Employee Fraud in a Cash Business

Someone once asked Willie Sutton (the infamous bank robber) why he robbed banks. His answer was simply “because that is where the money is.” This same rule applies today. The easiest and most common fraud involves cash. 
 
We all want to trust our employees and always think the best of people; however, statistics from the Association of Certified Fraud Examiners prove that employees do steal from employers. These losses can be very large and surprisingly easy to do.
 
Poor business practices and a lack of supervision create an environment for dishonest employees to use a variety of methods to steal from their employers. The really amazing thing is that most of the time it can be prevented.
 
The majority of fraud cases we work with involve employees who handle cash for the organization. These employees may be cashiers, bookkeepers, supervisors, etc They all have one thing in common: every day they handle cash that belongs to someone else.
 
Internal controls for cash handling processes need to be put in place and the employees need to know those controls are in place. The company needs separate cash handling duties divided among different people. For example:
 
•           All employees need to have a reconciliation done for the cash they handle.
•           Deposits need to be reconciled to the general ledger in a timely fashion.
•           Physical controls such as cameras need to be put in place around where cash is collected and stored.
•           Unique usernames and passwords for employees need to be used on registers and accounting systems so that the transactions can be traced back to the employee.
 
If your company has a cash handling process, you need to be able to comfortably answer the following questions:
 
•           Which employees handle cash?
•           Why does that employee need access to the cash?
•           Where is the cash located throughout the process?
•           Do you have the ability to trace the cash with the employee throughout the process?
 
A good place to start with your company is to have an internal control review.  Another good place is using a Fraud Checklist to do a self assessment. If you would like this checklist or more information about internal controls, please contact me.

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by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

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