Written by Christine Galli, M.Ed.
When speaking at a Lunch and Learn for attorneys on the topic of embezzlement, it became clear that I would be educating a group of professionals in the field of law how to safeguard their cash and financial information. But as I listened to their stories, it was clear that no one is safe from these horrors. What was evident is that there were some best practices that were missing in their business. Would you be a candidate for this topic as well?
According to the Association of Certified Fraud Examiners (ACFE), in a report to the nation on Occupational Fraud and Abuse, small businesses have a greater frequency of fraud and a higher median loss than medium to large companies. A typical business will lose an average of 7% of revenues from employee theft alone. Here are a few measures to take when setting up accounting controls within your company:
- Develop a check and balance approach to banking. There should be a strategic distribution of duties in order to keep a transparent view of banking. One person may be cutting the checks for Accounts Payable, but someone else is reviewing the bills and receipts to verify the documents and signing the checks. Also, as I mentioned in my previous blog about watching your financial statement like a hawk – do the same to with your bank statement. Actually open it and investigate missing and/or duplicate check numbers, and review outstanding checks and deposits.
- Establish processes for Petty Cash. All too often, Petty Cash balances are left untouched on the Financial Statements. Replenishing the Petty Cash should be documented with a check and receipts should match the monthly disbursements. Reconcile the Petty Cash account as if it were the Check Register.
- Setting controls with Expense Reports. Employers should establish policies for reimbursement with employees where accountability is critical. Design an expense reports policy that sets spending controls by using per diem limits for each employee. Have employees use their own credit cards and cash for business transactions and submit original receipts for reimbursement. These should be turned in with coding of costs and client and be verified by the controller.
Other items to watch out for:
- Irregularities in time, frequency or amount
- Transactions not entered timely, in wrong period or wrong accounts
- Lack of original documentation for transactions
- Missing inventory, physical assets or office supplies
- Excessive credit memos or adjustments to accounts receivable
- Common or insider names on customer or vendor lists
- Duplicate payments or invoices
- Increase in expenses – small tools, supplies or COGS
The key to best practices is to have them in place and make sure everyone in your company knows that you’re keeping an eye on the money. Create regular checkpoints to reviewing documentation and detect fraud before it wreaks havoc on your company’s bottom line!
Technology In A Box Learning Services, LLC offers basic accounting courses and QuickBooks® training throughout Michigan. Christine specializes in developing accounting systems and training materials for business owners, bookkeepers, franchises and accountants across the country.
