The thought of employee theft and fraud within a company can be daunting and stressful- especially within a small business full of trusted and hard-working employees. It can be difficult to walk the line between making your employees feel trusted and ensuring that your business is being run honestly and without unnecessary profit loss.
It is also stressful to realize that fraud often occurs because those employees are so well trusted. Examples of possible theft include:
Some forms of theft or fraud feel less serious than others. Someone taking a pack of post-its or a small mistake in the books here and there seems like something to overlook. That is why it’s often missed, and that is why Internal Controls are just that much more important.
Internal Controls are methods in which you can monitor and take control of your business and profits and minimize loss. There are many ways to utilize them and cater them to your specific needs and business model.
Much of the responsibility to implement these controls falls to the business owner. It is critical that the owner have a hand in every part of the business. If an employee knows that the owner is knowledgeable and active in the work they are doing, it will effectively minimize the chance that the employee will have an opportunity to commit fraud.
It is important to know how much money you are making, and how much money you should be making. Look at your profits from the year before and now, and calculate what you should be making months in advance. If there are discrepancies, get with your accountant and find out why. A discrepancy does not always mean fraud and does not mean that you should inherently distrust your employees. It is simply important to have control over the finances.
A business can’t run effectively without delegating tasks to employees. However, having a single task, such as payroll, known only to one specific person is a dangerous thing. It is easier to commit theft if no one knows the ins and outs of what you are doing. A remedy for this is to cross-train your employees and to make vacation mandatory. Have another employee do their job while they are out. This gives you an opportunity to see if things are being done differently, or to see if a mistake is caught by the second employee.
It can also be beneficial to split up financial tasks- for example, accounts receivable and accounts payable. No one person should have complete control over the intake and outtake of cash flow.
Don’t let the notion of small business and a trusted community keep you from putting Internal Controls to use. Take control of your company and be a part of every facet of it. Be active and vigilant.
You should trust your employees- and with several Internal Controls put in to place, you can do so more freely.