- Make sure financial functions are delegated to more than one employee. If a single person is responsible for all financial functions (Cash, Accounts Receivable, Accounts Payable, Payroll, General Ledger), it’s easier for misappropriation to occur. Also vacations or extended absences can cause key processes to grind to a halt when there’s nobody cross trained in performing vital accounting processes.
- Review all outgoing payments. Match payments with invoices, looking for duplicates, new vendors or numerous invoices from the same vendor in a short period of time. These are tactics that can be used by financial employees to divert funds for their personal gain.
- Create a monthly cash flow projection. If actual cash flow falls short of projections, try to determine why. If it exceeds projections by a significant amount, you may want to question the assumptions behind your projections.
- Monitor your debt level. Set a maximum debt-to-equity level and a minimum debt-to-cash flow ratio. Monitor these ratios on a regular basis to avoid excessive leverage.
- Keep Business and personal finances separate. Don’t co-mingle business and personal transactions. If you take a loan form your business or make a loan to it, be sure to document the transaction with a promissory note that specifies repayment terms.
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