Those who know me, know I am fascinated by politics and public policy which is why checks and balances resonates with me so much as an accountant and a business owner.
I find that small-business owners often have so much on their plates they might not notice what is actually taking place in their business that, if not addressed, can deplete cash, cause legal problems, or cause a host of other issues.
This is why I encourage creating checks and balances that allows you to implement an accounting system that promotes separation of duties. For example, separate accounts receivable duties from accounts payable. You don’t want the person in charge of receiving payment for invoices and services rendered to be the same person responsible for paying outgoing invoices and payroll. Making accounts receivable and accounts payable interchangeable duties can lead to serious cash misappropriation.
Another example is to require monthly reconciliations to be completed by an independent person who doesn’t have check signing responsibilities. Review the reconciliation report to document that a review and reconciliation was performed and keep a record with your files.
Most people have a distorted sense of who is most likely to commit fraud which is why creating the proper checks and balances minimizes your business’s exposure to fraud and other misappropriations.
Besides the key is to adopt the the attitude of the founding fathers – we hope and believe that people our worthy of our trust but at the same time, we put in place measures to reduce our need to rely on trust alone! Do you have check and balances system in your business?