One of the most important assets in your business is your cash. That’s why it’s important to have an internal control policy that ensures your assets are protected. You don’t want to lose cash because you don’t have the necessary internal controls set up.
Setting up these internal controls in a small business is often more challenging because you have fewer resources and people. But not doing so can significantly cost you money.
Here are three important internal controls that will help you protect your cash. Thankfully, these are also easy to implement.
Some business owners I know are impressed when an employee doesn’t take a vacation. “Look how hard they’re working,” they tell me. “This is someone who really cares about their job.”
Actually, that may not be the case. When an employee doesn’t take a vacation it could mean they’re doing something wrong, maybe even illegal.
Don’t believe me? Search online for cases of employee fraud where cash is stolen. You’ll see it often occurs when a financial person missed work due to illness or something out of their control and the person who filled in for them discovered the problem.
You must have a policy that requires all employees to take vacations, with no exceptions. That way you can train other employees to fill in while they’re gone. Cross training is good for your business. But it’s also a great way for someone with another set of eyes to do the work of another employee. Maybe there’s no fraud. But there may be a few good suggestions that come out of it.
Bank reconciliations are a simple, but sometimes a time-consuming exercise. That’s why some business owners I know fall behind in doing them.
A good bank reconciliation shows all the reasons why the cash showing on your books and records doesn’t agree with the cash showing on your bank statement.
Some reasons include:
A bank reconciliation will also reveal not-so-nice things like potentially fraudulent signatures or unauthorized transactions. You won’t see these things until the reconciliation is done. By then it could be too late.
Don’t do your bank reconciliations in-house. Don’t have your accounting person who does your invoicing and cash receipts perform this task because it’s a conflict of interest. Pay someone outside to do your bank reconciliations monthly.
Give them online access to your bank account (don’t worry, you can restrict them from doing any transactions) and ensure that any hard-copy correspondence from your bank goes directly to them first before going to your accounting department.
I’m sure everything’s fine. But if something strange is happening, an outsider trained to look at your bank reconciliations will notice. That’s a great internal control that will protect your cash.
This sounds simple. It is. But many of us forget to do this: lock stuff up!
By stuff, I mean your inventory, including:
You can set up cages in your warehouse, build a storage room or upgrade your cabinets. Sometimes employees feel that a perk of working for your business is unlimited pens, extra coffee bags, or even a product that just happens to be lying around.
Once you let people take this stuff, they feel entitled to take it, so taking it away is even tougher. And when assets like this leave your company, it creates a drain on your cash because you have to replace them. Locks pay for themselves almost immediately.
As a Certified Public Accountant, I’ve been trained for decades to spot gaps in internal cash control policies. These three recommended policies are essential for businesses of any size.