Larry’s Laws of Larceny- Law 12: Petty Cash Sometimes Isn’t

Larry Beebe, CPA

How much time is the external auditor of the financial statements going to devote to the audit of petty cash? The auditor probably will not spend any time on petty cash because it is not a material item in the plan’s financial statements. Plan auditors spend most of their audit time in five major areas- investments, benefits, contributions, expenses, and participant data.

There is one exception. Transactions in petty cash can be indicators of fraud and, as such, may be the tip of the iceberg.

Many years ago, our firm was auditing an out of town client. The auditors counted petty cash the first day and everything was properly accounted for. Later that day, the auditors discovered what appeared to be fraudulent travel vouchers which only could have been submitted by the petty cash custodian. The next day, the auditors counted petty cash again and there was a $50 shortage. When confronted, the custodian admitted he had “borrowed” the money. Asked if he had every done anything like that before, he said “no”. He was then confronted with the fraudulent travel vouchers and eventually confessed to the theft of the funds.

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