Office Theft: Are Checks and Balances in Place? Part 1


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We have all heard the stories. A company had unbelievable amounts of money stolen by a trusted office employee. Sometimes it’s less than a thousand dollars, however often it’s large sums of money! Sound impossible? It’s not. worked with a large mechanical company where the office manager took in excess of a million dollars by simply telling the owner cashflow was tight and they needed to make a draw on their line of credit. In his case there were no checks and balances in place. The owner was busy running the company and cashflow is always an issue when doing large commercial jobs, right? No red flags were raised, they were still making money, just not very much. One day the owner’s wife came to the office and asked the office manager to see the checkbook. She refused and the rest is history. 

Many cases of theft involve longterm employees that had earned the respect and confidence of the owner. Few, if any, checks and balances were put in place. The owner “trusted” his or her staff so there was no real need to put checks and balances in place…right?  Wrong! 

So, what do we mean by checks and balances? It simply means not allowing one individual to have total responsibility for any area of your business without someone else providing oversight. 

Checks and balances must be in place for the protection of the company, as well as the employees. This month we are going to start looking at suggestions to prevent office theft with Part 2 on office theft coming next issue 

Much of what will be shared is common sense. However, even common sense is often ignored if we put too much trust in the individuals that are handling the money. Give some thought to the following: 

  • Never allow the same person that receives the money to also be the one depositing it – Most offices have someone that is the collection point for cash/checks received from technicians and/or salespeople. Once the deposit is prepared have someone else make the physical deposit. 
  • Provide the owner, daily, a physical list of all deposits made, and credit cards charged – This works a bit like GPS vehicle tracking. Just knowing someone else is watching provides a degree of accountability, and safety. A side benefit is that the owner becomes aware of what money is coming in and what money is NOT coming in. Bottom line, it helps the owner become at least indirectly aware of the status of receivables. 
  • Monitor use of the lines of credit  A line of credit is critical for any business. However, a true line of credit has one purpose and one purpose only. It is to be used for shortterm borrowing against receivables. If a large payment is past due the line of credit is drawn on to take care of payroll, overhead, etc. However, when the money comes in the line of credit is to be paid back. That is how it is supposed to work. If it is being used to purchase equipment, inventory, or anything else; it’s a red flag. The owner or manager should approve any draws on the company’s lines of credit with a full explanation on why it’s needed.   
  • Review the P/L Statement monthly – Most owners have a “sense” of how things are going.  Once a month have a staff meeting to review the P/L statement, payables, and receivables.  If it seems like the company is making money, but you don’t see it in the checkbook, it’s time to dig a bit deeper. 
  • Meet with your CPA monthly – Your CPA should be like a partner in your company. This outside person should be trained to spot irregularities while being a source of ideas to maximize your company profits. 
  • Have an internal audit performed by someone other than your CPA – Guess how many   thefts are discovered. It’s when you are audited. Yes, it’s a huge headache to be audited, but a positive side benefit is that any irregularities found will be uncovered in the process. Be proactive. Have an internal audit performed each year, or at least every other year, by someone other than your CPA. 
  • Create a budget and monitor it each month – Creating a month-by-month cashflow budget will literally force the owner to understand what it costs to run the company. A budget also projects monthly profitability. Reviewing a Budget vs. Actual Report each month will clearly summarize every dollar earned and every dollar spent.  
  • Do not allow the same person that writes the checks to sign them – Ideally someone in accounting will physically write, or print, the checks; but require the owner, or manager, to then sign them. Yes, it takes a bit of time each day, but it will make the owner fully aware of what money is being spent. Attach the invoice with it so the owner can immediately see what the money is being spent for.  

We have just covered eight checks and balances to help prevent theft in the office. Next issue we will look at eight more suggestions you might want to put in place. Remember, the overall responsibility of the business rests squarely on the shoulders of the owner. It’s your money so keep a close eye on it. 

Tom Grandy

Posted In: Money

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