Trust Is Not an Internal Control | Laurie Hopkins, CPA

Many small and mid-size businesses place their trust in one person — or a very small team of people — to manage their finances. Employing a single “go-to person” to manage all financial aspects of your business — like physical handling of cash, checks and wire transfers; payroll processing; month-end financial reporting; and accounts receivable and collections — should raise an immediate red flag that needs to be addressed. Having just one person in charge of all your financial processes can put your business at risk, particularly if that employee finds him- or herself in a personal financial crisis. Without a system of checks and balances, your business opens itself up to fraud or inaccurate financial reporting if that person decides to spend company money to address a problem at home.

There are many steps business owners can take to minimize these risks, without spending tens of thousands of dollars annually on a formal audit.

The first step is conducting an objective analysis of your accounting-related processes. This internal analysis will set the path for any needed changes, creating an opportunity to improve quality and timeliness and helping establish methods for fraud prevention.

Here are some simple things you can do to proactively protect your business’ finances:

• Conduct background checks on individuals handling cash, financial reporting, and company inventory;
• Create a conflict of interest policy that’s clearly outlined in the employee handbook and displayed at company-wide meetings;
• Have — and enforce — a whistleblower policy that protects employees who report items of concern;
• Use password controls to secure information;
• Implement a mandatory vacation policy that requires key financial employees to take a block of time off work every year; and,
• Review monthly bank statements and payroll reports periodically for unusual or unfamiliar names of individuals receiving company money.

Prevention is key.

Take some time to consider how to develop a set of internal financial controls using the financial and employee resources available to your business. Taking a fresh look at internal controls for your financial operations could help to prevent poor operational service or reduced profitability. Doing so will not only support the long-term viability of your business, it will ensure you have the accurate financial information necessary for reporting and making sound management decisions.

Laurie Hopkins, CPA, is Lead Managing Director of CBIZ. CBIZ helps businesses grow and succeed by helping them better manage their finances, their risk and their employees. You can reach Laurie at 314-692-5899 or lhopkins@CBIZ.com.