Do you use checks and balances in your company to both insure accuracy and prevent embezzlement? In all well-run companies, management has installed this tool to insure everything important is both inspected by someone using cross referenced documents and that critical financial transactions are monitored by at least two different parties who do not report to each other. Yet it is surprising how many organizations do not follow these simple procedures. It is like not testing the lock on your door when leaving your house, just to make sure you turned the key before you leave. Let’s look at just a few simple examples.
Most all companies run monthly P&Ls as well as weekly sales and margin reports. But many have different systems that do not tie the weekly reports to the monthly P&L reports. Allowing for adjustments such as late journal entry, cash vs. accrual accounting, etc., these should be able to be cross referenced, but often are not, leading to unreconciled variances. Sales and margins for the same period should have checks and balances. Often the staffing software back-office data do not tie to QuickBooks, or an outside payroll and billing service. This results in unexplained variances, which are booked as an “adjustment” but really does not confirm which values are correct. We come across this situation surprisingly often.
Another type of check and balance looks for discrepancies that might be a result of malfeasance. Say the A/P person creates a fake vendor and cuts a check to it for services or products that were never provided. That “vendor” may be working in collusion with the A/P and share the ill-gotten gains. Such risk of embezzlement could dramatically reduced by having another person who does not work alongside the A/P person confirm with the party listed as receiving that service/product actually did. We know of actual instances where this form of fraud happened; in one case restitution was made and another jail time was served.
In a third situation, employees have downloaded privileged and confidential information and used it to either start their own business or used it to secure a new job. This could be spotted by IT tech people looking for suspicious files that have been downloaded on site or remotely. And there is software designed to track this kind of activity? That your employee handbook lists such acts as forbidden, grounds for termination and will be prosecuted to the full extent of the law, will not usually dissuade unethical employees. As President Reagan once said in a different context: “trust but verify.”