The Hindu Business Line : There's nothing wrong with cash, it gives you time to think

THE latest issue of Bookkeeping Tips from the American Institute of Professional Bookkeepers (www.aipb.org) begins with what one always takes for granted — petty cash.

"If you handle petty cash for your employer, or help clients set up a petty cash system, you know that if anything goes wrong, you will be blamed. That's why we asked three PhDs in accounting to pool their experience and expertise to put together a fail-safe petty cash system bookkeepers can rely on," begins the twice-monthly e-letter.

The authors are John P. Walker, PhD, CPA; Arundhati S. Rao, PhD; and Suzanne O'Callaghan, PhD, CPA, CIA. One can spot `Getting Control of Petty Cash' in `Dr Aru Rao's CV' on www.southernct.edu, under `publications in referred academic journals' — (The Journal of Business, Taxation, and Finance, Summer 1999, vol. 9, no.1, p. 23-34) — though no download is available at the site.

Therefore, I decide to revert to the e-letter that talks about how petty cash funds are not a way to get around cash disbursement controls but can enhance efficiency by providing cash quickly when the formal system is too costly or too slow. "Surprisingly, producing a cheque can cost as much as $2.50 or more," informs the AIPB to highlight the cost involved. Also, "It often requires 1-5 days to process a voucher and produce a cheque, too long for a $25 item needed right away," is a line that speaks of time costs.

Typical problems in petty cash, according to the research, are controls, shortages, security, reimbursement, and replenishment. It is usual to have one custodian for petty cash, but "if the custodian is at a doctor's appointment, no one gets cash".

It may help to have two or three custodians who coordinate their schedules, is a practical advice. However, "A different employee should book reimbursements, and still another should review distributions, and amounts," in the true spirit of internal check.

To help avoid running out of petty cash too soon, the paper helps with a few guidelines, taking into account the average daily requirement, number of days between replenishments, lead time for replenishment, and cushion needs. "Keep petty cash in a fireproof, locked, limited access safe, locked metal box, or vault, depending on the fund's size," is how security is taken care of.

Further dos are to prohibit accepting employee IOUs in exchange for cash for personal use, and to replenish before funds run low.

Review of petty cash is a must to determine if the imprest is too high or low, and also to find if employees with legitimate needs were denied petty cash during the year.

Though you may already know all these, it is noteworthy that the topic merits the attention of researchers. If you click around, you'd find that the authors are associated with other papers of interest. Such as: `First Course in Accounting from the Users' Perspective: A Case Study of the Use of a Financial Statement Analysis Project Utilising Internet Research' by Rao with Leslee Higgins; `An artificial intelligence application of backpropagation neural networks to simulate accountants' assessments of internal control systems using COSO guidelines' and `Over and Under Reliance on Internal Controls: Neural Networks Versus External Auditors' by O'Callaghan with J. Timothy Sale and Walker respectively.

Petty cash is no petty issue. "There's nothing wrong with cash. It gives you time to think," is a thought of Robert Prechter Jr. And Edward Fitzgerald would urge, "Ah, take the Cash in hand and waive the Rest."

But Joey Bishop talks of reset priorities: "Today you can go to a gas station and find the cash register open and the toilets locked. They must think toilet paper is worth more than money."

Surprisingly, petty cash is very much in the news. The Fall Festival and Parade Committee gets access to $200 petty cash "to pay incidental expenses like postage stamps without having to see the treasurer," reports www.daily-chronicle.com. "Between $18 and $200 in petty cash was stolen from a desk drawer," is a story from the crime-beat on www.zwire.com.

"Companies have machines in remote sites or in other company divisions, and they aren't sure just how many, partly because of a lack of controls, but also partly because servers have become so inexpensive that they can now be acquired with discretionary petty cash in company departments," notes www.itjungle.com in a story on `Server Ecosystems'.

CFO survey

COST of capital, equity premium, long-term market returns, long-term equity returns, expected excess returns, disagreement, individual uncertainty, skewness, asymmetry, survey methods, risk and reward are listed as `keywords' in a new paper titled, `The Equity Risk Premium in June 2005: Evidence from the Global CFO Outlook Survey' by John R. Graham and Campbell R. Harvey, available on http://papers.ssrn.com.

The quarterly survey of CFOs has been on from 1996, conducted by Duke University to obtain views on important topical issues, and the response rate has been 5-8 per cent, informs the paper. "In June of 2000, a question on expected stock market returns was added to the survey," and the current research looks at 5,000 responses received over the last five years, focussing on the 10-year expected returns as proxy for the market risk premium.

Four, three, two...

A RECENT posting on www.accountingweb.com cites a Wall Street Journal report that Securities and Exchange Commission officials are privately discussing steps to take if one of the Big Four accounting firms should collapse.

"The Journal, citing "people familiar with the discussions," reports that the SEC is trying to put a "contingency plan" in place to change the rules so that it would be easier for companies to switch auditors if the Big Four becomes the Big Three."

A countdown towards a disaster recovery plan?

AccountSpeak@TheHindu.co.in

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