Three Words That Can Save Your Business

By not letting one employee perform interrelated functions over the same assets you can cut your risk of having that employee steal from you significantly.

Let me give you some examples.

In case one an employee was allowed to record accounts payable and receivable, add and delete approved vendors in the accounting software, write checks, open the bank statements and reconcile the cash accounts.  This employee was also allowed to setup and pay bills via electronic banking.  In a little over 18 months this employee stole close to $300,000.

In case two a treasurer of a local volunteer organization allowed his wife to write checks, open the bank statements and reconcile the bank accounts.  She was also allowed to make deposits of cash received at various fund raising events.  Over seven years, she stole over $150,000.

The vast majority of employee fraud schemes are perpetrated by a single individual, thus segregation of duties could have stopped these thefts cold in their tracks.  A simple procedure such as having a different person reconcile the checking account against the accounting records could have pointed out these frauds in their infancy.   If the organization is too small to allow for that, even just having the bank statements delivered to the owner’s home address and opening and reviewing the checks and withdrawals from the bank accounts would have provided clues that something fishy was going on.

In an effective internal accounting control system you want to make sure that no one employee has both custody and control over any one part of the accounting system.  Accounts receivable maintenance duties should be done by someone that also does not process cash receipts.

Running a business is a time consuming task and more often than not there are not enough hours in the day to get everything done that you need.  One suggestion that was made to a business owner was to destroy the signature stamps that were used to sign checks to be mailed and sign all checks by hand.  The argument was that it would be excessively time consuming to sign all the checks by hand.  How many extra hours do you have to work to earn $300,000?

We can review your accounting control system and suggest effective controls to help you prevent someone from stealing from your company.