How Can I Protect My Business Assets from Theft?

Learning what you can do to preclude both the likelihood and the furtherance of fraud against your company are critical components of the successful management of company assets and an integral way to help ensure assets "don’t walk out the door." Although many of the purposes of internal controls are to preclude the likelihood of loss occurring, it is impossible to avoid all types of losses. However, a good system of internal controls will greatly assist in preclusion and early detection of losses.  As your business grows and new employees are hired to help you run and staff the positions in your business, the need to delegate accounting tasks will correspondingly increase the need for strong internal controls. Evaluating your business internal controls at least annually is essential to protecting the assets of your business.

Be consistently vigilant for the ever-changing forms of technology consistently allowing evildoers to work against your efforts of protecting your business. Although the establishment of good internal controls is essential there is no substitute for a keen awareness of what is going on around you and being sensitive to any situation that looks out of the ordinary. This is especially critical for companies that are rapidly growing and personnel and duties of key personnel are constantly changing. Below are items you can utilize today to ensure that your business is protected.

Segregation of duties

Ensuring that your employees do not have unilateral control over all of the processing components of a particular activity is essential to protecting company assets. For example, you would want to have different personnel involved at every level of issuing a check. Ideally the employee who approves an invoice, processes the check, signs the check, prepares the daily deposit, post deposits to accounts receivable/payable records, prepares the bank reconciliation, and then who approves the prepared bank reconciliation would all be different individuals. No amount of "back end" review will ever "be enough" to preclude problems from initially occurring.

In this way you will have checks and balances along the way to help preclude an employee from acting on their own to illegally convert business assets to personal use. Care should be exercised at each step of the way to ensure that approvals are signed/initialed/dated, that items are processed in accordance with the company’s written established procedures, and that the actual signatures are authenticated both visually and if need be by comparison or verbal approval/agreement. Please forward me a copy of the written process for the approval process so that I might review and advise.

Sequential numbering/controlling of key documents

Many losses occur solely for the lack of sequentially numbering and the accounting for checks, invoices, purchase orders, and any other key corporate forms and documents. For example, all checks should be numbered and then all checks, even if voided, should be accounted for as part of a good system of internal control. Maintaining integrity over company forms and accounting for each and every item/check will limit a worker’s ability to prepare a purchase order for unauthorized expenditures, issue checks for items not approved, or create bogus invoices to clients who do not exist.

Independence

Company personnel, at all times, should be independent of suppliers, customers, vendors, donors and directors of any activity which might preclude their ability to act at all times in the company’s best interest. For example, one might be unduly influenced if an employee’s friend, family member or associate works at one of the company’s vendors. Absent a "clear set of eyes" it might be difficult for such an associated employee to continually act in a positive fiduciary capacity of the business. Also, it would clear the way for collusion to occur as an employee might be tempted or inclined to illegally convert company assets, overpay for products or services, or give undue favoritism to those they have undue influence with them. Care should also be exercised to ensure that there are no kickbacks, spiffs, or undue gifts or entertainment expenses being granted to workers as an enticement to offer favorable treatment.

Credentialing & Checking References

We have all heard stories of how workers have lied on their resumes and applications creating colleges, jobs, awards, accomplishments, and achievements which the original listing employee never received. Your human resources department should be well informed of your written policies and procedures of checking references, verifying past records of employment and education, license verification, etc.
Develop steps and procedures to ensure that you do not become a victim of identity theft (i.e., a worker creating the illusion of an employee who does not exist) as a potential employee creates an illusion of a worker you want to see. Consistent and aggressive verification of potential employees is your first defense against bringing in staff that doesn’t fit your company ethical climate and culture.

Credit Reports & Criminal Record Review

Hiring an employee who has not had a good record of paying their bills and obligations on a timely basis might be an indicator of a lack of overall integrity. Hiring a worker who has substantial personal debt and who is behind in their payments into the accounting department might be akin to "putting a fox in the hen-house." You will want to ensure that you follow all state and federal rules in checking a workers personal credit score as many, if not all states, require approval of the person’s credit you are checking prior to actually doing so.

Also, the review of an employee’s criminal record is part of the information which is readily available to the public. Care should be granted to consider where an individual presently resides or has resided, as many criminal records are only available by county. For key positions it might also be prudent to consider the services and experience of a private detective to further protect your company from those who might not act in the best interest of the business.

Annual Evaluation of Internal Control

As our world and business grows and as technology improves what we believed to be adequately protected from in the past may no longer prove true. The Internet alone has provided companies with a wide host of security issues ranging from hackers, internal mischief or sabotage, viruses, password, and program and data protection issues. At a minimum, an annual thorough analysis of internal control issues should be performed and corrective action taken. If a business is in a high growth mode, or there are substantive changes in technology or workers, downsizing, restructuring etc., then evaluations should occur more often and as situations and changes dictate.

Surety & Performance Bonds

Your last defense against employee/contractors fraud and theft is in obtaining surety and performance bonds. These policies are the "last line of defense" after a loss has occurred and detected to limit the amount of loss. A detailed understanding of your insurable risks and the comprehensive review of a wise competent multiple-lines insurance agent is a critical part of this process. Being sure to have adequate coverage amounts, definitions, and limits will greatly assist a business in recouping some of the out of pocket cost associated with such losses.

Bank Accounts & Bank Reconciliations

It is essential that one when bank statements are received that they are opened by someone who is independent of any segment of the check writing process. In the opening of those statements it will be essential to review all of the checks and their signatures for accuracy pulling a sampling of items to ensure that the proper approval of checks has been procured prior to check issuance, that all signatures are valid and that all checks are present, accounted for including voided checks and proper and valid disbursements of the business.

Check Writing

This is to confirm that regarding your internal record keeping/check writing that:

  • You have one person record all of the checks to help avoid theft, forgery of checks and insufficient funds.
  • It is essential to track your internal checkbook balance to help avoid theft, forgery of checks, check accountability and insufficient funds.
  • It is essential that you have only one person as the authorized check signor to help avoid theft, forgery of checks and insufficient funds.
  • It is essential that you control your internal blank checks, write checks in order and to account for all checks to protect yourself to help avoid theft, forgery of checks and insufficient funds.
  • I would suggest not using a "check stamp" to approve checks and that only senior personnel be allowed to sign checks.
  • I suggest only the owner of your business be allowed to write checks and to substantially limit the approval limit of other authorized signors to $100 or less if a clerical position or to $1,000 if an internal VP/CFO/CPAis to also be a signor and/or to consider having signatures over prescribed amounts.

At His CPA PC we care about the totality of your business and not just the preparation of tax returns. Put our part-time Chief Financial Services to work for you. Contact HIS CPA PC (A Christian CPA Firm) today.