As entrepreneurs, we work hard for our money, and the last thing we need is to have it disappear due to fraud, hackers, or identity theft. Some people have called 2013 the year of the hacker, which is worrisome. But you’re far more likely to experience risks with disgruntled or financially desperate employees and contractors. Mistakes happen, too, and when they do it can be costly to get them corrected.
Here are five ways to increase your financial controls so that you can lower your business risks when it comes to the handling of cash and cash equivalents. As you read the list, check to see where you can tighten up controls in your business.
Checking for Checks
Do you have blank checks lying around? If so, reduce your risk by keeping them in a locked drawer or cabinet. You can also go a step further and have your accountant 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.
Bank on It
If you are still getting your bank statement mailed to you, make sure you, as the business owner, open the bank statement. Also, make sure the person that performs the bank reconciliation is not the same person who deposits the checks. Segregation of duties is essential to improve cash controls.
Today, it’s a good idea to do all of your banking online, if possible, so that nothing gets mailed. This can help reduce your risk of identity theft.
Some banks offer multiple-user access to your bank accounts, so that bookkeepers can get the information they need. Lock that user ID down as much as possible, so that the user can only get to what they need to. If they’re honest, they will appreciate the reduced level of responsibility and consider it a smart financial move.
If you have a PayPal account, keep the balance low by transferring funds frequently to your bank account. You can also restrict access to reduce your risk.
Credit Card Control
If you use credit cards in your business, you’ll want to maintain tight control over them. For each employee or contractor that needs to charge items on a credit card, here are a couple of points to consider:
- If the credit limit on the current card is sky-high, ask the bank to lower it or set up a new card with very low credit limits just for employee use.
- Contact your credit card company and get a card in the employee’s name.
- Make sure you can access the credit card transactions online. They are immediate, and if necessary, you can closely monitor what’s going on.
- Insist on receipts for every purchase your employees make.
- Create clear procedures, limits, and approvals before the spending occurs.
- Don’t let the employee “keep” the credit card during off hours. Keep it locked up on your premises instead.
One of the biggest cash outflows for small businesses is payroll. Here, segregation of duties comes into play again. The person preparing the payroll should not be the one who approves it and actually runs it. You can do this by having different user accounts and controls within your payroll system. As the business owner, you should review your payroll for reasonableness before it goes out. Are there significant increases in gross or net payroll amounts? Are there names on the payroll register that you don’t recognize? While not necessarily and indication of fraud, it’s a good idea to look further into any questionable items on your payroll.
Hopefully, you already have a lot of these ideas in place. If not, add the ideas you like to your to do list so that your business risks will be reduced.