Most business owners and entrepreneurs don’t want to talk about it – it’s embarrassing, a hit to the ego. We see stories about it on the news and read about it online. I’m talking about embezzlement and theft. It’s a dirty little secret everyone wants to sweep under the rug, but statistics show that it results in one-third of all small business failures.
It’s a familiar story: the long-time bookkeeper stole small amounts from the company over twelve years that totaled $30,000. She was loved by everyone, including the owner, so no charges were filed. She was quietly let go. So, she stole $30,000 from your business. That money could have gone to bonuses for the people in your company who are really performing well, or it could have offset the cost of healthcare. What else could that amount of money have paid for within your company?
If no one reports the theft to the police, there’s no record of it. Even worse, the person responsible could potentially do the same to another business.
So how do we ensure that it doesn’t happen in the first place?
The answer is trust but verify. Here’s how:
Run all receipts and disbursements through a checking account.
That way, you have a record of the activity maintained by the bank, and it cannot be manipulated. Your books will then be reconciled back to the bank.
Create a separation of duties.
This means that the same individual should not set up a vendor, approve a payment, and write the check to that vendor. It’s the biggest deterrent you can have inside your company.
Review statements and reconciliations
Someone who is not recording the transactions should review the bank and credit card statements and the monthly reconciliations. Be sure to question items that appear unusual. Maybe ATM transactions where cash is coming out of the bank account directly to someone for some reason, or the use of a company card for business purchases.
Review the books
Have this done periodically by an unrelated third party with some accounting expertise. They will be a second set of eyes to spot unusual activity.
If you think your company could benefit from a second set of eyes on your books, give us a call.