There are two general types of theft of cash from a business: skimming and cash larceny. Skimming is where the cash never makes it into the accounting system, such as when an employee fails to enter a sale into the cash register. Skimming is the hardest type of cash theft to detect, but there are ways to minimize the risk by using “front-end” controls.
Cash larceny involves stealing cash after it has been recorded into the accounting system. Cash larceny usually involves the bookkeeper or other accounting personnel. There are many methods of perpetrating a cash larceny, but most can be avoided by having proper “separation of duties.”
Separation of duties is an internal control concept that prevents theft by allocating duties so that more than one person is involved in crucial accounting processes. When you have effective separation of duties, it requires collusion to steal. When collusion is required, it is much less likely for stealing to occur.
Where should there be separation of duties? Here are some examples: 1) The person writing the checks should not prepare the bank reconciliation. 2) The person preparing payroll should not deliver the payroll checks to the employees. 3) The person opening the mail should not be the person making cash deposits.
There are many other examples of “separation of duties” that may be applicable to your specific business situation. For a discussion of how separation of duties can reduce the risk of cash theft in your business, call me at 805-377-0405.