The Rs 340 Petty Cash Gap
A vocational institute office keeps a petty cash imprest of Rs 5,000 with a junior clerk, reimbursed at the start of each month on submission of vouchers. At the close of October the head of office counts Rs 1,240 in cash against vouchers totalling Rs 3,420, so Rs 340 is unaccounted for. Two vouchers have no supporting bills, one voucher is unsigned by the person who received the money, and one voucher of Rs 500 is described only as miscellaneous office expenses. The clerk says he was busy with admission work, that some bills must have been misplaced, and that he paid for local transport and tea for a visiting inspection team. He has held the imprest for four years and no surprise check has ever been done. The annual audit begins in six weeks.
1. Reconcile the imprest and state what can and cannot be concluded from the figures.
Read the worked answer
Reconciliation: imprest Rs 5,000; cash counted Rs 1,240 plus vouchers Rs 3,420 equals Rs 4,660; shortfall Rs 340. The shortfall is arithmetically established and the clerk's custodianship is where it arises.
What can be concluded: there is a cash shortage, and there is a control failure. Vouchers without bills, an unsigned voucher and a Rs 500 entry labelled miscellaneous would fail any audit test, whatever happened to the Rs 340.
What cannot be concluded: dishonesty. The Rs 340 could be an unrecorded payment, a voucher total carried wrongly, change not returned, an IOU in the box, or a counting error. Note also that the face value of the vouchers is not proof of expenditure, so the unsupported amount is larger than Rs 340; two unbilled vouchers plus the Rs 500 entry may themselves be the real problem.
Before drawing any conclusion: recount in the clerk's presence, examine the cash box for loose slips, check for vouchers not yet entered, and verify the totals of the voucher bundle. Record the recount in writing with both signatures. Only then ask for a written explanation, and treat the response as evidence rather than as the finding.
2. What should be done now about the Rs 340 and the defective vouchers, before the audit?
Read the worked answer
The wrong response is to reimburse the full Rs 5,000 quietly, because that converts a control failure into a concealed one and leaves the office exposed if the auditor later tests October.
Defective vouchers. For the unsigned voucher, obtain the recipient's signature or a written certificate of receipt; if that is impossible, treat the amount as unsupported and do not pass it. For the two vouchers without bills, obtain duplicate bills or a certificate from the person who incurred the expense. For the Rs 500 miscellaneous entry, obtain an itemised breakdown; if the clerk's account of transport and tea for the inspection team is confirmed by the officer concerned, seek the head's sanction for that expenditure rather than accepting a vague description.
The Rs 340. Ask for a written explanation, and settle it under the institution's rules: recovered from the clerk if unexplained, or adjusted only if a genuine unrecorded payment is proved. Report the position in writing to the head of office now, with the recount figures and the action taken on each voucher.
Reimbursement. Release only the reconciled and supported amount, and record the shortage pending settlement. Doing this before the audit is far safer than having the auditor discover it.
3. Recommend controls to prevent recurrence, and explain which observed failure each control addresses.
Read the worked answer
Each control should answer a specific weakness seen in October, otherwise the list becomes generic advice.
- Pre-numbered vouchers, all accounted for by serial. Addresses the missing and unrecorded entries; a gap in the sequence is visible without anyone remembering.
- A bill or receipt for every payment, with a small threshold above which the head's prior sanction is needed. Addresses the two unbilled vouchers.
- No 'miscellaneous' head. Every payment must carry a purpose and a payee, which addresses the Rs 500 entry.
- Signature of the recipient on every voucher, addressing the unsigned voucher.
- Monthly reconciliation signed by the head of office before reimbursement, so the imprest is proved monthly, not once a year.
- Surprise cash counts at irregular intervals. A single unannounced count would have exposed a four-year accumulation of weak practice long ago.
- A per-transaction ceiling, since petty cash is not for large or regular payments, and rotation of the imprest holder after a stated period.
The clerk's workload during admissions is a real constraint, so the plan should also allow the imprest to be suspended during peak periods rather than run unsupervised. Report the new controls to the auditor as corrective action.