Don’t Let the Grinch Steal Christmas: 5 Internal Controls to Preserve Cash

No business owner wants to think that internal theft is a possibility in their business. But the desire for additional cash may trigger temptation, especially during the holidays. Companies need good internal controls in place to deter theft caused fraud, hackers, or identity theft.

Below are five ways to increase financial controls that will decrease risk when it comes to the handling of cash and cash equivalents.

1. Keep blank checks in a locked drawer or cabinet

Banks rarely check signatures, so access to a blank check is almost like having cash. Another step is to run a report each month (or week) of missing check numbers.  If any checks are unaccounted for, take action by processing Stop Payment orders at your bank.

2. Separate bill payment and reconciliation duties

The business owner should always see the bank statement before anyone else does, regardless of whether the statement is delivered via the USPS or electronically.  Also, make sure the person who performs the reconciliation is not the same person who receives customer payments or deposits the checks.  One way that fraud occurs is that an employee takes small customer payments for themselves and enters a credit to wipe off the A/R. Segregation of duties is essential to improve cash controls.

Some banks offer multiple-user access to bank accounts so that bookkeepers can get the limited information they need.  Lock down the user ID as much as possible so that the user can only get to certain information.  If they’re honest, the bookkeeper will understand the reduced level of responsibility and consider it a smart financial move.

3. Get rid of signature stamps

Having access to a signature stamp makes stealing easy because there’s no way to prove who stamped the check. Owners must never be “too busy” to sign checks. The signature process is one of the most important components of any good internal control system, especially in small business where one accounting staff member handles many different functions. Done properly, the individual with signing authority can review coding, vendor information, payment amount, and date of payment to ensure accuracy and limit opportunity for fraud.

4. Maintain control over credit cards

For each employee or contractor that needs to charge items on a credit card, consider the following:

• If the credit limit on the current card is sky-high, then ask the bank to lower it or set up a new card with very low credit limits just for employee use.
• Connect an employee name to each credit card via a different account number or other system.
• Use online access to periodically review credit card transactions between billing cycles.
• Insist on receipts for every purchase and backcharge employees for unsubstantiated use.
• Create clear procedures, limits, and approvals before the spending occurs.
• Don’t let employees have access to the credit card during off hours.  Keep it locked up at work instead.

5. Use only laser printers  

True story – A few years ago, a friend and fellow accountant worked for a restaurant franchisor who had company checks stolen out of their mailbox. The payee and amount was washed off (but not the signature, of course) and the checks were reissued to a variety of fraudulent payees. My friend realized too late that using an inkjet printer to print checks allowed the thief to complete the fraud. Laser printing is more difficult to alter than inkjet. Thankfully, the company made a habit of doing daily bank reconciliations and caught the fraud, alerted the bank, and were protected from a much larger loss.

Changing the payee on a check is another reason to look at the actual check when reconciling an account, instead of simply reconciling by check number.

Hopefully, you already have a lot of these ideas in place.  For more information, see the article we posted in April 2015 – Is Your Accounting Department Protected from Fraud? You’ll find additional recommendations to reduce business risks.

Keep the holidays merrier with peace of mind that opportunities for fraud are minimal and cash is safe.