The Looks Hair Salon pays most of their suppliers through EFT but they need cash to buy items such as airtime, tea, and milk several times a week. The business also buys some products for cash from various salesman who drop into the salon to promote new hair products. The owner keeps an amount of R1 000 cash in a petty cash box that is used to make these purchases. Sha has appointed Ziza, one of the hairdressers, to oversee the petty cash. The petty cash box is placed next to the till at the entrance. When Zazi is not around other hairdressers look after the petty cash box, it is not locked and everybody has access to it. Whenever Ziza and other hairdressers take money out of petty cash they write an amount and details of what they bought on the book placed next to the petty cash box. Ziza is responsible for requesting the replacement of petty cash from the owner. The petty cash is replaced more than once in a month. REQUIRED: 2.1 The owner of the salon has requested you to present to her the following : 2.1.1 Identify the FOUR problems around management and control of petty cash at "The Looks Hair Salon". (Refer to the extract provided above) (4) 2.1.2 Based on the problems identified, provide FOUR internal control measures that can be implemented to manage petty cash. (8)

### **2.1.1. Identified Problems in Management and Control of Petty Cash** 1. **Lack of Security for Petty Cash Box:** - The petty cash box is not locked when Ziza is not present, allowing unrestricted access to all hairdressers. This increases the risk of unauthorized access and potential theft. 2. **Multiple Individuals Handling Petty Cash:** - When Ziza is unavailable, other hairdressers manage the petty cash. This lack of a designated custodian can lead to inconsistencies and make it difficult to trace transactions accurately. 3. **Inadequate Segregation of Duties:** - The same individual (or multiple hairdressers) is responsible for both handling and recording petty cash transactions. This concentration of responsibilities can lead to errors or fraudulent activities without proper oversight. 4. **Frequent Replenishment Without Adequate Monitoring:** - Petty cash is being replenished more than once a month, which may indicate poor control over petty cash usage and potential misuse of funds without timely detection. ### **2.1.2. Recommended Internal Control Measures for Petty Cash Management** 1. **Secure the Petty Cash Box:** - **Implementation:** Install a lock on the petty cash box and ensure it is securely stored when not in use. - **Benefit:** Restricts access to authorized personnel only, reducing the risk of unauthorized withdrawals and theft. 2. **Assign a Dedicated Petty Cash Custodian:** - **Implementation:** Designate a single responsible individual (preferably not involved in recording transactions) to manage the petty cash. - **Benefit:** Enhances accountability and ensures consistent handling of petty cash, minimizing errors and fraudulent activities. 3. **Implement Segregation of Duties:** - **Implementation:** Separate the responsibilities of handling petty cash, recording transactions, and reconciling the petty cash fund among different individuals. - **Benefit:** Reduces the risk of fraud and errors by ensuring that no single individual has complete control over all aspects of petty cash management. 4. **Establish Regular Reconciliation and Monitoring:** - **Implementation:** Conduct periodic reconciliations of the petty cash fund against recorded transactions, and review receipts and expenditure regularly. - **Benefit:** Ensures discrepancies are identified and addressed promptly, maintaining accurate financial records and preventing misuse of funds. 5. **Require Detailed Documentation and Receipts:** - **Implementation:** Mandate that every petty cash disbursement is accompanied by a receipt or voucher, and is properly recorded with clear descriptions. - **Benefit:** Enhances transparency and traceability of petty cash transactions, making it easier to verify and audit expenses. 6. **Set Spending Limits and Approval Processes:** - **Implementation:** Define maximum allowable amounts for petty cash transactions and require managerial approval for expenditures exceeding set limits. - **Benefit:** Controls the amount of funds disbursed, preventing excessive or unauthorized spending. By addressing the identified problems with these internal control measures, "The Looks Hair Salon" can enhance the integrity and efficiency of its petty cash management system, safeguarding against potential financial mismanagement and fraud.