When you become a business owner, protecting that business is of the utmost importance. There are several processes and safeguards that you can (and should) put in place, including those that will reduce the risk of fraud and internal theft. One of the simplest ways to get started is to create a structure for the segregation of duties.
Put simply, this is a process that allows you to assign the various aspects of cash handling to different people so that there is oversight, accountability, and a reduced risk of fraud and embezzlement across the board. How you do it and who you choose to handle things will be up to you, but this is how it works.
Choose Three Separate Entities
In order for this to work, you will need to choose three people to be responsible for the three main aspects of cash handling within the business:
- Cash disbursements
- Physical cash custody and control
- Cash reconciliations
Disbursements
A trusted manager or senior executive (or you, the owner) should be the one that handles all cash disbursements, including electronic payment authorizations. This ensures that the cash is kept separate from accounting and that managers know how money is being spent in the business. Approvals and authorizations should also involve two parties in order to keep things in check.
Control
There should be one person that is responsible for starting and maintaining the physical chain of custody of any cash, checks, and electronic transactions that come into the business. Someone should be spot-checking transactions to make sure that they are accounted for at every step in their journey. You can even have someone on the accounting team handle the daily deposits or reconciliations.
Reconciliation
It’s important to also have someone handling the review and reconciliation of cash transactions. If you have limited resources, outsource to a third-party accounting service or a CPA for additional control and mitigation. You can also have different internal employees handle reconciliation or bring in an expert for regular audits from time to time.
Accountability and Tracking
The biggest thing that this process does is to increase the accountability of the cash handling as it goes through your business. It ensures that people know that the cash is being properly monitored and moved through the business, and that there is a lot of oversight, which means there is little room for theft or fraud to get by unnoticed. You are your own best protector against these types of crimes.
No one wants to think about employees stealing from their business. Yet, it happens far too often. With a proper cash management system in place, you can set your company up for better success in the future and fewer issues with internal theft and fraud. If you want to make sure that your cash is secure and your processes are effective, reach out to a CPA or tax professional to get help today.
