Part 58: Checks and Balances – How Small & Mid Sized Companies Grow

Do you use checks and balances in your company to both insure accuracy and prevent embezzlement? In all well run companies management has installed this tool to insure everything important is both inspected by someone using cross referenced documents and that critical financial transactions are monitored by at least two different parties who do not report to each other. Yet it is surprising how many organizations do not follow these simple procedures. It is like not testing the lock on your door when leaving your house, just to make sure you turned the key before you leave.Let’s look at just a few simple examples.

Most all companies run monthly P&L’s as well as weekly sales and margin reports. But many have different systems that do not tie the weekly reports to the monthly P&L’s reports. Allowing for adjusted such as late journal entry, cash vs. accrual accounting, etc., these should be able to be cross referenced, but often do not leading to unreconciled variances. Sales and margin for the same period should have a check and balances. Often the staffing software back-office data do not tie to QuickBooks, or an outside payroll and billing service resulting in unexplained variances, booked as an “adjustment” which really does not confirm which values are in fact the correct numbers. We come across this situation surprisingly often.

Another type of check and balance looks for discrepancies that might be a result of malfeasance. Say that the A/P person creates a fake vendor and cuts a check to them for services or products that were never provided. That vendor may be working in collusion with the A/P and they both share in ill gotten gains. By having another person not working along side the A/P person check with the party receiving that service/product can insure against fraud when the department signs off those items as received and such embezzlement could dramatically reduced. We know of actual instance where this happened, in one case where restitution was made and in another jail time was served.

In a third situation, employees have downloaded privileged and confidential information and used it to either start their own business or used this to secure a new job. This could be spotted by IT tech people looking for suspicious files that have been downloaded on site or remotely. And there is software designed to track this kind of activity. Too assume that your employee handbook that notes that such acts are forbidden, are grounds for termination and will be prosecuted to the full extent of the law, will not usually dissuade unethical employees. As President Reagan once said in a different context, “trust but verify.”

To see all articles in this series please go to


Leave a Reply