Part 8 of 10, Fraud Inoculation

Fraud Inoculation

May I put approximate time requirements on the necessary monitoring activities? First of all, to start such a comprehensive program requires a 100% physical inventory, perhaps involving every employee for one day. Setting up this forward-going scenario would require a one-time investment of time of 10 to 40 hours, depending on the complexity, the size and the numbers of items involved, plus perhaps a day in the life of all the employees. And of course the tickets used to count the inventory has to be audited by an outside auditor.

Taking a look at each and every check face as checks are cut and payrolls paid, might require ½ hour per week, while carefully reviewing all bank reconciliations monthly, might add another hour per month.

Scanning/watching all receipts of weekly inventory in (including drop shipments) might require another ½ hour per week. (Spreadsheet macros could be written to catch the salient information, but walking around is needed too.) Each vendor must be known, though most small business owners already know all of the vendors. This re-acquaintance might require a one-time 2 to 4 hour time allotment. Likewise, each customer who is granted credit, becoming an A/R, needs to be known before being added.

Then, as vendor checks are written and receivable checks are received and posted, both the AP and AR aging reports can be carefully scanned every week to match the increase or decrease of check amounts in or out to each account. Again, spreadsheet macros can be written to track and somewhat explain any non-matching issues.

Before too long, the scanning of aging AP and AR reports does not take much time, while scrutinizing the spreadsheet information becomes the focal point, because those spreadsheet macros track and match all cash flows in and out to AP and AR every week.

Ditto with every employee, as every check written to an employee matches only employees known to be on the payroll paid a known periodic amount. Again, spreadsheet macros can be written to track and explain any non-matching issues.

Finally, every checking account, credit card account, (as well as Petty Cash) needs to be independently monitored. This might take 2 to 4 hours per month. Again, spreadsheet macros can be written to track and explain any non-matching or unusual issues each month.

The meaningful issue here is to know the actual cash flow in and out, perhaps within $500 at any point in time. This knowledge requires a weekly cash flow forecast which clearly reflects the cash cycle for this specific business with changing cash expectations built into every weekly forecast. Then the spreadsheet macro reports on all the flows in and out are reconciled both on paper and in the owner’s head with what the cash balance is now and what the cash balance is expected to be in the near-future.


One Reply to “Part 8 of 10, Fraud Inoculation”

  1. I used to do this once in a while. Where I live there is a place called Check Into Cash. To get the cash they rirqeue a bank statement, some rirqeue a bill such as cell phone or utility to prove your address, last two paycheck stubs and of course your checks so you can write one for them to hold, oh and also your Driver’s License. All they do is call your bank to check and make sure you have an account there. Then they look at how much you make and they can only lend you a certain percent of that. They will make you write out a check for that amount to hold until you come back with the cash to pay them off and then they return your check to you. The repayment period is two weeks. You will get a small interest charge on the money you owe and if you repay before the due date some of the interest will be taken off the repayment amount. It’s not really a bad idea like people on here are saying. If you try to take a cash advance on a credit card you are going to pay more in interest in the end. If you need quick cash then I would say go for it. Just don’t make it a habit.

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