Audit and Assurance Practice Exam

What typically does NOT provide adequate controls for a petty cash fund?

1. Designating one person to manage it

2. Tracking and recording every transaction

3. Regular audits and reconciliations

4. Having a separate account for petty cash

The correct answer is: Designating one person to manage it

Designating one person to manage the petty cash fund does not provide adequate controls on its own because it creates a lack of checks and balances. When only one person is responsible for the management of the petty cash, there is an increased risk of misappropriation or theft, as that individual has full access to the funds without any independent verification of transactions. In an effective control environment, it is crucial to implement a segregation of duties among multiple individuals. This means that one person should handle disbursements, another should be responsible for reconciliation, and yet another may perform oversight functions. This division helps to reduce the risk of error or fraud, ensuring more reliable management of the petty cash fund. In contrast, tracking and recording every transaction provides transparency and accountability, while regular audits and reconciliations help to detect discrepancies in a timely manner. Having a separate account specifically for petty cash can further aid in managing and monitoring its use effectively.