Who is Watching the Cash?– October 26, 2012 by Paul Gregory

A couple of the first questions I ask a new client or prospect is: “Who is responsible for the organization’s bank statements, and what is the process for handling them?” These are questions every business owner should ask him or herself and be sure to have a finite, and good, answer for.

Fraud comes in many forms but the most common is theft of cash. That may mean writing checks to individuals or to a bogus company, paying personal credit card bills, duplicating payments to vendors in hopes of getting refunds, depositing money or wiring transfers into personal accounts, and many other scenarios.

Many small businesses have one or two people in their accounting department, generally a bookkeeper with little accountability, a stamp signature and total control of the accounting function. With one person in charge and no clear separation of duties, it is a situation ripe with opportunity. Add in even one of the other two sides of criminologist Dr. Donald Cressey’s fraud triangle — pressure/incentive/need or rationalization — and that could mean trouble.

Opportunity is the only side of the triangle business owners can reasonably control. Pressure can come from something as small as needing $10 for gas to get home, easily “borrowed” from petty cash. Rationalization often stems from unhappiness in the work place or a feeling of being overworked and underpaid. Sound internal controls and careful oversight are the only ways to alleviate the opportunity for fraud.

One of the most practical recommendations I give to clients on this issue is to make sure they identify one person, independent of the accounting function (most often the owner) to receive the unopened bank statements, open and review all checks written. The designated individual should closely identify the payee, signatures on the front and back, bank activity, wire transfers, debits, credits to the account, etc. In today’s electronic age, owners can do this more easily than ever via online banking statements. Making inquiries to the individuals writing checks, making deposits and reconciling the account may be enough of a deterrent to internal fraud.

Remember, it is easier to prevent fraud from occurring than detecting fraud once it has happened. When the money is gone, recovery is expensive, time consuming and often fruitless, so be sure the appropriate person is watching your cash.

Contact a member of your service team for more information.


This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.