Controlling the Money: Setting up internal controls can prevent financial loss and give peace of mind.
As a small business owner, you know what it’s like trying to perform the tasks required of you as well as controlling the inner workings of your office and staff. One of the biggest decisions you make is deciding who you can trust to handle your money when you are not around.
Many of us work with family so we trust them implicitly. Others have long-time trusted employees to help with the books and handle cash. After all, we are not a publicly traded company so the internal controls required with the Sarbanes Oxley act don’t apply to us right?
Well, yes, that is correct. But that doesn’t mean you shouldn’t occasionally audit, or at least check the books. One thing I have learned in business. It is most likely the person you trust the most who is stealing or mishandling company funds. So what to do?
First of all, I am not saying you shouldn’t have family or trusted employees helping with your books and money. Most of the time they have your best interests at heart and will do whatever you train them to do. I am saying that when money problems do arise, the culprit is almost always the last person you would have suspected.
In my career at the IRS, I visited businesses that had tax problems. I cannot tell you how many times I showed up and the business owner had no idea the payroll tax hadn’t been paid. I found wives, sons and daughters, office managers and several church secretaries had been stealing the money the business owner thought had been paid to the IRS.
It happens a lot and the owner is always shocked. That doesn’t relieve them of the responsibility they had to make sure it was done properly. I’ve seen penalties to owners in the hundreds of thousands of dollars when they had no clue their most trusted employee had done this.
To prevent this problem, the solution is to have segregation of duties. That means the person who receives the check isn’t the one who makes the bank deposit. The person who authorizes the invoice to be paid isn’t the one who signs the checks. Owners of small businesses don’t have that many employees, so segregating duties can present problems. But it’s a good idea to do it.
I’m writing to encourage business owners to perform at least a regular cursory audit of the books. Check the invoices paid against the bank deposits. Check with the IRS to make sure the tax money was actually received by them. If you use one of the popular accounting programs, it can give you ratios and department costs. Use it to check the current versus historical costs.
You should be intimately aware of your costs or have an accounting professional who reports back to you. When anomalies are identified, that report will tell you where to look for possible causes. You might find theft before it puts you out of business.
My company does small business audits. So do others. Audits are not that expensive and there are no requirements as to how often you get them done. They are never required but are indicated for most small businesses. Consider having one done yearly.
While an audit isn’t designed to catch all fraud, it can identify areas that need your attention. It will definitely give you peace of mind. Either way, owners of small businesses need to take a more active role in controlling the money.
Finding that person you would trust with the lives of your family, but who is stealing from you, can be soul crushing. It can be avoided. It’s at least worth the occasional double check.
By Ken Mullinax