Clarisent - Preventing Business Theft

1. Preventing Business Theft Recently, a bookkeeper was sentenced to two years of jail time for embezzling $200,000 from her employer. How did this happen? Three words: no internal controls. Internal controls are a system of checks and balances designed to catch accounting anomalies, for the purpose of protecting a company’s assets from human error and malpractice. In this case, the bookkeeper had access to a company credit card, and was able to record the credit card transactions in the accounting system and reconcile the account. As a result, she charged personal expenses without anyone knowing. The bookkeeper was also responsible for writing checks, reconciling the bank account and opening the mail. This unprecedented authority made it possible for her to write checks for personal expenses, forge the owner’s signature and intercept bills. The business owner remained unsuspecting, thinking his business was just having a bad run. He was forced to lay off six employees and came very close to going bankrupt because the cash he should have had was spent on a Mercedes, multiple trips to Las Vegas, expensive clothing and other luxurious items that he never got any sight of. What’s a business owner to do to shield themselves and their business from such malpractice? The answer lies in segregated duties. The person charged with writing a check to pay bills, for example, should not also enter the bills nor should they be able reconcile the bank account. In our example, the company had 35 employees and hence was sufficiently large to create a close to optimal system by having more than one person overseeing accounting. But what do you do when your company only has a handful of employees? In such a case, first and foremost, the owner should have a more active involvement in the accounting

2. process. I’m not suggesting that the owner actually do the day to day bookkeeping themselves. Rather, it would be prudent for them to approve all payments and sign all checks. Additionally, it would be in their interest to monitor their cash balance via the internet and for them to closely review financial reports on a regular basis. The second most logical thing to do is to hire an outsourced CFO who would bring aboard extended experience and provide another layer of protection to the financial assets of the business. The CFO would be charged with overseeing the accounting function and monitoring it on a daily basis, ensuring any discrepancies get called out before it’s too late. They will also be incharge of the financial stability of the business - suggesting steps to be taken to secure the business’s position, as well as piecing together an accounting system that aids financial strategy. Running a successful business usually means having all hands on deck. Too many successful businesses have hit the dirt, succumbing to complacency on part of their management. When it comes to protecting your own enterprise from wrongdoing, it’s wise to go the extra mile, leaving no room for error. Source: https://getclarisent.com/preventing-business-theft/