So what are some issues small business owners should be concerned about when they let someone else do the bookkeeping?
If you answer “yes†to any of these, you may have issues in segregation of duties:
- Is the person who handles your cash also responsible for recording the cash?
- Does the person who pays or orders inventory also receive the materials?
- Are two or fewer people responsible for the accounting function?
- Is only one person responsible for reviewing financial statements each month?
- Is your review of financial journals sporadic?
If you answer “no†to any of these, you may have issues with Bank Reconciliation:
- Do you review canceled checks and endorsements on a monthly basis?
- Do you compare payroll checks with your current employee records?
- Do you question funds transferred between bank accounts?
- Do you track the number of credit card bills you sign per month?
- Are bank reconciliations performed on a timely basis?
- Is someone responsible for reviewing the reconciliations each month?
- Do you verify reconciled items?
If you answer “yes†to any of these, you may have issues with documentation:
- Do you ever sign blank checks?
- Do you ever sign checks without original supporting documentation?
- Do you ever sign checks without canceling supporting documentation?
- Have funds ever been transferred between accounts without review or verification?
- Do you ever sign checks for new business vendors without knowing or verifying their name and association with your company?
If you answer “yes†to any of these you may have issues with employees:
- Are any of your employees extremely possessive of their work records and reluctant to share their tasks?
- Are any of your employees apprehensive about vacations and time off, while always being the first in the office and the last out?
- Have you noticed a substantial change of lifestyle in any of your employees?
- Do any of your employees have a possible substance abuse problem?
- Are any of your employees living beyond their means?
- Have you ever hired an employee before checking references?
- Do you permit your accounting personnel to work longer than a year without taking a vacation?
- Do you have any accounting staff or key personnel who have not been secured with a fidelity bond?
If you answer “no†to any of these you may have a problem with assets:
- Are blank check stocks and signature stamps safely secured?
- Do you restrictively endorse all checks when received?
- Do you deposit cash and checks daily?
- Do you maintain a list of office furniture, equipment, and company vehicles?
This is a good checklist for a small business and for a non-profit to consider. The biggest consideration for not implementing any of these recommendations is the financial and operational risk. As an example, our Habitat affiliate has a pickup truck that we carry at salvage value. The financial risk is minimal. It is convenient to have available but it is not going to stop construction if it is stolen or broken down. As a result our bookeeping of the truck is minimal. However, many of the other recommendations require us to just work smarter!