Cases of employee theft and embezzlement continue to rise as a result of the economic turmoil of the past year. Many organizations tend to turn a blind eye to the risk of employee fraud until they become victims. Of course, in many frauds the theft has been occurring for upwards of 18 months before it is discovered. Ultimately organizations that suffer fraud losses may find themselves facing cash flow shortages and potential insolvency. The statistics regarding business failures occurring after a fraud is detected is alarming and point to the fact that organizations need to be more proactive in preventing fraud. A key area to preventing the theft of customer payments and receipts starts with proper segregation of duties over cash receipts received in the mail.
Insufficient segregation of duties over customer receipts received through the mail put the organization at risk for both misappropriation of cash receipts as well as misapplication of cash receipts. A significant number of common frauds and errors, such as lapping of receivables, misposting to customer accounts and theft of deposits can be prevented by proper segregation of duties saving the organization thousands of dollars.
Customer payments received in the mail should be opened by someone independent from the accounts receivable and bank depositing function. In smaller organizations this level of segregation of duties can be difficult to achieve due to smaller staff sizes. Consider having nonaccounting personnel, such as an administrative assistant, open the mail and prepare the remittance listing. Having the owner or a manager make the bank deposit can significantly increase the control over the cash receipting process especially if they also receive a copy of the bank statement unopened in the mail to review prior to the bank reconciliation being prepared.
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Factoring
Yes, factoring could help prevent some of the risk and if the organization does not have sufficient resources to manage their own remittances and collections process than sourcing it to a factoring company may be an ideal solution. If collections are strong they may also want to consider a lock box through their bank.
Would a factoring facility not assist?
Surely by using factoring the cheques and other remittances are all received by the factoring company. This would reduce the ability of an employee to intercept cheques.
In addition it would be picked up due to effective credit control on outstanding payments to the company.