November 17th, 2011

1.      Have more than one person involved in any one cycle of money. This is an essential “check and balance.” Having two or more people sign off on all money flows and money cycles reduces temptation and makes fraud or theft less likely. Here are a few examples:

  • Person A logs in checks and cash; person B verifies the math and makes the deposit.
  • Person A deposits the money; person B reconciles the bank statements.
  • Person A writes out the checks; person B reviews and signs them.

2.      Thoroughly check employees and independent contractors before you hire them. Do a criminal background check on each one and, if they handle money in any form, a credit check, too. Verify employment history and talk with past references, confirming that these references are real.

3.      Reduce liquid cash, which is always a temptation.

Get cash out of the system ASAP and with great care and attention. Here are a few examples of what you can do:

  • Replace petty cash with a reimbursement system.
  • If an employee collects cash from a customer, have that cash immediately deposited the same day with two people involved in that cycle of money flow.
  • Get machines that take credit cards versus only coins and bills.

4.      Have appropriate balances accessible in operating accounts and keep other monies in a segregated account(s) with tighter financial controls. This lowers your exposure yet allows you to give access to small accounts with appropriate controls to staff who need operating money.

5.      For purchasing decisions, formally set levels of spending authority for your team. For example, if the expense is less than $1,000, no approval is needed, but supporting documentation and receipts must be filed with the area manager. If the expense is more than $1,000 but less than $5,000, the area manager must approve the expense in advance. If the expense is more than $5,000 . . . You get the idea.

6.      Establish formal refund and return policies that spell out who is and is not authorized to refund. Spell out which kinds of refunds each has the authority to do.

7.      Determine safeguards for customer credit cards and other financial information.
For example, lock all file cabinets, shred trash daily, use password protection on computer databases.

8.      Create a formalized expensing system. This would include a list of expenses that are and are not reimbursable as well as a standardized expense report team members must use. Include a space on that form for the person to sign, declaring the expenses submitted are true and accurate. Require that receipts be attached for all expensed items.

9.      Get to know your business and the key numbers so you can quickly see what’s normal and what’s not. Encourage your management team to understand the same. Make it a core value of your business to immediately red flag anything that seems strange. Follow up on all red flags immediately. Here are some examples:

  • Key ratios: Check your cost of goods sold ratio, net income percentages, gross margins, and other relevant financial ratios for your business on a regular basis. These should stay consistent. If they vary or look abnormal, find out why.
  • Key expenses: If you don’t recognize a vendor, suspect an expense is out of line, or see income anomalies, investigate immediately.
  • Key rough checks: Look at the indirect ways of ball-parking your financial numbers to corroborate that things are in line with what’s normal. E.g., compare inventory turns to sales figures; compare staff hours to sales volume; etc.

10.  Obtain the right kind of insurance and bonding coverage if appropriate.

If you liked these ideas which are contained on page 26 and 27 of the book, imagine how much you’ll get out of the other 174 pages of, Build a Business, Not a Job.

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