Cash theft is a major issue that affects many small business owners. If you’re not careful, you can miss out on significant profits – without even knowing! That’s why it’s important to use the right processes to guard against the loopholes that make cash theft possible.
Large businesses don’t have this problem as much because they usually have enough people and processes in place. However, unless you’re a CPA or accountant, it’s unlikely that you were taught how to guard against this issue in school or on the job. And furthermore, you probably have fewer resources to commit to the hi-tech solutions afforded by large companies.
So, to save you time and money, I’m going to give you a basic technique that you can use to protect the cash in your small business. It’s called segregation of duties!
The principle is that you never give an employee the ability to perpetrate errors – or fraud – and also conceal them in the course of their normal duties. This is done by making sure the following three components of any transaction involving cash are handled by a separate employees:
1) Custody
2) Approval, and
3) Recording
If you can segregate these three duties when dealing with cash, you will greatly decrease the chance and significance of cash theft in your business.
For example, theft is more likely to take place before the checks are recorded than after – concealment is easier. Therefore, duties should be segregated between an employee who physically receives the cash and the employee who keeps the records.
In a similar scenario – in terms of paying out cash – one employee should be responsible for distributing payments, while another records them. In addition, you – or a different employee – should approve these payments before they are made.
This type of segregation not only guards against theft, but it also allows one employee to check another employee’s work. And of course, there are many other ways to protect the cash in your business. To learn more, feel free to contact Larry Marietta, CPA.