Don't Let Your Petty Cash Walk Out of Your Clinic
To some, petty cash may seem, well… petty. While always making sure there’s a few bucks in the drawer is good enough, having and maintaining a petty cash policy can save your practice a lot of inconvenience and money. Having some basic rules and controls in place will help avoid any cash slipping through the cracks of your practice and help prevent the temptation of theft by employees. Not keeping track of your petty cash expenses can also lead you to miss out on tax deductions. Even if you only spend a couple hundred dollars a month in petty cash expenses, that can add up to a couple thousand dollars you could write off your taxes. It also sends a signal to your employees that all money matters.
The purpose of petty cash is to be able to conveniently cover small expenses such as small purchases and employee reimbursements. For example, you may use petty cash if your office needs to purchase a few office supplies, pay postage, or reimburse an employee or patient for a taxi fare.
Here are a few things that should be included as part of the policy:
All cash in the practice should be kept in a locked cash box or cash register.
The cash balance to be maintained: Usually the Petty Cash on hand should be around $100 and, in some cases, can be up to around $500. Different clinics will have different petty cash needs, for example higher volume, large clinics that frequently must cover many minor expenses may choose to be on this higher end. If you end up realizing you need more petty cash than you initially thought you can always change this part of the policy. Ideally, start low and adjust up if necessary.
A replenishment threshold: This is the amount where you decide if the petty cash reaches you will replenish it. For example, if your initial petty cash amount is $100 dollars, you may decide that any time your petty cash balance drops below $25 you will top it up to $100 again.
The petty cash expense limit: the expenses covered by petty cash should be small. They generally have a limit of around $25 or $30.
Who will have access to petty cash and who will approve expenses? Not all employees need to or should have access to the petty cash fund. Designate a custodian(s) that will handle the funds and be responsible for disbursing them. Some clinics may decide to have each payment require that an authorized officer that does not have access to the funds approve requests for the use of petty cash funds.
What can petty cash be used for? This may vary from practice to practice. Is it okay to use petty cash for birthday cakes, parking, flowers, pizza delivery for a lunch meeting, etc.?
A procedure for keeping track of petty cash via a petty cash log: It should include who is using the fund, the date, description of use, the amount that was used and the balance after use, etc. Here is an example of a potential log. Someone needs to be accountable in ensuring the balance in the ledger is the same as that in the cash box/register.
When and who will record petty cash top-ups in the bookkeeping system?
How often will the petty cash account be reconciled, and what will be the procedure for settling any discrepancies? In most cases the cash should be reconciled to ensure accuracy, at the end of each business day.
Many practices combine their petty cash funds with their cash register if they receive any cash payments, copays, etc. In this case there are a few more items that need to be considered as part of the policy.
An upper threshold on the cash drawer should be set. This is the amount that if the petty cash in the practice exceeds that amount a deposit will be made. For example, “Once the cash on hand exceeds $200, we will deposit all cash in excess of $100.”
Upon reconciliation, if the cash exceeds the given threshold, the cash in excess is prepared for deposit into the bank.
Download a sample petty cash policy: