Fraud and embezzlement don’t just happen at large companies. In fact, theft may be more common in small businesses because many lack internal controls that are typically in place at larger organizations. But the good news is that effective internal controls don’t have to be complicated or expensive.

The best way for small businesses to battle fraud is to create a segregation of duties framework. With segregation of duties, you have one person responsible for each of three different areas: Authorization of cash expenditures, physical custody of cash and reconciliation of cash expenditures.

Here’s what you need to know:

• Segregate cash disbursements. Only a designated, trusted manager should sign checks, authorize electronic payments, or perform fund transfers. This control has a dual purpose: management sees how the company is spending its money, and the cash disbursement function is kept separate from bookkeeping and accounting. The opportunity to embezzle is much higher if the same person signs checks, authorizes electronic transactions, and enters disbursement transactions in the accounting records. You can strengthen this function by having solid purchase order policies and having separate functions approving bills. Then the person who signs checks or authorizes transactions can ensure the payment is approved prior to disbursing the cash.
• Segregate control of cash. Have an owner or manager occasionally spot check incoming electronic transactions and tie them to the company bank account. If you receive physical checks, have an owner or manager open the mail before passing it on to accounting. That’s one way to detect unusual transactions before they’re recorded in the company books. Alternatively, you might ask someone separate from accounting to open the mail and prepare a deposit slip, or prepare a daily reconciliation of all transactions.
• Segregate reconciliations. For companies with limited resources, a periodic review of bank reconciliations by someone outside of accounting can provide a mitigating control. Non-accounting personnel performing these reviews will need to be trained. They’ll need to understand the risks involved and the types of unusual or unsupported transactions needing further investigation. Cross training staff also helps to ensure continuity of operations when accounting employees take vacations or leave the company. Or better yet, bring in an outside accounting expert to conduct periodic audits of key functions.

Segregation of duties can help your company keep track of cash and help prevent theft by an employee before it happens.

Rabalais Business Consulting is Acadiana’s Small Business Survival Specialists firm based in Lafayette, LA, offering specialized business and accounting services to small businesses in the traditional sector.

Our team of highly trained professionals possesses the expertise and experience to provide clients with a comprehensive range of services, including accounting, tax planning and preparation, financial planning, business consulting, retirement planning and more.

At Rabalais Business Consulting, our primary objective is to help businesses achieve their financial goals by optimizing their financial performance, minimizing their tax liabilities, and protecting their hard-earned wealth. We achieve this by working collaboratively with our clients to develop customized solutions that align with their unique business objectives.

Our approach to business consulting is tailored to the specific needs of each client. We believe that every business is unique, and therefore requires a customized strategy to achieve its goals. We take the time to get to know our clients and their businesses, so that we can identify opportunities for growth, mitigate risks, and develop strategies to optimize their financial performance.

Our team of professionals possess a wealth of knowledge and experience in a variety of industries. We are committed to staying up-to-date with the latest industry trends and regulations, so that we can provide our clients with the most relevant and effective advice and solutions.

At Rabalais Business Consulting, we are passionate about helping our clients achieve their financial objectives. Whether you are a small business owner looking to minimize your tax liabilities or a company seeking to optimize your financial performance, we are here to help.

Thank you for considering Rabalais Business Consulting for your business needs. We look forward to the opportunity to work with you and help your business achieve its full potential.

Rabalais Business Consulting is conveniently located at 209 Rue Louis XIV, Lafayette, LA 70508.  Please call us to make an appointment at (337) 981-2579.