We often find ways to save clients money once we begin working with them: renegotiating bank loans, switching insurance brokers or providers, identifying hidden costs in underpowered accounting systems, etc. We also look for ways to improve internal accounting controls to ensure the business is run in accordance with its approved policies. Those two important elements in any CFO’s job description, whether fractional or full time, rarely intersect in a meaningful way because they have different objectives, unless you include the occasional sales person’s padding of expense reports.

But sometimes the stakes are much higher. Take the often overlooked policy that requires certain employees in sensitive positions to take periodic vacations, during which time their duties are performed by others. Staffing challenges being what they are today, that seems like an easy one to overlook. But two examples from our client files say “Not so fast” when it comes to the accounting department.

Example 1: Consider the payroll department in a small or midsized company, which may be only a single employee. That person keeps track of employee records, submits payroll data to the accounting department – or more often these days to an outside payroll service that doesn’t actually know the employees. We took on one client that had a sizeable chain of retail stores and a couple thousand employees across the country. And one payroll person in accounting who never took a vacation, supposedly because no one was trained to cover for her. We discovered that there were about a hundred “employees” on the payroll, and getting paid regularly for years, that didn’t exist. Paychecks were cashed and no one was the wiser until the arrival of Your CFO for Rent. Cost to the company was in the hundreds of thousands of dollars.

Example 2: This bookkeeper at a mid-sized manufacturing company had gotten approval to borrow money from the company, as an employee loan, as long as the loan was repaid. Apparently a series of personal issues led to repeated loans from the company to the same bookkeeper, all of which were repaid in due course. Or were they? Our fractional CFO was there when the employee, who also never took vacations, was off for a genuine medical reason. A question came up that caused the CFO to look through the employee’s desk for the answer to the question. Surprise! In the back of a desk drawer were a stack of checks made out to the company and signed by the employee, loan repayments that were never deposited into the company’s bank account. The bookkeeper was able to credit the loans and bury the actual cost elsewhere in the books, with no one the wiser if he hadn’t kept the actual checks in his desk.

Internal control is often seen as a nuisance by mid-sized and smaller companies with lean staffs in specialized areas like accounting, especially given today’s short-staffed employment environment. But it’s the little things that will get you, and sensible internal control policies is one of them. Firing an employee, or even prosecuting them, will not recover the money. Well thought out policies are intended to prevent the need for remedies by avoiding the disease in the first place.

Need a good internal control doctor? Give us a call.

We are Your CFO for Rent.

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