Five financial accounting controls that every small business needs

Ellis Orlan • December 04, 2017

Small to Mid-sized Businesses (SMBs) are frequent sources of wealth, pride, and personal fulfilment. However, they are often viewed as ‘easy targets’ for fraud, theft, and embezzlement. For this reason, owners of SMBs should be particularly vigilant about their high-risk positions, their checks and balances, and their small business accounting practices.

These 5 accounting controls can help you reduce the risk factors, identify potential wrongdoing, and eliminate the temptations of theft, fraud, and embezzlement within your small business.

Personally Control Outgoing Funds

While a skilled bookkeeper can be an invaluable resource in maintaining your books and organizing your finances, it is strongly advised that you, as the owner of the business, take direct responsibility for personally signing all outgoing cheques, thereby insulating your finances from attempted fraud or theft. This will help you keep an eye on exactly what your hard-earned funds are being spent on, and ensure that the amount for each cheque accurately represents the value of the product or service that has been purchased.

Giving a bookkeeper or manager the authority to sign cheques on behalf of the company can be an invitation for fraud and ultimately, theft. An employee with cheque-signing authority can very easily cover up their abuse of power.

Encourage Job-Sharing

An employee who is committing fraudulent activity will often be caught when they are either temporarily replaced due to vacation or illness, or when another employee ‘cycles into’ the same position.

When a new employee steps in, they can help to identify and eliminate fraud in three ways. First, they can provide a ‘control group’ against which to measure a suspect employee, helping to identify increases in missing inventory, misappropriated funds, and/or reductions in cash landing in the till. Second, a new employee will provide a ‘fresh set of eyes’ and help you to identify vulnerabilities that could lead to fraud. And finally, a new employee will be in an optimal position to recognize any wrongdoing and abuses of the position, such as suspicious invoices and inconsistent or manipulated records.

Consider requiring workers who deal with cash or expensive merchandise to ‘job-share’, rotating multiple employees through high-risk positions. This makes it considerably more difficult to hide theft or embezzlement.

Pay Attention to Employee Feedback and Morale

Many fraudsters are tempted to steal from their employers if they feel wronged – either by the company, a manager, or even the owner. In their minds, they aren’t ‘doing anything wrong’; they’re just seeking some sort of justice, such as ‘sticking it to the man’ or ‘getting what they’re owed’.

Identifying and resolving problems as soon as possible can help to nip dissension in the bud, intercepting these negative sentiments before they have a chance to fester into a misguided justification for fraud or theft.

Make Regular Audits & Inspections of High-Risk Areas

A ‘high-risk area’ is one that deals with cash, payroll, customer credit, and the purchase and handling of inventory. It is at these transitional points that a business is most vulnerable to fudged numbers, intentional miscounts, and other wrongdoing.

Be sure to keep a close eye on these areas, in ways that a fraudster would not be able to plan for. Third-party inventory counts and periodic audits from forensic accountants can uncover wrongdoing, and surprise inspections can catch other instances of employees not following regulations, such as mishandling or improperly storing items, failing to record breakage, out-and-out theft, and so on.

Book a Consultation with a Fuller Landau Small Business Accounting Professional.

Safeguarding your business from fraud is achievable with the implementation of well thought-out, proactive precautionary measures – and the right advisors by your side. The team of highly-qualified small business advisors and forensic accountants at Fuller Landau can help you identify and eliminate current and potential vulnerabilities in your business operations, provide additional strategic checks and balances to protect your business at all times, and advise you on steps you can take to ensure that your business is sustainable and remains profitable.

Contact one of our small business advisors today to schedule a complimentary consultation.


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