How can a small business owner or their accountant stop and catch an employee taking money from the petty cash box and covering it with made-up slips, reused or inflated receipts, unpaid IOUs or replenishments bigger than the slips support?

What should I check, step by step?

1. Set a fixed fund (for example USD 300) and write down what petty cash may and may not be used for, with a per-payout limit. Anything bigger goes through normal bills and approvals.

2. Name one custodian. Keep the cash in a locked box inside a locked drawer or safe, and limit who has the key.
3. Every payout gets a numbered slip signed by the person receiving the cash, approved by their supervisor, with the original receipt attached. No slip is approved by the person who received the money.
4. Count it: cash plus slips plus any open advances must equal the fund. Do it when you replenish and at random times, and have someone other than the custodian do the count.
5. Replenish only against the original receipts, for exactly their total. A replenishment check should never be larger than the fund itself, and the custodian shouldn't sign or receive it.
6. Mark each receipt as used (stamp or initial it) when it's reimbursed, so it can't come back in a later batch.
7. Prefer reimbursing people after they buy over handing out advances. Advances need a dated record and a follow-up when the receipt and change don't come back.
8. Keep a dated record of each count and replenishment that the custodian can't edit, so a later slip can't be slipped into an old period.
9. If the fund is short, talk to your accountant before confronting anyone, and keep the box, slips and receipts as they are.

How do employees hide petty cash theft with fake or reused slips?

The ACFE's 2026 report defines cash-on-hand misappropriation as stealing cash kept on the organization's premises. Petty cash is the plainest example, and the amounts are small enough that nobody looks closely.

• Because the fund should always add up, a thief has to make the paperwork explain the missing money: a slip for a purchase that never happened, an old or someone else's receipt, a receipt with the amount changed, an IOU that sits in the box for months, or a replenishment request larger than the slips. A shortage covered this way shows up only if someone checks the slips against original receipts.
• A Journal of Accountancy checklist for reviewing petty cash asks: is each slip signed by the recipient and approved by their supervisor, are original receipts attached, is the cash locked away with limited access to the key, were any slips received and approved by the same person, is the custodian the person who signs the replenishment check, are any replenishment checks above the established fund balance, and should any of the purchases have gone through accounts payable instead.

How do you reconcile a petty cash imprest fund and who should do it?

Intuit's QuickBooks Online help sets up petty cash as a Cash on hand bank-type account, funded by a check or transfer from your checking account, with each payout recorded as an expense paid from petty cash and backed by a slip saying who, when and what. It recommends one person managing the box and reconciling the account regularly.

• Minnesota's Office of the State Auditor gives the same rule for public funds: the custodian is personally responsible for the cash, it should be kept in a locked metal box inside a locked desk, cabinet or safe, reconciliations should be done by someone other than the person approving withdrawals, and when the fund is replenished the original receipts should match the replenishment check.
• The same office prefers the reimbursement method, where the person buys the item, brings the original receipt and is repaid, over handing out advances. With an advance, the custodian has to record the date, person, amount and purpose, and follow up if the receipt and change don't come back.

What does the ACFE 2026 report say about theft of cash on hand and petty cash?

Occupational Fraud 2026: A Report to the Nations (2,402 cases) recorded 230 cases of theft of cash on hand (10% of cases), with a median loss of USD 20,000. They lasted a median 9 months, the shortest of any scheme type, at about USD 2,200 of loss per month.

• The scheme was more common at small organizations: 13% of cases at organizations with fewer than 100 employees against 8% at larger ones. Small organizations also had fewer of the controls that would catch it; the report found surprise audits at only 16% of organizations with fewer than 100 employees against 52% of larger ones.
• Across all cases, organizations with surprise audits had a median loss of USD 74,000 against USD 149,000 for those without, a 50% difference.