Money Matters: How to Avoid Fraud and Bankruptcy

Going bankrupt may be one of the biggest blows you will encounter in your life. Bankruptcy is caused by a lot of factors which include padded expense accounts, stolen merchandise, overpaid supplies, and withheld customer payments. And in order to prevent these, it is vital for you to set up a good accounting system with built-in internal controls.

An internal control system is comprised of all measures to protect your assets and ensure the accuracy of your accounting and financial reports. This will ward off dishonest employees. The basic steps in setting up a good internal control system include the following:

1. Separate the custody of assets from the accounting function. Make sure that the person who handles the cash does not handle the cash records to prevent any alterations that can lead to fraud.

2. Subdivide duties. When you subdivide the functions, a single person or department will not handle one transaction from beginning to end. The work of one staff member serves to verify the work of another, thus detecting mistakes easily.

3. Serially number all accounting forms like official receipts, checks, purchase orders, sales invoices, and delivery receipts. Serially numbering them will facilitate regular control and accounting. A missing document or discrepancy will be detected by a break in the sequencing of numbers.

4. All collections of the previous day should be deposited daily. All transactions must be receipted and must be listed on a daily collection report and must be supported by duplicate deposit slips authenticated by the depository bank. Compare the duplicate deposit slips with the accounting record for any discrepancy.

5. Use checks as payment. For small cash payments, use your petty cash fund. However, never make big cash payments out of cash receipts. And never allow checks to be drawn payable to cash.

6. Verify the amount and validity of your expenditures. During transactions, support each payment with original invoices and other documents with the stamp "Paid".

7. Regularly check the bank statement with your accounting records. This will prevent any discrepancy.

8. Regularly audit. Read your bank statements, count your cash, and confirm your supplier and customer account balances.

9. Hire honest and competent people. Make sure you can rely and depend on your staff when it comes to money matters and issues.