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How Clients Can Prevent Asset Misappropriation

Nov 19th 2018
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Occurring at a rate of 15 percent and taking, on average, 12 months to detect, cash on hand represents one of the greatest asset misappropriation schemes. Cash larceny comes in at a close second, happening at a rate of 11 percent and taking a staggering 24 months to detect on average. For your small business clients, either of these occurrences could be a recipe for disaster.

Cash on hand means basically means the amount of cash that is accessible to employees.  This represents not only the amount in the bank but also what’s in a register, in a change box for petty cash and even in your pocket.  Clients should be made aware being mindful about the availability of that cash and the internal controls surrounding the access and process of handling it are what will minimize the risk of theft occurring. 

For instance, petty cash should be kept in a locked box, preferably a safe, that is placed in a location that is not easily accessible.  Additionally:

  • Require receipts when utilizing petty cash, making change or paying out for supplies. Have a separate employee sign off on it.
  • Have one employee responsible for opening the safe and one who can open the register.
  • Have a camera that constantly surveils the safe or lockbox to monitor who is accessing the cash.
  • Create policies about aspects such as the maximum you can take out at a time and keep the balance of the petty cash as low as you can.
  • Set spending limits. If you set a spending limit and someone goes over it, even if they can prove it was for your business, immediately act. There are mistakes and then there are people who may be testing your controls. Do not take a violation of your policies lightly.

While cash on hand thefts are problematic, they don’t typically have a significant impact on the financials, nor do they result in tax consequences.

Cash larceny is a whole other animal. 

These thefts involve cash that has already been recorded on the books. For example, a bookkeeper is accepting checks in the mail from customers. They record these in the accounting system to appropriately affect accounts receivable, cash on hand and revenue. But rather than depositing the funds into the business bank account, the bookkeeper deposits them into their own.  

Here are some ways to prevent cash larceny, which can devastate a small business:

  • Segregate duties: Have one person receive the checks and make copies of them. They should then bring the checks to the bank (or better yet, have a check processing machine at their desk).  Have those copies go to the bookkeeper to be posted into the accounting system and reconcile the accounts to ensure the checks made it to the business account.
  • Retail store owners should examine the register tape. False voids will reduce the amount of funds collected but will also affect inventory and sales figures.
  • Rotate the staff who works the register. Give each of them their own sign-in code and encourage them not to share theirs with anyone else.
  • Require employees to take time off. If there is an increase in cash sales while someone is on vacation, there may be a problem.
  • Conduct surprise cash counts throughout the course of the day. Do this at various times, and make sure it is unannounced. This will help deter employees from thinking they will get away with pulling money out of a drawer.

When all is said and done, cash is king.  Without it, you cannot run a business. While you should keep your clients who own companies true to their commitment and trust them, verify their cash is staying where it belongs: in the register and petty cash box. 

Visit us at and sign up for a free membership. You can also take the basic fraud assessment questionnaire to find out some simple steps you can take to minimize the risk in your business!

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