Cash, Security And Fraud Prevention

As a former accountancy teacher I have always prided myself of having sound money management and security systems, but I have had one known instance of fraud in my 40-plus years as an employer and that was by a secretary who fell under the spell of a particularly worthless male with an expensive habit and no income of his own. (Her taste in men was such that if she picked a bloke out of a crowd of 100, you could safely shoot her choice knowing you were doing society a favour!)

Since I began in business I have paid a small percentage of each month’s Sales Income to charity as our collective commitment to “give back for those who are presently challenged”.  I’ve always shared the amount with my team and made sure that they understand that this is money that they have contributed to generating and that this is a contribution to others by all of us.

The incident above occured in an era before EFT when I personally signed every cheque paid out of the business.  In this case the charity’s cheques were signed by me – but not posted by her.  Instead, and despite their “Not Negotiable” crossing, she had convinced a local contact to cash them for her “to give to the charity in cash”.

Four months after this practice began I encountered the charity representative at a social event and our conversation lead me to ask my bank to back trace the cancelled cheques and the scheme was uncovered.  She was invited to come up with a repayment plan to avoid involving the police, and to resign immediately (it was tough on everyone since I had become good friends with her father through competitive squash). Her sense of what she had done was that she had remained loyal to me and was “merely” defrauding the charity . . .  it’s interesting how we justify things to ourselves.

Having just read a news article in which a payroll clerk has defrauded a major retailer of $20.5m over 4 years I think it’s probably time to reflect on the basics of cash protection within any business.  The following points are worthy of reflection in this vein:

1. Consciously choosing to conduct your business in an honest and honourable fashion influences those around you in a positive fashion.
2. Articulating honesty as a Value (or standard) by which all in your business are required to act reinforces that example.
3. Walking the talk in the full realisation that honesty is an absolute value is extremely important.  After all, being a little bit dishonest is no different to being a little bit pregnant.  That puts the temptation to do the odd “cashie” outside of the pale – after all, if it’s OK for the boss to bend the rules, it’s OK for me.
4. Accepting that 97% of people are “honest within limits” (limits that may be tested by gambling, a need to “buy” friendship or prestige, the needs of a sick child or spouse, or a loss of income in our family to name a few) means that you will have full safeguards in place to protect against the remaining 3%.
5. Being very aware that having full safeguards in place against the 3% and understood by all removes much of any potential temptation for the honest 97%.   It is wise to accept that if you are careless with money you may unfairly tempt a frail person beyond their limits, and would therefore be partly responsible for their transgressions! In fact, let’s take that further:  As an employer, you have a moral obligation to your employees to avoid, wherever possible, subjecting them to temptation.
6. Full safeguards include:
   1. Dividing key value-handing functions across people – no one person should reconcile, authorise and then pay any account (unless they are the sole owner of the business, of course)
   2. Receipting all payments into the business
   3. Recording all payments out of the business (preferrably with matching receipts from the recipient)
   4. Accounting for all payments via the accounting system
   5. Reconciling all movements of value with the relevant subsidiary records:
      1. Cash, cheques and transfers with the Bank Statement
      2. Stock against stocktakes
   6. Regularly analysing Profit & Loss and Balance Sheet, along with reconciled Bank Statements and Age Debtor and Creditor Reports
   7. Spot checking stock, cash, debtor and creditor balances
   8. Requiring all holidays be taken when due
   9. Treating any accounting discrepancy as a valid indicator of a potentially larger problem (does a small fuel leak matter on a big Space Shuttle?)
   10. Applying a “commonsense checksum” approach to accounts. Regardles of the size of your busines is should be possible to collect key numbers such as Sales, Purchases, Debtors, Creditors, Bank and Expenses and do a rough sum to work out a ballpark figure for your bottom line. If the accounts vary much from your guesstimate, start digging.  If there was nothing wrong, that’s fine – you now understand what happened in the business a lot better than you did a while ago!