by Larry Chester
CFO Simplified is an IMA B2B Partner…
Are the people who work for you honest? Of course – or are they?
Internal controls are designed to keep your business safe. No matter how honest people are, when they get into trouble, it’s just a short step from borrowing $20 from petty cash to issuing a check to themselves (or a fake company) and signing it. Even if they’re just “borrowing” from you, it’s still theft.
Every year, owners discover that the office manager they trusted has been writing checks to themselves for $1,000 to $10,000 a month for the last 10 years. The losses run from thousands to millions.
How do you protect yourself from the honest employee that ended up with too much month left at the end of their money?
- Watch your cash – reconcile petty cash monthly. And look at that reconciliation. It’s one way to siphon off your profits.
- Sign your checks – Don’t be too busy to sign your company checks. Know where your money is going. Ask about a new vendor, or strange amount.
- Divide the responsibilities. There are 3 key AP functions, Entering AP, Issuing your checks, and reconciling your bank account. These should be done by different people.
- Review your bank activity. Who did you write checks to, and for how much?
- Approve every new vendor. This is an easy way to steal from you. Their relative has a company doing something that you need, and you hire them to do work. Is the price competitive?
- Bank authorization. When you open an account, the board resolution gives wide authority. This approval allows signatories to open and close accounts, borrow or pledge the assets of the company, withdraw funds and issue wires both domestic and foreign. Who are you giving permissions to, and what are those permissions?
- Review your payments. Get a report every quarter with a list of vendors or checks you’ve issued, sorted by company. You’ll see pretty quickly where your money is going.
- Control your credit cards. Review your employees’ credit card bills monthly.
- Deliver your paychecks personally. Do it very quarter. It provides a connection to your employees and makes sure that everyone really works for you.
These small steps will protect your net income and your bank account. Remember, every situation starts out small. Track your money, and you’ll keep it on your bottom line and in your pocket.
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