Who Writes Your Company's Checks?
Do You Have Checks and Balances?
You’ve heard the stories: “Office manager embezzles $100,000;” “$25,000 cash missing from local business;” “Employee missing and so is $200,000.” Sadly, most of that money never gets recovered and the company ends up absorbing the loss. However, many of these headlines could have been avoided by having some simple checks and balances in place. The principle is simple; don’t trust anyone when it comes to your money. Below are a few tips that you might want to consider when it comes to protecting yourself from embezzlement:
1. Write or Sign Checks
This one is easy to put in place. Simply don’t allow the same person who writes the checks to sign them. When Jane Doe writes the check have her bring the check to the owner, or other authorized person, for signature. Also request a copy of the invoice accompany the check so you can verify that a check indeed needs to be written. If you are a large company with several people in the office you may want to delegate this task to someone other than yourself. However, set a dollar limit. All checks over $1,000 (or whatever limit you decide) need to be signed by the owner.
2. Daily Summary
If you are the owner and for whatever reason you don’t want to get involved in the check writing and signing process, than at least request a list of all checks that are written each day. That list should include the date, check number, who the check was written to and the amount. A little bit of accountability goes a long way.
3. Pay Your Taxes
Nobody likes to wade through the details of paying federal, state and local taxes. However, as the owner, you need to at least be aware of what taxes need to be paid and when. That includes everything from submitting your employee’s withholding taxes to the government to paying your matching taxes for social security. Have someone create a list of all taxes you are responsible for paying, and when, and keep it handy. You might even want to put notes on your calendar so you can ask whether such and such tax deposit was made on time.
Remember, failure to pay taxes is a very serious, and expensive, situation. Uncle Sam could care less why your employee did not do what they should have done. You, as the owner, are responsible and you will be the one slapped with the fine and/or prison time!
4. Don’t Believe Your Accountant
Accountants are friendly and honest people, right? The answer is maybe. Just because there is a certificate on the wall and a sign on the front door, does not necessarily mean that person is either honest or capable of being trusted with your money. Years ago I worked with a company that “trusted” its accountant a bit too much. The owner had made it known that he felt like he was simply paying way to much tax each year and he was looking for a CPA to help him reduce his taxes. One day a CPA called him offering to help.
To make a long story short the owner hired him and by golly the guy did a great job. The company did not pay any tax for the next few years. Without going into a lot of detail, the CPA was a criminal who was falsifying his tax return each year. The owner ended up paying Uncle Sam over $100,000 in back taxes, penalties and interest. The lesson is simple. Review everything your accountant does for you and ask questions if something doesn’t make sense to you.
5. Know Why You Borrow
Getting an additional loan, or drawing on your line of credit, should be a red flag. Before you do either one, find out what the root problem is. It might be a receivables issue or it could be that you are underpriced and, therefore, losing money. However, it could be someone is embezzling money.
Several years ago I was completing a one-on-one Company Overview. The process centers on modeling the company on our Labor Pricing for Profit software. The results were troubling in the sense the model showed the company making a rather nice profit, but the owner had been drawing on his line of credit on a pretty continuous basis for several years. The office manager would come to his office and tell him cash was short and that they needed to draw on their line of credit, get a loan or whatever it took to make ends meet. When his wife asked the office manager if she could look at the company checkbook she refused.
To make another very long story short, the office manager had embezzled more than $1,000,000 from the company. How could that happen? It happened because there were no checks and balances. The owner trusted the office manager, never looked at the checkbook and never questioned requests for more cash. Ouch, that hurts.
6. Review the P&L Monthly
Why is a GPS fleet tracking system so successful? It’s successful because the tech at least thinks you are tracking their movements. It’s accountability again. The reality is most company owners only need to spot check their techs movement occasionally. Since the tech never knows when they are being watched and when they’re not, they tend to make less unnecessary stops.
Reviewing your P&L Statement monthly has the same effect. It lets the person who prepares it know you are “watching.” If they know you’re reviewing the numbers they are less likely to misuse funds.
The thinking of many company owners is this. “I’m too busy to look at reports, sign checks or to put systems in place. I have hired good people and they know what to do. Why should I get involved?” Why, because it’s your company and your money.