Are Your Employees Skimming From The Top?

Annie Yoder | January 29th, 2016

Fraud Triangle- Ohio CPA Firm Dear Drebit: As a new business without a cash register, what is the best way (accounting method-wise or other) to protect cash receipts from sales against employee theft or dishonest activity? Thanks, “Ernest”

Dear Ernest: Great question! Segregation of duties is essential when it comes to protecting your business against fraud. Here are some tips to help you protect your business from employee theft or dishonest activity.

5 Ways To Prevent Fraud In Your Small Business

  • Your bank activity and all copies of your cancelled checks should be reviewed by someone other than the individual who collected the cash. Similarly, the person who collected the cash should not be the same person responsible for taking the deposit to the bank.
  • Inventory records should be reviewed by the business owner, who should then compare them with the company’s sales totals/collections. While your number probably won’t be exact, it will help you identify large variances. Start by reviewing how much inventory was sold and identify the sales price. Then review that total with the business’s sales totals.
  • Never use the cash in the register to pay vendors for business expenses. All payables should be processed in such a way to provide you with a paper trail. A check or card payment is ideal.
  • Lead by example. Your employees are watching your behavior, which means if they see you removing cash from the till, they will have an easier time rationalizing their behavior to do the same. It’s up to you to set a good tone at the top.
  • If the person responsible for collecting payment from your customers throughout the day is also responsible for preparing a “daily reconciliation” of monies, their work should be double-checked by another employee as well. Again, because it’s just that important, someone other than the employee who collected the money in the first place should be the one to take the funds to the bank. After the deposit has been made, the employee should return with the validated deposit slip to compare with the day’s sales activity.

While you can never reduce the risk of fraud from occurring to zero, any control you put in place – even the perception of oversight – will help deter fraud.

I recently spoke about this topic on our podcast, unsuitable on Rea Radio. If you get a chance, check out episode 3: trust is not an internal control for more insight, tips and general fraud prevention advice.

If you would like more information on internal controls, email Rea & Associates. You may also find the information provided in this video to be helpful.

By Annie Yoder, CPA, CFE, CFF (New Philadelphia office)

Learn more about the impact of occupational fraud, check out these articles:

Where There’s Smoke, There’s Fire: 5 Internal Control Tips That Can Save Your Business From Fraud

Fraud Hotlines Deter Occupational Fraud

Cost-Effective Ways To Deter Fraud

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