Does your small business have checks and balances in its accounting processes? If not, you may be at risk for fraud, error, embezzlement, and theft. What are bookkeeping checks and balances and how can you implement them no matter what your size and scope? Here's what you need to know.
What Are Checks and Balances?The concept of a check-and-balance system is to divide up rights and responsibilities in order to ensure no one person has too much control over anything. It's based on the same idea written into the United States Constitution, which divides up the roles of making laws, enforcing them, and determining their constitutionality. This way, no one office can act with impunity.
How Can a Small Business Use Checks and Balances?Of course, your business is not the U.S. government. So how can checks and balances work in your accounting system? Rather than have one employee who does a sensitive process all on their own, the company includes other employees at various stages to ensure no one can act without anyone else's knowledge. This reduces the chance of both fraud and mistakes.
Consider the receipt of cash. Customers give cash to a clerk who puts the cash into the safe. Someone must then record the cash and take it to the bank. Finally, the amount of money is entered into the books. To create a check-and-balance system, each of these three steps would be done by a different staff member to check the others. One takes cash, one deposits it, and one records it.
Dividing these jobs ensures that no one employee could skim off the cash, record cash they didn't receive, or falsify the books. In addition, errors at all points are more likely to get caught before they mess up your books.
What Tasks Should Be Broken Up?So, what jobs should you divide up? This varies for each business, but here are some common ways many use checks and balances.
- Avoid having the same person receive, record, and deposit cash or checks.
- Have someone aside from accounts payable or receivable reconcile bank statements.
- Use the buddy system when handling, counting, or depositing cash.
- Require two signatures on company checks.
- Request receipts for all credit card transactions.
- Have different individuals conduct audits at various times of the year.
- Assign different staff to do inventory counts or rotate assignments.
- Ensure the person ordering inventory is not also receiving and counting items.
- Verify vendor statements against invoices recorded in your books.
Clearly, most companies have many areas where they could craft a check-and-balance arrangement. Analyze your company's particular risk points, including anything involving cash or inventory, company checks or credit cards, authorizing expenses, or preparing the company's financial statements.
What Are the Challenges of Checks and Balances?Most small businesses face two main challenges in implementation. The first is that it makes processes less convenient and less efficient. Having to round up another person in a busy company every time you open the safe is a pain. But it protects everyone. The trick is to minimize these inconveniences without sacrificing the safety provided by dividing up the work.
A second common complaint is that there simply isn't enough personnel. One helpful solution is to outsource some of your checks and balances to an outside bookkeeping service and/or accountant. You may also need to cross-train employees so they can complete limited tasks, like having the receptionist help count cash or a driver go to the bank with accounting staff.
Where Can You Get More Ideas?Could checks and balances help you reduce financial risk or errors? If so, the best place to begin is to consult with the pros as
Quality Bookkeeping Services Inc. We offer a variety of services to fit any small company's needs and can provide suggestions on best accounting practices based on years of experience as well as what works for other owners like you. Call today to make an appointment.
