Petty Cash and Floats

Petty Cash

1)     Insurance policy

What is the production insurance policy limit for the amount of cash that can be kept in the company premises and does the policy also require that the money is kept in a safe? Safes are now given a rating and the Production Accountant must ensure that the rating meets the insurance policy requirement.

2)     Expense vouchers on spreadsheets

Have production personnel been issued with a standard excel spreadsheet that they are required to account for petty cash on? If so, personnel should be instructed to submit a hard copy of the spreadsheet with supporting documentation and also to provide an e-mailed version (which the Production Accountant can adjust VAT and other errors on).

3)     Control of the safe

What is company policy concerning the number of people with keys to the safe? Best practice requires that one person alone should be authorised to access the safe and that one spare key should be kept off the premises in case the other key is lost. The first key should be in possession of the authorised key-holder at all times and must not be left on the premises overnight.

The second key holder should be a senior person in the company and best practice requires that this is not the Line Producer. The person authorised to access the safe should be made aware that they alone are responsible for the integrity of the safe and its’ contents.

4)     Cash collection

When picking up cash from a bank, what is the company policy on the number of people who have to attend? Many companies, for example, insist on at least two people going to the bank when more than £1000 is being drawn. It is also worth considering whether it may be preferable to arrange for the cash to be delivered by a security firm. This service reduces the risk of robbery and nowadays is quite cost effective.

5)     Petty cash vouchers

The Production Accountant should determine what form of petty cash vouchers (PCV) would prove to be most suitable. The A4 sized printed PCV envelope is generally regarded as being more appropriate for those with significant cash spend while a simpler format could apply to others. In both cases the PCV should provide sufficient space for detailed descriptions, room to insert cost codes and separate columns for net/VAT/gross spend.  The appendix to this guid has an example of a template; this version can also be used on Excel, and the VAT calculated automatically.

Expense template.xls
Petty cash envelope example.xls

6)     Cash reconciliations

Cash in hand should regularly be reconciled to the accounting records to ensure that they agree. One person should prepare the reconciliation and another person should sign it off. Cash reconciliation should occur at least weekly but on large productions a daily reconciliation may be appropriate.

Blank petty cash and float rec.xls

7)     Taxable Expenditure

The Production Accountant must also consider whether any of the ‘cash’ expenditure is actually taxable. For example, if a runner were paid in cash, this should be subjected to PAYE/NI deductions as if it is normal payroll.  Similarly, per diems or mileage allowances in excess of the Inland Revenue approved sums are taxable.

8)     Production assets

It is also important that the Production Accountant identifies production assets accounted for through petty cash. Such assets (costumes, props, fridges, computers, chairs) do have a value and should be either sold off at the end of the production or returned to the production company. Where an asset is sold off at the end of the production VAT must be accounted for on the sale, if the company is VAT registered.

Other sample documents

Journal entry form example.xls
Cheque requisition example.xls
Remittance advice.doc
Petty cash log.xls

Advancing petty cash floats

Control over floats
There is probably more fraud committed with petty cash and floats than any other area of production so the following controls are necessary:-

 

1)     Issuing floats

When a float is advanced the Line Producer must authorise the float advance sheet and the recipient of the float must also sign the document to acknowledge that they have received the float and are responsible for accounting for it. The Production Accountant must keep a copy of the float advance sheet and should give a photocopy of it to the recipient. The Line Producer may also require a copy.  When a float is accounted for, the Line Producer should sign that document off.

2)     Authorisation of advances

Generally all float advances have to be authorised by the Line Producer or Production Manager and best practice requires that the Line Producer signs the float advance sheet to demonstrate that the float is authorised and that the Line Producer is aware of the float (and can therefore make allowance for the potential cost as the float is spent).

An example of a float form can be found in the appendix.

Float form.xls

3)     Policy on unaccounted-for floats

Many production companies set limits as to the level of individual float advances and once that limit is reached, a person has to clear down the unaccounted-for float (by providing an analysis of expenditure and supporting receipts) before another float can be advanced.

4)     Imprest system

Another system that may be employed is called the ‘imprest’ system in which a person’s float is always kept at a certain pre-agreed level.

E.g. if a float of £100 is issued and then receipts for £90 are submitted in that week, then an amount of £90 will be reimbursed to the float holder to bring the balance of the float back to £100. The replenishment is credited to float account and the debits will go to the respective expense accounts, based on the petty cash receipts.

It is important that the Line Producer signs off the further advance of £90 demonstrating that they are aware of the expenditure and can make provision for the cost in the cost monitor.

5)     Accounting for floats

Best practice generally requires the Production Accountant to have a separate account in the accounting ledger for each person having a float. There will generally need to be a ‘cash in hand’ account which reflects monies drawn from the bank but not yet advanced to anyone (this money should be in the company safe) and when some of this money is advanced to a member of the production team entries need to be put through to the accounting records to reflect the transfer of money from the ‘cash in hand’ to that individual’s float account.   The Production Accountant should frequently agree the levels of individuals’ floats with them so that no misunderstandings occur.

6)     Float holders responsibility

When an individual is given a float advance that person must be made aware that they alone are responsible for accounting for the float. Very often the HOD who receives the float will advance part of it to one of the team working under them but this does not absolve them of their responsibility to account for that part of the float. The HOD must require the person to account for the float to him/her and the costs relating to the sub-float will then be incorporated into the HOD’s float and accounted for therewith.

7)     Accruing for floats

When cost reporting, it is important to put monies aside in the relevant cost centre for the costs associated with floats. For example, if the art department has £40,000 of float advances, you would generally put £40,000 in costs to complete (or committed costs) to reflect this likely cost. Some Production Accountants like to raise a purchase order for floats to ensure that monies are put aside to reflect the costs to come when the float is accounted for.

8)     Controls over clearing of floats

It is generally good practice for a production company to infer that final weeks’ wages will be with-held until individuals have accounted for their floats. A person with a float of £500 can then expect the final £500 due to them (net of tax) to be withheld until the float is accounted for.

9)     Supporting documentation

All petty cash expenditure must to supported by documentation (wherever possible by a VAT receipt; VAT cannot be claimed on a credit card slip). Where it is impossible to obtain the documentation, the individual accounting for the float should write ‘no receipt’ on the document accounting for the petty cash and the Line Producer should initial this item by way of authorisation

10)   Authorisation of floats

The Line Producer’s floats should be authorised by someone senior to them in the company

11)   Write offs

Best practice should ensure that all floats are accounted for but, in the event that it is necessary to write off a float (it happens!) this must be approved by the Line Producer or, if the write off is in the Line Producer’s float, the write off must be approved by someone senior to them in the company.

 

Production Accountant responsibilities

Ensure that cash salary payments (if any) are subjected to HMRC deductions if and when appropriate.

Check that any per diem, meal or travel allowances paid in excess of HMRC approved limits are taxed where necessary. This will generally only apply to U.K resident location and it would be sensible to obtain HMRC ruling on proposed payments beforehand.

A separate record should be kept for each individual who is likely to run up excessive mileage (e.g. Buyer, Location Manager) to ensure that the allowance changes in accordance with HMRC guidelines and a tax liability is avoided.

Check that any purchased items qualifying as assets are flagged as such and are entered in the register (See Production Assets section).

Ensure that cash in hand is reconciled to the accounting records on a regular basis, at least once a week on a small production but more frequently on a larger one. It should be prepared by the Assistant Production Accountant and then checked and signed off by the Production Accountant.  Where there is no assistant, the Production Accountant will prepare the reconciliation, and it should be signed off by someone more senior.

Bank account controls top tips

  • Segregation of duties always maintained
  • Two signatories for each cheque
  • Two authorisations for online payments
  • Supporting documentation for every transaction
  • All cash payments signed received by the recipient
  • Evidence of authorisation on all documentation
  • Cash, cheques and purchase orders kept securely
  • No pre-signing of cheques
  • Two people to collect cash from the bank
  • Additional floats issued only after previous floats are cleared