Since transitioning my CPA practice to one hundred percent forensic and valuation, I have been amazed at the number of calls received at my office from business owners concerned about an employee or a partner misappropriation of company assets. Although the reasons vary, many times these concerns are based on a hunch. The amount of cash in the company does not seem to be in congruence with the amount of work completed by the owner or in accordance with the growth of revenue.

Business owners will spend significant time developing and running their business. They will surround themselves with advisers they trust and employees they count on. Less time and attention are spent on the risk of occupational fraud in their business.

Occupational fraud is committed against the organization by an insider, namely an employee, director or officer. Most employees would never steal or abuse their position, but there are ones who will and can cause significant damage.

Here are three action steps any small business owner can implement today to create controls against occupational fraud.

  1. Reconcile checking and credit card bank statements every month. Staffing at many small businesses do not allow complete separation of cash receipts and cash expenditures. In fact, in many cases the bookkeeper performs both functions and reconciles the bank accounts. It is the owner’s responsibility to review the reconciliation and analyze if the transactions are in line with business activities for the month.
  2. Offer and require staff to take vacations. Not only is downtime essential to productivity and overall well-being, it is important that there is not complete reliance on any one employee for specific tasks. This means that the owner may need to open the mail, prepare payroll, pay employee expense reports, and maybe even know where to find office supplies. These tasks may seem menial and not developing the core business line. However, many times occupational fraud is uncovered when the perpetrator is sick or on vacation.
  3. Close and report your books regularly. Monthly accounting closing is suggested if your business has a high number of transactions or multiple revenue streams. Businesses that are smaller or have fewer transactions could close their books quarterly.  Closing refers to the accounting process of zeroing out your Income and Expense accounts and recording your company’s Net Profit or Loss on the Balance Sheet. The reporting of the Profit or Loss and Balance Sheet allows the owner, with assistance from the CPA if required, recognize trends in the business. Occupational fraud could be the cause of an interruption in the trends.

If these processes are not implemented already, I would encourage all business owners to start now. Contact your CPA, trusted business adviser for assistance or send us a message.

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