Will Internal Controls Save Your Business From Theft?
Employee theft is a serious problem that can cause financial losses and damage to a business’s reputation if not addressed properly. As a business owner, it’s important to take steps to prevent employee theft. One way to do this is to implement internal controls. Internal controls are procedures or policies that are put in place to prevent or detect fraud or theft.
The majority of these controls pertain to the accounting process and the associated corporate books and records. Employees typically need to work together with other coworkers to support a theft when there are strong internal controls in place. When two or more employees collude to rob assets or money from the company while obstructing a control procedure, this is called collusion.
Running a business can be stressful, making it difficult to spot any early warning signs. If you know what to look for and where to look, spotting theft and fraud indications doesn’t necessarily need to be a challenge.
Types of Employee Fraud
- The most frequently stolen asset from companies is money.
- Employees getting paid for hours that they did not actually work for. This typically occurs when individuals misrepresent their timekeeping records or don’t work while they have to.
- Theft of office supplies (paper, pens, laptops, etc.) and pantry supplies are two examples of items that are frequently stolen (condiments, eateries, food, silverware, etc.).
- Company property or merchandise theft of goods intended for sale.
- Theft of company secrets or information and product designs.
In addition to the example we just gave, fraud can occur in a company or business in a variety of other ways.
- An employee might change the address on a vendor’s cheque to their personal address, sign the check, and send it their own way.
- Additionally, they may make fictitious purchase orders for unreal businesses.
- Staff personnel may commit fraud because of weak internal controls, which happens frequently.
To ensure that your activities are secure, it is crucial to evaluate your internal controls framework routinely.
How can internal controls prevent employee theft?
Separating your employees’ responsibilities is a tried-and-true way to lower business thefts. The recording, authorization, verification, and possession of assets and procedures inside your company’s control environment are reflected in these responsibilities. Some useful guidelines:
- The cash and cash receipt must be handled by two different individuals.
- Signing of the cheque and maintenance of the record of the transactions should be carried out by two different individuals.
- There are other methods, such as personally signing paychecks and keeping track of them with the HR department. Additionally, writing “for deposit only” on checks can aid in preventing their cashing by anyone other than the employee. Distribution should not be handled by those who handle revenue.
- It goes beyond simply protecting the cheques and determining where they go. It also pertains to maintaining office safety. Expect internal problems if we don’t regularly lock up appropriately. Unreliable employees will grab on and exploit inappropriate situations.
- Shifting responsibilities makes it more difficult for internal theft to occur.
- Internal audit is an important process used to protect businesses from employee theft and other fraudulent activities. It is a form of risk management that helps to identify areas of potential loss and create strategies to prevent them.
- Your company’s assets are further protected by requiring specific management personnel to sign cheques, grant reimbursements, and perform other major tasks.
I.P. Pasricha & Co highly recommends that businesses have internal control system for employee theft prevention. This includes having a system of checks and balances in place, such as having two people sign off on purchases and having a clear policy on the handling of cash. Additionally, businesses should have a system in place to detect any irregularities in financial transactions. This includes monitoring employee spending and having a system of reconciliations to ensure that all financial transactions are properly accounted for. Furthermore, businesses should have an audit system to ensure that any discrepancies are identified and addressed. Finally, businesses should have a clear policy in place to ensure that employees are aware of the consequences of any theft or fraud. By implementing these measures, businesses can help to protect their assets and reduce employee theft.
I.P. Pasricha & Co is a renowned CA firm in Delhi. We can help you with business support services and comprehensive solutions to help you grow and develop your business.