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How To Prevent Fraudulent Disbursements

We were all taught in Accounting 101 that segregation of duties inhibit fraudulent disbursements. A conspiracy of one is easy to accomplish, but the more individuals involved the harder it is to keep that secret.

Well, segregation of duties is a great concept, but what do you do in the smaller businesses that don't have the available breadth of human capital to make that a reality?

How do you handle limiting your exposure to fraudulent disbursements?

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

For small companies, I advise the CEO/Founder to go through the disbursement books (well, cash in general) like a fine tooth comb....regularly. Even if he does NOT have the personnel to separate the duties, he at least knows how cash is generated and spent. Although this is an after the fact process, it is limiting the company's exposure.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Start with the "tone at the top."
Does the owner behave as if the company funds are personal?
Does the owner encourage people to become trustworthy?
How does the owner react when mistakes (not fraud) occur? Shoot the perpetrator and/or the messenger?

Jaime Campbell
Title: Chief Financial Officer
Company: Tier One Services, LLC
(Chief Financial Officer, Tier One Services, LLC) |

Although as a fractional CFO firm we are typically more involved with the Recordkeeping function and don't touch the Authorization or Custody functions, we recently look on a client for full suite accounting from CFO to Bookkeeper, with Custody requirements.

Frankly, it didn't take long to realize that the situation was ripe for embezzlement from the previous bookkeeper. After weeks of diligence during the transition I found nothing, thank goodness, just incompetency. There was no oversight, she had administrative access to everything, and in some cases not even a separate login for her. The separate invoicing system (Harvest) did not reconcile to the accounting system (QBO). The books were in such disarray that she couldn't even review the books with him and used a spreadsheet to review things weekly. The key component here is that he let it ride.

Some of the steps we took relevant to this topic include converting the bank account to a type which can allow for multiple users logging in and requesting that all disbursements have written authorization from the CEO before we pay them.

Future steps will include a supervisory checklist for him.

The good news is that someone in the office picks up client checks which arrive in the mail, deposits them, and leaves the stubs & deposit receipt for me to pick up. At least there's that.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Jaime,

Why not work with their bank and attempt to get all customers (vendors as well) to move to ACH?

From the A/R side, checks can't be mis-directed. From the A/P side, with double approvals (one by the CEO), there are no checks that can be just signed (or very limited number of checks).

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