Small business people face yet another impediment to sustainability in a tough economy – employee fraud. Tough financial times often give some employees (and according to a recent article in the Wall Street Journal, an increasing number in companies with less than 100 employees) a rationale to relieve their personal financial pressure with petty cash theft, check forgery, and skimming from the cash register.
Why small business? They are especially vulnerable because of the lack of tough internal controls and often too much trust in their staff despite signals that the staff member is falling into desperate straights – and desperate people can do desperate things.
Often the small business owner, who knows the category, but not bookkeeping, turns that over to someone with complete trust, never auditing transactions. For example:
o Is the Bookkeeper responsible for payroll? With one or two employees, that is often not an issue – but with more it can be. Make sure that anytime an employee leaves your payroll, that the account is closed. Keeping a payroll account open, just a week longer, and changing the direct deposit account (to another account) is often a simple way to defraud the employer. Get to know your payroll records – intimately.
o Does the bookkeeper have a personal credit card with the same bank as the company credit card? This simple and often innocent coincidence makes it easy for a desperate person (with access, like the bookkeeper) to use funds from the business account to pay the personal account, especially if the owner never really looks closely at the bank transactions. Doctoring those reports can be easily done without any oversight.
o Do you use a signature stamp for business checks? That bad habit sure makes it easier to use a company check to pay a personal bill. You may need to change behavior by destroying a signature stamp, personally sign all checks with invoices attached, and have the bank send all statements to the home address first. Read them, looking for transactions that seem extraordinary, strange, or just “different.”
o Does a trusted employee make bank deposits for you? Are they “running out of time” each day to make a deposit and combine deposits? Might be signs of a problem. Skimming here is easier, especially if there is no internal system for matching register tape receipts with cash. This must be a daily exercise, even when you are not working that day.
If you discover fraud, quietly get a team of people quickly assembled that can help – often the employee is ashamed (the desperate one) and a deal for payback can be worked out to avoid prosecution; however, that option must probably always be on the table.
If you do not have internal controls, this economy may be a great time to begin to exercise that financial discipline, starting with a daily/weekly cash flow analysis. Your local SCORE chapter (www.score.org) will have people that can help with financial controls and training in cash management .
Proverbs 20:6 (NASB) Many a man [person] proclaims his own loyalty, but who can find a trustworthy man [person]?