Where is Fraud Likely? – Part 5: Petty Cash

Lawrence R. Beebe, CPA

In this series, we are discussing specific areas where fraud might be likely to occur within an organization and the steps management can take to detect and prevent fraud.

Petty Cash Can Be the Tip of the Iceberg

External auditors often ignore petty cash because the amount of the petty cash fund is immaterial to the financial statements.  Even so, the auditor should look at the volume of transactions in petty cash and should scan those transactions looking for the unusual.

An astute auditor noticed in one company that local travel expenses were being paid by the petty cash fund.  The auditor noticed that the volume of transactions appeared to be excessive compared to prior years.  The auditor selected ten travel payments made to a single individual and showed the reimbursement forms to that individual.  The person disclaimed any knowledge of most of the forms he was shown.  Further investigation revealed the person who was the custodian of petty cash had been stealing and covering the theft with the phony travel reimbursement forms.

Previous Posts in this Series

Where is Fraud Likely? – Part 1: Almost Anywhere

Where is Fraud Likely? – Part 2: Accounts Receivable Lapping

Where is Fraud Likely? – Part 3: Kiting

Where is Fraud Likely? – Part 4: Falsifying Credit Card Charges

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