Lock Down Financial Assets with the Right Controls

You’ve got a fence around the job site. Your heavy equipment is turned off and the keys stored securely. Your materials are tied down and, where possible, kept out of sight. But what about your financial assets? Are you protecting those as carefully as your physical assets?

Many contractors worry so much about petty theft or misuse of equipment that they overlook the home office or job trailer where so much important information is held and so many financial transactions take place. Here are some ways to lock down your financial assets, too.

 

Divvying up duties
Smaller contractors may rely on one or two employees to handle several critical duties. In some cases, a single employee may be responsible for opening the mail, signing checks and overseeing accounts payable. That may be practical, but it can leave you susceptible to fraud.

To make it harder for workers to dip into the till, divide accounting and finance-related responsibilities among multiple employees. For example, have someone independent of the vendor payment functions review all new supplier setup entries. 

Also, require employees who have disbursement duties to take at least one full week off from work each year. Employees who voluntarily decline vacation time may do so because they’re afraid their fraudulent activities will be discovered by those who fill in for them while they’re absent.

Building up banking protections
Ask your bank whether it offers the check-matching service known as “Positive Pay.” Under this service, you send the bank a list of checks that have been written each day. The bank matches the account number, check number and dollar amount of each check presented for payment against the list you sent. All three components of each check must
match exactly or the bank won’t pay.

There are many other simple, but effective, steps you can take. Perhaps you’ve already implemented some of them, but it doesn’t hurt to double-check and make sure they’re being followed. Assuming you have controls in place is just as dangerous as having none.

For example, store checks in a secure location and limit the number of employees who have access to them. (Has this number crept upward over the years?) Don’t use signature stamps for checks or write checks payable to cash.

In addition, set a dollar limit with your bank on the amount for which the bank can clear checks without contacting you for authorization. Many companies require two signatures for amounts over a certain number.

Finally, protect financial transactions, such as wire transfers and authorizations for credit lines and loans, by using passwords and telephone verifications, in which you or another authorized (and trusted) employee approves activities by phone. Such dual-level authorization for sensitive information is now a normal practice.

Putting employees on notice
An effective internal control program requires regular monitoring. For example, have bank statements and canceled checks sent directly to you and review them.

Keep your employees on their toes by performing random, unannounced audits on your disbursement process. If they aren’t sure what you’re monitoring and when, they may be less likely to attempt to defraud you. In the event fraud does occur, no matter how minor, be sure to take decisive action no matter the identity of the offender. By taking these
steps, you’re putting employees on notice that preventing fraud and theft is a high priority for your company.

Work with your CPA to create an effective internal control environment. He or she can help you identify areas of greatest risk and develop controls to minimize those risks.  Your accountant can also train you on how to monitor bookkeeping records, invoices, bank statements, payments, journal entries, financial reports and other documents.

Securing both fronts
Many types of companies only have to worry about preventing fraud at the office. Contractors don’t have it quite so easy. But by being vigilant and ensuring that the right controls are being followed, you can protect your job sites and your money.