Rice Sullivan & Co.

1. Sales: It is important that accurate sales figures are used to establish company revenue and direct inventory purchases. Implement detailed procedures for cash, checks, credit cards and online sales.

• Use an invoicing system for shipping goods.
• Ensure that sales figures are correct and commissions are not paid until funds are received.
• Reconcile sales with payments. Double-check sales against original invoices.
• Obtain proof of delivery when goods are shipped.

2. Accounts receivable: Failure to collect past due accounts can create cash-flow problems and erode profit. Establish credit and collection policies in writing, and follow through on their implementation (e.g., review credit balances on a regular basis).

• Separate accounts receivable from cash reporting.
• Have accounts “aged” regularly and authorize an independent review of the report.
• Cross-check noncash credits and bad debt write-offs.
• Establish numerical or batch-processing for billing.
• Initiate security measures for outside communications.

3. Accounts payable and purchases: Many companies are prone to mistakes in this area. Below are procedures for your staff to follow:

• Record purchase and accounts payable procedures.
• Initiate controls to cross-check duplications.
• Check pricing information and prices of competing vendors.
• Focus on large billings and items that may be disguised under smaller entries.

4. Cash accounts: If your business processes a significant number of cash transactions, it can easily fall prey to theft, especially if internal controls are substandard.

• Have employees balance cash at the end of their shifts.
• Safeguard checkbooks and other methods of disbursing funds.
• Reconcile all bank accounts on a regular basis.
• Separate cash deposits from other functions at the bank.
• Divide responsibility for cash disbursements and purchases from the approval process.

5. Payrolls: Thanks to recent technological advances, it is easier than ever for employees to commit fraud if tight internal controls are not established.

• Ensure that electronic passwords are protected and changed frequently.
• Review bank account deposits to ensure that wages are being disbursed properly.
• Separate responsibilities for payroll preparation, disbursement and distribution.
• Investigate variations in payroll expenses and monthly budgets.
• Train backups for critical payroll responsibilities.

6. Physical assets: It is also relatively easy for physical assets to be misplaced or misappropriated. Protect valuable property from external, as well as internal, access.

• Lock up laptops and other electronic devices.
• Record all asset purchases and maintain detailed records.
• Assign responsibility for supervising physical assets to a particular employee and a backup.
• Divide responsibilities involving expensive equipment among employees, if possible.

Finally, coordinate these activities with your business advisers. They can help you install some meaningful controls.

Other articles in the June 2010 Edition of Business Matters:

• Seize More Control Over Your Business
• Computer Protection: Call a Traffic Cop
• Six Estate-planning Steps for This Year