Do you regularly monitor your company’s cash accounts? You should. Even if you leave the job to your bookkeeper or accountant, you should stay aware of where the cash is going and how the spending is approved. Along with inventory “shrinkage,” theft or improper expenditures of cash are among the chief sources of loss for small companies.
Periodically, you hear about a huge loss caused by an employee who’s been quietly embezzling cash for years. But many smaller cases are never noticed. And it’s not always employees at fault. In fact, the vast majority of employees are scrupulously honest and loyal. Outsiders can be stealing your cash too, by submitting false or inflated invoices that are paid without proper review.
What can you do to reduce the risk of losses? The textbook answer is “internal controls.” This refers to things such as standard procedures for approving and paying bills. It includes segregation of duties – having more than one person involved in preparing, signing, and reconciling checks. Unfortunately many small companies don’t implement proper controls – either because there’s not enough staff or because they think it’s too much trouble.
Regardless of the size of your business, here are some steps you can take:
- Maintain a strict rule that all invoices must have an approval signature before being paid. Nothing focuses a person’s mind like having to sign his or her name on something.
- Have a policy that all employee expense reports must be signed off by a higher-level employee.
- Make it a rule that the person who prepares a company check can’t sign that check.
- Ask your bookkeeper or accountant to give you a signed note each month affirming that the bank statement has been reviewed and balanced.
- Check personally to make sure that these procedures are being followed.
- On occasion, ask to see the bank statement and canceled checks for the prior month. Review them in detail. Not only will this increase your chances of spotting fraud, but it will also remind you just what the company’s cash is being spent on.
Please contact our office for details or for assistance in improving controls over your company’s cash.
For assistance with this or other tax or accounting matters please contact us at 201-947-8081 or 646-688-2807, or email us at email@example.com.