted, and the reconciliation frequency is common practice at organised mid-market companies, though it is not a statutory requirement. Its absence usually means the limits in practice are whatever the custodian and their manager informally agree, which varies and is hard to test consistently.
Voucher-level testing
- 01Select a sample of vouchers spread across the period, not concentrated in one or two monthsPetty cash control failures tend to cluster around specific months — often when a particular custodian is on leave and someone else is covering — so a sample from one quarter understates the real failure rate.
- 02Check each voucher has a third-party receipt or bill attached, not just an internally prepared slipAn internally typed voucher with no vendor bill attached is evidence of a payment having been made by someone, but it is not evidence of what was actually bought.
- 03Check the voucher is approved by someone other than the person who incurred the expense and other than the custodianSelf-approved vouchers — the same person requesting, incurring and approving — defeat the control regardless of how good the documentation otherwise looks.
- 04Check the expense category and GL coding against the nature of the expense on the billPetty cash is where miscoded expenses tend to hide — a personal purchase coded as office supplies, or a repeated 'miscellaneous expense' category that should have been broken out.
- 05Trace reimbursement to the bank payment or cheque that tops the float back upConfirms the amount reimbursed equals the vouchers actually submitted for that period, no more and no less.
Split purchases: the specific pattern to look for
Where petty cash vouchers above a certain amount require a second approval, or where petty cash itself is meant to be used only for small, incidental payments below a stated ceiling, a common workaround is to split what is really one purchase into several smaller vouchers, each individually under the limit.
| Signal | Why it indicates splitting |
|---|---|
| Multiple vouchers to the same vendor on the same date, each just under the approval limit | A genuinely separate purchase rarely lands within a few rupees of a limit by coincidence, repeatedly |
| Sequential invoice numbers from the same vendor across two or more vouchers in a short window | Suggests one billing event divided into multiple invoices to match the split vouchers |
| A pattern that recurs for the same category of expense every month, always just under the limit | A one-off split is a lapse; a monthly pattern is a routine workaround built into how the float is used |
- 01Sort or filter the voucher population by vendor and by dateThis is the fastest way to surface same-day, same-vendor clusters that deserve a closer look.
- 02For any cluster found, check whether the combined amount would have required a different approval levelIf yes, and no evidence shows that higher approval was obtained, raise it as a control bypass rather than treating each voucher as independently compliant.
Split purchases are usually a control-design problem rather than fraud at the amounts typically involved in petty cash, but they should still be reported as a control weakness, because the same behaviour — structuring payments to stay under an approval threshold — is exactly the pattern that matters at larger amounts elsewhere in the business.
Reconciliation frequency
- Petty cash should be reconciled — vouchers totalled, cash counted, and the two agreed to the fixed float — at least monthly, and more frequently for a float with high transaction volume.
- Check that reconciliation is evidenced by a signed reconciliation sheet for each period, not reconstructed only when the auditor asks to see it.
- Where reconciliation is monthly on paper but the custodian can produce sheets for every month only during the audit visit, treat this as a sign the reconciliation is not actually happening on the stated cycle.
- Combine petty cash reconciliation review with the surprise cash count procedure where practical — a count that lands mid-period, reconciled against the last signed-off reconciliation, tests both the balance and the discipline together.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Bank, cash & treasuryCash-on-hand verification: physical cash count procedureHow to run a surprise cash count with proper dual control, what to do with IOUs found in the box, and how much effort a small cash balance really deserves.
- Bank, cash & treasuryTreasury controls audit checklist for mid-market companiesSegregation of duties over payments, dual signatories, bank mandate review frequency, and whether cash flow forecasting is real or decorative.
- Bank, cash & treasuryBank reconciliation audit procedure for statutory auditWhat a BRS must reconcile, the red flags that separate a timing difference from a cover-up, and how many months you actually need to review.
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