Small business owners don’t lack for things to do. There is the endless work of creating new products and improving existing ones. Meeting with new customers and existing ones – local and abroad. Hiring employees and freeing up non-performing ones to “pursue other opportunities.” You get the thrilling task of managing payroll and cash flow. You get to deal with all of the wonderful governmental entities – federal, state, and local – regarding licensing, codes, rules, laws, and endless regulations. Then, of course, there are the meetings with your CPA around tax time.
The LAST thing you need is to wonder if your financial books are correct and accurate.
Unfortunately, we hear of cases of a modern-day Judas, where a rogue employee who has been entrusted with the money decides to help themselves to it and embezzle money. It can literally bankrupt a business.
This is why it is important to conduct financial reviews and perhaps even complete third-party audits. Annual financial reviews are instances where internal members of your organization are tasked with performing random “tests” of financial records and require those in charge of the finances to provide objective evidence that records are retrievable and accurate.
Third party audits take this process to an entirely different level. An outside organization is hired to put the financial team through a rigorous test of all critical financial systems – accounts payable and receivable, payroll, record-keeping, financial reporting (balance sheet, cash flow statement, and income statement), and separation of authorities (i.e. separating rights of who can print checks from check signers).
While no review and audit can completely eliminate the chance for fraud, it can reduce it tremendously. And it will allow you to make business decisions with full confidence in your finances and the financial team.
Here’s the statement I use: “Trust, but verify.”
This post is part of a Small Business Series here at the wildly popular JosephSangl.com. Click HERE to read more of the posts in the series.