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Loss Control

Small Business Loss Control Checklist

Take time to look at your accounting procedures and think about how effective they are in preventing loss, fraud, and other negative experiences that can have a real impact on profit. At year end most businesses are thinking about year-end procedures, planning for tax season and paying close attention to their financial reports.

Your reporting data can yield warning signs, but owners who care about their margins need to take a closer look. Keep in mind that a company with a ten percent margin has to gross an additional $10,000 to make up for a $1,000 theft. The following questions highlight several important areas to guide business owners in assessing their company’s risk potential. The suggested action steps are consistent with sound business practices and are fairly easy to implement.

Small Business Internal Control

“A man with a briefcase can steal more money than any man with a gun.” —Don Henley

1. What is the potential for theft?

Theft is more likely to occur when an employee: has financial need arising from an unshareable problem; if the opportunity, real or perceived, exists; has the ability to rationalize the theft.
-Hire qualified people of good character and acknowledge them for their work and integrity.
-Have standardized job screening and hiring procedures— check references, interview carefully, consider legally compliant testing.
-Determine if the applicant feels like a good, compatible fit with your corporate culture.

2. Do you know your business better than your employees?

The absentee owner is at a disadvantage, as are those who do not have working knowledge of their accounting and computer systems.
-Employees are less likely to manipulate an accounting system if the boss knows the system.
-Stay aware of your financial position, know your approximate monthly income and expenses.
-Promote fair and ethical dealings with vendors and customers, show honesty in meeting financial reporting obligations.

3. Do you handle your assets with reasonable care?

-Keep cash on hand to a minimum and safeguard your signature stamp.
-Keep supply of blank checks in a locked cabinet, use only pre-numbered checks and account for sequence.
-Use pre-numbered purchasing documents, i.e. purchase orders, account for sequence and control unissued forms.
-Put an identification mark on small, portable, expensive items— tools, computers, equipment.

4. Do you practice credit card security?

-All a person needs to steal your credit is your name, social security number and birth date.
-Keep receipts and record transactions from receipts.
-Reconcile receipts to credit card statement.

5. Do you regularly and routinely review financial reports?

Good managers review at least five basic financial reports on a monthly basis: bank reconciliation, receivables, payables, balance sheet, and income statement. They take the time to look over the information to see if it makes sense. They discuss and obtain an explanation of unusual items, look at back-up documentation, and periodically have their CPA review reports.

 6. Are employees’ duties sufficiently segregated with appropriate restrictions on access?

It is not uncommon for businesses to be lax in this area, often because they don’t think they are big enough to efficiently segregate duties. Your Blum and Clark professional can suggest ways for businesses of any size to maintain reasonable separation of fiscal duties to protect profits as well as employees.
-Sign checks only when needed, never in advance.
-Check supporting documentation before signing checks and purchase orders.
-Cancel supporting documentation by recording check number and date on it when the check is signed.
-It is best not to return checks to the preparer once signed.
-Keep check signing authority independent of check preparation, invoice approval, cash receipts, and accounts payable function.

7. Do you handle the mail in a secure fashion?

Open mail and prepare the list of daily receipts independently of the accounts receivable bookkeeping function.
-In very small offices, owners may want to open the bank and credit card statements, and even consider having them mailed to their home.

8. Do you know the warning signs of suspicious behavior?

-Bill collectors call your business trying to find an employee.
-An employee’s standard of living increases with no visible means of support.
-Employee refuses to go on vacations.
-Employee performs bank reconciliations after normal business hours, or takes work home.

9. Do you know what to do if you suspect theft?

-Call your attorney before making accusations. A wrongly suspected individual can sue, and so can one who is rightly suspected.
-Call your Blum and Clark professional.

10. What are the key points to keep in mind?

-Minimize the opportunity for employee theft and embezzlement to occur.
-Adequately screen potential employees to help assess character.
-Adequately safeguard assets, implement proper segregation of duties.
-Maintain a current general awareness of your business financial outlook and model fiscally responsible behavior.