As business owner and CEO, you must be deliberate to safeguard your assets with internal controls from both external and internal threats. Most business owners make the easy mistake to trust their accounts to the internal accounting director and managers without ever verifying the actual balances at the bank or the handling of cash transactions. You should trust, but also verify everything through periodic and unpredictable checks on the system. When it comes to protecting your money, don’t be afraid of insulting someone because the threat in your business will always overlook your friendship to steal from you.
Establishing controls minimizes the chance for an internal threat to steal or misallocate your assets. If you conduct cash transactions, who is conducting the count and making the deposit? Who is validating the account books of the business with the bank statements each month? Who is authorized to disburse funds in the name of the business, and how much can that person authorize?
While serving in the Army during a deployment to Iraq, I performed duties as an Internal Auditor. I learned not to underestimate the persistence of some people who wanted to go around established controls. This was not always for personal gain, but also to purchase legitimate items that required additional oversight. The additional oversight was often required to ensure efficiencies were considered and the minimizing of waste. You will find managers who want to complete their projects to their timeline and will overcome your internal controls with any means possible.
Without internal controls, you create opportunities for your employees to steal from you. It is not personal or insulting to validate your accounts. It is being a responsible business owner to verify that what is earned in the business goes to the business. You have other employees who are counting on you to remain in business and not allow an internal thief to siphon funds off each month. As business owner, you also have a responsibility to any debtors or investors, and more importantly, you have a responsibility to your family.
Theft isn’t the only threat you face. It is also waste and abuse of your resources along with your team members pursuing projects that are not in line with your vision and goals. Establishing and enforcing internal controls helps to minimize the misallocation and loss of resources so that the assets you do have are used to grow the business as you see it.
Checklist on establishing internal controls:
- Trust, but verify philosophy. You can trust your managers and accounting personnel, but as business owner and CEO, you are ultimately responsible for safeguarding your assets. It is not an insult to validate what your accounting department is telling you with what is actually in your bank account. You must periodically and randomly verify the books. Nothing regarding the funds or other assets should be withheld from you. Trust your people, but always verify for yourself.
- Check bank statements personally. As business owner, you must be checking the bank statements. I even recommend going to the bank personally without announcing it, to review all accounts.
- Two counts for cash receipts. If you collect cash in your business transactions, then have a strong policy that states two people must count and sign to verify the cash on hand including the deposit.
- Two approver process for disbursements. Often, in your business, most transactions will fall within a certain range such as $300 to $1500, so as owner and CEO, you can set a limit with your bank to how high a disbursement can be authorized. Anything above that limit would requirement two authorizations.
- Split disbursements. Be watchful of people trying to overcome limits, by performing two or more separate disbursements instead of the one large disbursement requiring two signatures. Why would someone do this? To get their project done with no interference. People are often trying to overcome limits to not necessarily steal, but to take back control from the owner. As owner, you establish limits to ensure the resources are used in the way you have established that fits the long term vision and goals of the company.
- Utilize an outside agency to audit the accounts. At a minimum, annually, you should be asking an outside firm to audit the accounts to determine accurate reporting and to validate proper accounting procedures. If you have investors, you may be required to do this regardless.
- Ensure key personnel take vacations. Your accounting and finance personnel along with managers with control over the assets of the business must take their vacations. Those stealing or are manipulating your funds will not take time off because they fear getting caught. If they go on vacation, whom ever takes over their role or accounts, may find the discrepancies and report them.
“Without a strong system of internal accounting controls, you cannot rely on the detection of impropriety. Internal controls do matter.” Nina Dorata, PhD, CPA, Professor, St. John’s University
Don’t underestimate an internal threat to your resources. Take action to put solid controls in place, and then you must follow through to make the time to validate the system. A key concept for finance and resource managers officer while serving in the Army was “who is guarding against the guards?” As finance officers, we were the guardians of the resources given to our organization, but who was checking us to ensure we were being ethical and safeguarding the assets? The senior officers were responsible for this, and, as business owner, so are you.
How can you utilize this checklist to protect the assets of your business?
Please comment or email me at comment@stephenmclain.com.
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Copyright 2017 – Stephen McLain