You work hard to build your business. Take the time to protect your investment. When we have discovered, or uncovered, cases of fraud, embezzlement, or inaccurate reporting, it is often a surprise to the owner. Fraud prevention, embezzlement detection, and accurate financials are all reasons to implement and follow sound internal control practices. It is the age-old adage of “an ounce of prevention….”The most susceptible areas of risk for small businesses revolve around cash, receipts, and disbursements.Here are a few simple routine procedures that will help:

  • Insist on timely reporting - Review financial statements at least quarterly, and ask questions about variances from the budget and variances from the previous accounting period.
  • Review all of your bank statements - Have the statements delivered to someone other than the person responsible for making deposits and/or paying the bills. Watch for unusual items, extraordinary amounts, and items paid to individuals. How are deposits made? Do deposits reflect the sales or fee activity?
  • Review and monitor all of your credit card statements - Watch for unusual items that don’t relate to your day-to-day operations. Were there any airline or hotel charges? Were those company expenses? Require authorized documentation for all credit card charges.
  • Segregate duties - Of course, it is practically impossible if there is only one bookkeeper and if they are only part-time, but separate functions whenever you can and provide oversight.
  • Monitor payroll - If you have a payroll service, you should have a good idea of what the periodic cash flow requirement is. If that amount fluctuates, there should be a reasonable explanation. Were there any new employees? Were any bonuses paid? Periodically review the payroll service reports to confirm the number of employees and that their salaries are correct.
  • Know your employees - Unfortunately, even trusted friends and family members commit fraud when given the opportunity and/or financial need. One final step in preventing losses of this type is to change things up, request different reports or rotate assigned tasks. Employees tempted to commit fraud will seek predictable patterns. Make it harder by spot-checking and asking questions.

Managers and owners should make a commitment to implement internal controls and follow those controls. Know where the risks are for your particular industry. Create a culture in your workplace that results in accurate and timely financial information.

Certified Public Accountants are dedicated to providing sound accounting advice. Contact your accounting firm if you would like help assessing the risks for your particular business.