Do Entrepreneurs Worry About Fraud?

Almost all Entrepreneurs have heard about fraud affecting business. While they might be lucky not to have experienced fraud first-hand, they can appreciate the devastating effect of malfeasance and broken trust in companies.

Entrepreneurs are often too trusting of their employees, especially ones who started at the beginning. Too much trust without built-in internal controls leads to a potential environment for fraud.

Entrepreneurs might be aware of the need for internal controls in their companies, but the size of their organization often limits proper segregation of duties.

Regardless, Entrepreneurs should be vigilant about proper checks and balances as they build their organizations. While trusting your people is a fine virtue, a solid company is built on strong systems and procedures with proper internal controls.

Even in a smaller organization, creative division of responsibilities with reviews and approvals can provide adequate controls.

Protect your company against fraud by doing the right things!

Ravi Patel

www.patelCFOservices.com

Recover from Mistakes

Some Entrepreneurs are just too much of perfectionists. But, they can’t afford to be so!

Entrepreneurs often try not to make mistakes. Sometimes they try too hard. Is this a good thing? Not making mistakes is good, but trying too hard not to make them could be counterproductive. Trying too hard to avoid mistakes often causes them.

Instead learn to recover, somewhat quickly, from mistakes. If one accepts that mistakes will happen, then the correct mindset should be to develop a process to recover from mistakes.

For Entrepreneurs this is even more important. First, they need to recognize that a mistake was made. If not, they might proceed too far down the wrong path costing them time and resources. Second, Entrepreneurs should train their people to recognize mistakes. Finally, they need to develop a well thought-out process to not only recover rapidly from mistakes, but also to learn from such mistakes and implement internal controls to avoid such faux-pas in the future.

Do the Right Things by recovering quickly and learning from mistakes.

Ravi Patel

http://www.patelCFOservices.com

Vacations as a Benefit and More

Summer is generally for vacations. Most companies offer vacation as a paid benefit to employees. But, is there more to it?

Vacations are offered at almost all companies. Employees use this time to spend leisure or social time with their families. Employees can hopefully recharge their batteries to come back to work rejuvenated.

Do you require vacations to be mandatory or can employees use the unutilized vacation time as extra cash compensation? If it is the latter, you might be doing a disservice to your employees. Vacations are meant to be used as a benefit for relaxation and should be used as such.

There is another important internal control feature in requiring mandatory vacations. It allows companies to uncover any irregular activities, if there are any, during the absence of  employees. Entrepreneurs should keep in mind this internal control aspect.

Also, it allows companies to test whether their business processes are people or system dependent. If people dependent, things might come to a standstill when certain individuals are on vacation. This is definitely not a desirable situation. Having employees take vacations reveals such weaknesses and allows companies to fix the system and train others to serve as backup performers.

So consider vacations as more than just an employee benefit!

Ravi Patel

www.patelCFOservices.com

Published in: on August 13, 2013 at 4:43 am  Leave a Comment  
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Protecting Against Fraud

Almost everyone has heard about fraud affecting business. While you might be lucky not to have experienced fraud first-hand, you can appreciate the devastating effect of malfeasance and broken trust in companies.

Entrepreneurs are sometimes too trusting of their employees, especially ones who started at the beginning. Too much trust without built-in internal controls leads to a potential environment for fraud.

While most Entrepreneurs are aware of the need for internal controls in their companies, the size of their organization often limits proper segregation of duties.

In any event, Entrepreneurs should be vigilant about proper checks and balances as they build their organizations. While trusting your people is a fine virtue, a solid company is built on strong systems and procedures with proper internal controls.

Even in a smaller organization, creative division of responsibilities with reviews and approvals can provide adequate controls.

Protect your company against fraud by doing the right things!

Ravi Patel

www.patelCFOservices.com

 

Published in: on May 21, 2013 at 4:52 am  Leave a Comment  
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Unintended Consequences

Good decisions for significant matters take into account all angles, even arguing from other points of view.

Adding to this process of making good decisions, Entrepreneurs should also weigh unintended consequences of their decisions. Did you evaluate, at least for significant issues, potential unintended consequences?

Take an example of developing an incentive program. If you have developed a program that correlates high performance with high reward, it is of course your intended consequence. But, what about unintended consequences of employees cheating or manipulating the system to obtain higher compensation? How have you protected the company against such unintended consequences?

When making crucial decisions consider potential unintended consequences and implement appropriate internal controls.

Ravi Patel

 

Internal Controls over Payroll

Payroll costs are a significant cost for most Entrepreneurs. What type of internal controls have you established over the entire payroll processing process?

Some of the questions to ask – who sets up new employees, how are pay rates established and changed, who approves hours worked, is there a process to authorize overtime, who reviews payroll, is payroll reconciled, how are paychecks distributed?

Establishing internal controls over payroll processing is necessary to control this significant cost area.

Ravi Patel

www.patelCFOservices.com

Levels of Spending Authority

When Entrepreneurs start the company, they often control the spending authority such that all expenditures have to be approved by them.

As the company grows and competent leaders and managers are in place, the Entrepreneur/CEO needs to delegate the spending authority to the secondary levels in the organization.

Depending upon the size of the company, use careful thought in establishing the level of spending authority at each level. Purchase orders should be issued only upon the approval of the requisitions by the proper level of authority for the amounts to be expended.

Internal controls in this area are important for growth.

Ravi Patel

www.patelCFOservices.com

Warning Signs

Entrepreneurs, are you faced with any of these situations in your company?

Employees do not take time off; changes in lifestyle of employees; living beyond their means; possessive of their work; missing documents; books out of balance; delayed deposits; records not organized; duplicate payments; payments to same individuals, numerous times; and so on.

These are warning signs of potential fraud or unacceptable behavior. Time to check things out!

Ravi Patel

www.patelCFOservices.com

Are Vacations Mandatory?

Vacations are offered at almost all companies as a benefit to the employees. Employees use this time to spend leisure or social time with their families. Employees can hopefully recharge their batteries to come back to work rejuvenated.

Do you require vacations to be mandatory or can employees use the unutilized vacation time as extra cash compensation? If it is the latter, you might be doing a disservice to your employees. Vacations are meant to be used as a benefit for relaxation and should be used as such.

There is another important internal control feature in requiring mandatory vacations. It allows companies to uncover any irregular activities, if there are any, during the absence of  employees. Entrepreneurs should keep in mind this internal control aspect.

Ravi Patel

www.patelCFOservices.com

Segregation of Duties

An important internal control for companies is proper and adequate segregation of duties in key risk areas.

When Entrepreneurs start out, there are fewer people in their organizations and proper segregation of duties is difficult. Entrepreneurs exercise greater oversight over all areas of the company to ensure internal control.

As their businesses grow, Entrepreneurs cannot and should not have too much oversight, but need to develop effective organizations with adequate internal controls with proper segregation of duties

All key business processes need to be examined to review that no individual performs multiple duties such that there is a potential for malfeasance. Duties should be properly segregated to avoid such situations.

For assistance in establishing effective internal controls, please contact us at Patel CFO Services (www.patelCFOservices.com).

Ravi Patel

www.patelCFOservices.com