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Protect Your Cash, Part 3

By: Ruth King

 

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Cash is the lifeblood of business. You need it to pay your employees, yourself, and for the materials, equipment, and overhead items you need to keep the doors open.

In this third of three parts, here are more easy procedures to implement so that you protect your hard earned cash.
Accounts payable is another easy place where someone can steal.  One example: an employee will set up a dummy vendor with a post office box for an address. Or he will use his address or that of a relative. Then the dummy company sends your company an invoice for something that looks legitimate. The amount is usually small so the invoice gets paid without much thought.
But, you say, a purchase order system is in place in your company.  In this case the person first submits a purchase order to the dummy company then sends an invoice. The culprit then authorizes his own purchase order. It’s easy to do.
Checks can flow very easily through the dummy company. The employee simply writes “for deposit only” on the back of the checks and no signature is ever seen. This can go on for years before someone finally notices what’s going on.
Lock the master accounts payable list so no one, other than an owner, can add a vendor. Review the master accounts payable list on a quarterly or at least semi-annual basis. Print out the list yourself and look at it. This way no one can erase a vendor from the list either. If there are names you don’t recognize on the list find out who they are and what you buy from them.
Another easy place to steal is corporate credit cards. If your company has corporate credit cards make sure no one is making personal charges on them. Also make sure that no one is submitting their personal credit card bills with corporate credit card bills. This is another way for a person to take your hard earned dollars.
Watch petty cash closely. Make sure that all cash is accounted for by receipt. Look at the receipts to make sure that they are legitimate. If someone is taking $10 or $20 per week, which isn’t always noticed, this will add up very fast. You don’t have to look at the receipts every week. A spot check every month or two will keep an honest employee honest.
What about the actual cash that comes in? Sometimes customers will pay in cash. I’ve also seen cases where customers have paid for an $8,000 job in cash. In these cases you need a cash receipt procedure.
Whoever receives the invoices should note that cash was received on a receipt and sign his name on the receipt stating that he has received the cash. He logs all cash and checks received in a cash receipts book. If it is a large sum of money a bank deposit should be made immediately. You don’t want $8,000 lying around your office.
For small sums the cash should be deposited with your daily deposits. Cash received should be noted on your weekly cash flow reports. The log of all checks and cash receivables should balance with the bank statement reconciliation at the end of the month. Once again, the person receiving the cash should not be the person making the deposits.
Study financial statements. Review them thoroughly. Don’t just scan them. If they don’t look right question the figures. If your business is a partnership, all partners should review the financial statements together in a monthly meeting.
Financial statements must be timely. If your bookkeeper has a constant excuse why he can’t get a financial statement each month, watch out! He may be stealing from your company and hiding it. Financial statements should be ready no later than 15 days after the month has ended. Receiving financial statements two to three months after a month ends is useless. You can’t correct minor problems at that point. They may have already become major crises.
Watch overhead expenses.One of the partners in a three-partnership company handled the bookkeeping. Every month there were large expenses to penalties. And they were making all of their IRS payroll deposits on time. Since no one else was looking at the financial statements, he got away with $500 to $1,000 a month from the company simply by coding the checks he wrote to himself to penalties. No one questioned it, not even the accountant, until somebody from the outside, me, started asking questions.
Review accounts receivable weekly.Look at all of the outstanding invoices due within 30 days. On that 31st day expect a check since your normal payment terms are net 30 days.
If you implement the policies that prevent the same person from handling all the cash and banking functions, plus review receivables, payables, and your financial statements regularly, you will have a better chance to catch anything questionable early on. Remember that cash flow is the lifeline of any business. Take prudent steps and implement strong policies to protect yours.
Published: May 14, 2013
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Ruth King

Ruth King is a serial entrepreneur, having owned seven businesses in the past 30 years. Ruth has been instrumental in helping business owners understand and profitably use the information generated from the financial segment of their businesses. Recently, she was the instructor for ICE, the Inner City Entrepreneur program in conjunction with the Small Business Administration. Ruth has written many manuals and books, and she was the 2006 USA Best Books Winner for Entrepreneurship and a finalist for the Independent Publisher Awards (IPPY) for her first book, “The Ugly Truth About Small Business.” Her best-selling book “The Courage to be Profitable” was published in 2013.

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