How to eliminate cash theft and misappropriation for small businesses

Small businesses are the most vulnerable to cash fraud because they often don’t have effective internal controls over their assets.

It is wrong to believe that internal controls are for large businesses that have the resources to put them in place.

In fact, what guarantees effective control within a business is the level of commitment to the controls (including general business culture) and not the amount of resources(money and manpower) the business has to put the controls in place.

Cash is one of the most vital resources of small businesses and you-the owner- must be active and vigilant in protecting it. Good internal controls helps you manage those resources and make sure operations are efficient and effective. This article will take you through a step by step approach on how cash theft can be put to check, but first, let's take an overview of what internal control within a business is;

Generally speaking, Internal controls are procedures a business puts in place to:

• Safeguards its assets (Cash, Stocks and so on); 
• Ensure financial information is accurate and reliable;   
• Ensure compliance with all financial and operational  procedures.
• Generally assist in achieving business objectives; Revenue growth, Profit etc.

Internal controls should never be ignored in any business environment, However, with my years of experience as an employee and business owner, I have come to realize that small businesses often find it difficult to put proper controls in place either as a result of  Limited number of Employees which prohibit effective segregation of duties or owners tending to trust employees more especially long term employees- and become slack about monitoring or reviewing their work.

As a business owner,  Start the process of designing effective internal controls over cash by answering the following questions:

Who has access to cash and why?
This question should enable you make decisions on who should not be seen with or around the cash till.

Where is cash held at all times?. 
In an open till? Or under lock and safe? This should also enable you ascertain the maximum amount of cash that should be kept in the till at every point in time. For some businesses it could be N50,000, N100,000 or even N200,000. Whenever this figure is made, the person responsible for collection should either take it to the bank for deposit or keep it under lock.

What is the process of cash handling (receipts and disbursements) from the beginning to the end?
It is generally not ideal for one employee to start and end cash handling duties, however, If you are only capable of having one staff for the role, do ensure that there is an independent check of the process by a more senior staff or even by you. This may include comparison of sales value to cash counts and what has been deposited in the bank.

Where do opportunities exist for theft and error?
This would be the most candid question to be answered. If care is not taken, sentiments may hinder your judgement as to which aspect of your business is suffering this leakage. It could even be you! The owner! How often do you deep hands in the cash till for lunch or to make random expense?

Afterwards ensure the following:

1. Segregation of cash handling duties

The most important internal control over cash is the segregation of cash handling duties among employees. Segregating duties creates check and balancing and also limits the opportunity for theft and error. Even the smallest businesses can segregate duties by ensuring that different people receive and deposit cash, write and sign cheques, Reconcile and review bank statements.

2. Put in place a mandatory leave for employees, most  especially book keepers and cash handlers.

Many business owners do not always adopt this method of control especially in this part of the world as most employers would rather have their employees work round the clock for 365 days, "Am paying them after all", you say. The cost of not doing the right thing outweighs the benefit. You would be surprised at how much you- the business owner has lost by keeping an employee on a job for too long.

3. Make frequent bank deposits to reduce the amount of cash held at the store over night.

4. Do not encourage staffs to make expenses from the cash till.

This is an area where most small business owners encourage misappropriation and pilfering. It is appropriate to have a petty cash system where miscellaneous expenses can be made from. This petty cash system could be floated weekly.(which is mostly advised).

5. Keep a tight reign on all cash, and ensure that cash tills are balanced daily. This would include POS (point of sale) terminal transactions.

6. Do not keep cheque books or blank cheques flying around. Cross out cheques that are not used and be sure not to dispose them haphazardly.

7. Have employees balance their cash sales before handing over to another shift. The sales figures should be vouched by an independent personnel.

Having listed all these controls, it is worthy to note that the tone(Business values) set by the management or business owner has an enormous impact on the culture or modus operandi of any business.
What is worth doing at all, is what doing well.

All the best.

Adebayo Erinle. BSc ACA.
Senior Consultant, Parlance AC.
Tutor, Erismart consult,

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Consultancy. Accounting services. Business management. Consulting. Internal Control.