TAKE YOUR BUSINESS PULSE
How are you managing your business finances? As your business grows in size and becomes more complex, you do not have the firsthand knowledge of all aspects of the business that you had as the owner-operator. Small businesses run an inherently greater risk of employee theft, because a small business can not afford the luxury of having a separation of duties. The "checks and balances" concept, where the results of one type of action or work are checked or proved by independent means, is lacking. The busy employer and a small accounting staff lead to the breakdown in internal control. Without strong internal control procedures in place, employees can learn to manipulate the accounting system to their benefit.
Honest, trusted employees suddenly become involved in an embezzlement or theft for two major reasons. The first is involvement with drugs by either the employee or a family member; the second is pressure created by an economic downturn. Unfortunately, once your financial records have been altered, discovering problems is extremely difficult. Whether it is a loss of money or undetected mistakes, the end result will impact your company's management decisions, financial reports, and tax filings.
Many business people are not aware that the typical accounting engagements, including certified audits, do not include specific services relating to the discovery of employee fraud. Therefore, it is incumbent upon the business owners to have an understanding of accounting system weaknesses and to develop a system of controls. The following business practices can help you minimize potential internal control problems.
Related duties should be assigned to different people.
Certain accounting functions are designed to cross-reference each other for accuracy -writing checks/signing checks; ordering/paying/receiving materials; handling cash/recording cash, etc. You will catch inconsistencies in a timely manner when you segregate duties.
Reconcile and scrutinize your bank statements every month.
A bank statement can tell you a lot about your business if you review the information in a timely manner. Examine checks endorsements; track transactions.
Always ask for proof before you sign a check or authorize a transaction.
When you insist on reviewing original documentation, your employees become more accurate. You should also occasionally verify the names of your vendors. Remember to cancel supporting documents after signing a check.
Lock and protect your valuables.
Keep blank checks and signature stamps secured and deposit cash and checks daily. It's also important to secure fidelity bonds and insurance for all accounting and key personnel.
Know your employees and be aware of changes in behavior.
Always verify employee references before hiring. Many white-collar crimes go unreported and continue to be repeated. Watch for trouble signs: possible substance abuse, change in lifestyle, living beyond means, possessiveness of work.
Improved internal control can reveal errors and omissions, discourage employee theft, protect assets, and recognize the excellent efforts of your staff.