When your small business grows and you invest more hours and effort into developing it, the unfortunate reality is that you have significantly more to lose as a consequence of errors, dishonestly, and fraud. This is certainly of distinct importance with bookkeeping and accounting because they deal with handling and tracking money that comes in and goes out of your company. For instance, an immoral and competent bookkeeper who was entirely responsible for all aspects of the bookkeeping for your small business could easily steal money from your business and cover it up.
We realize that because you are the boss, you like to think that you have a keen eye on every aspect of your organization, but even the most conscientious owners can't possibly watch everything like a hawk all of the time once their business reaches a decent size. So, how can you reduce the potential risk of errors or theft as your small business grows? Segregation of duties is an incredibly important concept which can accomplish that, and should be effectively implemented in any business.
What is Segregation of Duties? To put it simply, it means structuring the standard tasks of your small business in a way that more than one person is required to complete it. A basic example of this is having two people required to sign checks. This greatly reduces the probability that a signer on the business bank account will write fraudulent checks to embezzle cash out of the business, because he or she knows the other person will observe and sign every check they write.
Having two or more people needed to complete any job regarding business finances has been proven to substantially lessen the incidence of both mistakes and dishonesty. Hopefully it makes sense why this is the case. With multiple people being required to complete a task, there will be more than one set of eyes to notice potential errors or fraud. Moreover, any kind of fraud will require collusion between two or more employees, which is far less likely to occur than if a single person could get away with it on their own.
As any small business develops and the number of employees increases beyond just the owner, Segregation of duties for bookkeeping tasks is very important. The "rule of two" is an excellent place to start. This means that any job involving the finances of your small business should require two or more people to complete. Here are some examples:
The bookkeeper prints checks to pay vendors, and the owner signs and sends them out.
The assistant photocopies checks from customers and gives them to the bookkeeper to record, then the assistant completes the bank deposit
Bookkeeper #1 records all receipts, and Bookkeeper #2 reconciles all accounts to verify whats recorded in the books actually matches what happened in reality (as shown on the bank statements)
The bookkeeper creates all employee paychecks in Quickbooks, then the CEO reviews them and sends them to the payroll company to be processed.
The bookkeeper creates financial reports to give to the lending company, and the owner approves them and is the one to hand them over.
Hopefully you get the idea. It's not an exceedingly complicated concept, but I'm certain you can understand why it's very crucial.
Another component of segregation of duties is that it protects staff such as the bookkeeper as well as protecting the owner. If a bookkeeper's duties are effectively segregated, he or she is protected against accusations of fraud, since he or she will literally incapable of embezzlement, for example. When your professional reputation is on the line, it's extremely important that controls exist to prevent false accusations of fraud against you.
Dishonestly in the workplace is an unpleasant issue to acknowledge and handle, but there a realities in this world that all small business owners should be prepared to handle in order to be successful, and effective segregation of duties is imperative in order to protect you, your employees, and your small business.
We realize that because you are the boss, you like to think that you have a keen eye on every aspect of your organization, but even the most conscientious owners can't possibly watch everything like a hawk all of the time once their business reaches a decent size. So, how can you reduce the potential risk of errors or theft as your small business grows? Segregation of duties is an incredibly important concept which can accomplish that, and should be effectively implemented in any business.
What is Segregation of Duties? To put it simply, it means structuring the standard tasks of your small business in a way that more than one person is required to complete it. A basic example of this is having two people required to sign checks. This greatly reduces the probability that a signer on the business bank account will write fraudulent checks to embezzle cash out of the business, because he or she knows the other person will observe and sign every check they write.
Having two or more people needed to complete any job regarding business finances has been proven to substantially lessen the incidence of both mistakes and dishonesty. Hopefully it makes sense why this is the case. With multiple people being required to complete a task, there will be more than one set of eyes to notice potential errors or fraud. Moreover, any kind of fraud will require collusion between two or more employees, which is far less likely to occur than if a single person could get away with it on their own.
As any small business develops and the number of employees increases beyond just the owner, Segregation of duties for bookkeeping tasks is very important. The "rule of two" is an excellent place to start. This means that any job involving the finances of your small business should require two or more people to complete. Here are some examples:
The bookkeeper prints checks to pay vendors, and the owner signs and sends them out.
The assistant photocopies checks from customers and gives them to the bookkeeper to record, then the assistant completes the bank deposit
Bookkeeper #1 records all receipts, and Bookkeeper #2 reconciles all accounts to verify whats recorded in the books actually matches what happened in reality (as shown on the bank statements)
The bookkeeper creates all employee paychecks in Quickbooks, then the CEO reviews them and sends them to the payroll company to be processed.
The bookkeeper creates financial reports to give to the lending company, and the owner approves them and is the one to hand them over.
Hopefully you get the idea. It's not an exceedingly complicated concept, but I'm certain you can understand why it's very crucial.
Another component of segregation of duties is that it protects staff such as the bookkeeper as well as protecting the owner. If a bookkeeper's duties are effectively segregated, he or she is protected against accusations of fraud, since he or she will literally incapable of embezzlement, for example. When your professional reputation is on the line, it's extremely important that controls exist to prevent false accusations of fraud against you.
Dishonestly in the workplace is an unpleasant issue to acknowledge and handle, but there a realities in this world that all small business owners should be prepared to handle in order to be successful, and effective segregation of duties is imperative in order to protect you, your employees, and your small business.
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