Who is Minding the Cash?

Internal controls are important to prevent error and ensure integrity of your financial data as well as minimize the risk of fraud. A good system of internal controls protects both the company and its employees.

Brenda Barnes, CPA

Brenda Barnes, CPA

In designing a control system, you should take into consideration whether the cost of a particular control is reasonable in terms of the benefit you want to achieve. Segregation of duties may be the most desired internal control but may not always be attainable if you are small.

Here are some quick tips to mind your control over cash:

Tip #1 Record client payments in a cash receipt log. Ideally, the person that opens the mail and records the client payments in a log and the person that makes the firm deposit are two separate employees. If you cannot segregate these duties, implement a reporting mechanism that the bookkeeper (or secretary) must provide you with a daily log of client payments received.

Tip #2 Require a W9 from all accounts payable vendors. To avoid paying fictitious vendors, require a form W9 from all of your vendors. This won’t prevent a dummy company from being set up in your system but certainly will help. Require all of your checks be signed by the owner with appropriate back-up documents for review.

Tip #3 Retain a 3rd party to conduct your bank reconciliations or at the very least have the outside company review the books at least quarterly. Don’t have the person that makes the deposits and applies the receipts also do the bank reconciliations. Segregate duties where you can. When you are small, that is nearly impossible so put some checkpoints in your systems to avoid fraudulent behavior. Get outside assistance.

Tip #4 Use an outside service to process your payroll. Remove the tax reporting liability from your responsibility. Have all payroll registers sent to owner/Managing Partner for review. Look for unauthorized salary adjustments, overtime or ghost employees.

Tip #5 Unauthorized purchasing on firm credit cards or accounts. It is not uncommon for personnel charged with the purchasing of supplies to add personal items to the “cart.” Intentional or not, have a system in place to make sure you are reimbursed for personal items purchased on your account.

Fraud can occur in any organization. Unintentional errors can too. Every business, no matter the size, should have steps in place to detect fraud and “audit” their financial information. The use of an outside bookkeeper/accountant is the small business person’s professional resource to ensure that operations are as they should be.
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