internal control

Implementing standard operating procedures can help companies move from chaos to consistency especially when business is growing.  Learn how they can also help save you time, money and headaches in your own business.

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Show Notes

In this show we look at something that is often ignored by first time entrepreneurs that can help them manage their business more effectively.  Implementing standard operating procedures can help companies move from chaos to consistency especially when business is growing.  Learn how they can also help save you time, money and headaches in your own business.

Key Points

*Hear why Lisa decided that this topic deserved attention in the show and how this business tool can help growing companies.

*We share a few examples of how lack of procedures or not following them can lead to costly problems for businesses.

*There are benefits that procedures can bring to a business that help manage and monitor the operation and provide opportunities to save time and money.

*Things like government regulations can require you to have procedures and processes so that you are meeting the standards the government sets.

*Standard Operating Procedures help create consistency in your business which can help with customer satisfaction and reduce errors and defects in your business process.

*Lisa gives her top 5 benefits of implementing standard operating procedures in a business.

*She shares how to begin implementing procedures, what should be included and how to research what regulations may apply to your business.

*Lisa also shares how things like internal controls can be built into the procedures to ensure accuracy, adherence to policy and safeguarding assets.

*Standard Operating Procedures helps CEO’s to move from chaos to consistency in his or her business by streamlining and controlling the business operation.

Resources and Links

Small Business Administration (SBA) – List of regulations https://www.sba.gov/starting-business/learn-about-business-laws

You might also want to check out this recent article on building a healthier business  https://www.bizrx-advisors.com/build-better-healthier-business-new-year/

Quick Care Consultation – If you’d like to talk to Lisa about this subject or any operational issue you’re having in your business then set up a time to talk with her here.

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Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

Have you ever had an employee steal from you? Would you know if they were? In this post I want to share some information on ways you can control theft in your small business.

A friend of mine, who works for a small company, investigated the second incident of employee theft in less than 5 years. The last time the total was well over $100,000 and this time looks to be almost as upsetting. Last time my friend was like a bloodhound, getting to the bottom of it and uncovering the full scheme. This time around, she used a healthy dose of skepticism and uncovered the fraud herself; she went from bloodhound to watch dog.Watch Dog, control

If it’s happened to you, you know all too well how hurt, frustrated and angry it makes you feel. If you’re the owner of a small business, it may not make you feel much better but you’re not alone. In fact, a survey by the Association of Certified Fraud Examiners showed that the smallest organizations (defined as less than 100 employees) were the most victimized by fraud at a whopping 31.8% in 2012 and a median of loss of $147,000 [1]. The losses for larger companies were lower.

Larger companies are able control theft more effectively because they have more resources to protect against it. They’re able to use techniques like outside audits, internal audits, risk assessments as well as other prevention and detection activities.

However, if you’re a smaller company, you need to rely more on cost effective measures to guard against employee theft. There are some business practices you can put in place in your business to deter, and hopefully avoid, these types of incidents from happening to you.

Consider These Practices to Control Theft in Your Business

Background checks

This business practice is especially important for prospective employees that handle company funds like cash, checks, inventory and even customer accounts. You may also consider doing background checks on employees that are licensed in their profession to make sure that there are no problems from their past that could jeopardize your company. Background checks can run as low as $25 to as high as several hundred depending on how deep the check. You need to weigh the cost of a background check against the risk your business faces to determine if it is worth it for your business.

Establish code of conduct

A code of conduct establishes the company’s position on the conduct of its employees. It communicates to employees standards like honesty, integrity, professional conduct, fairness etc. Owners and managers of small businesses should also take steps to not only effectively communicate the code of conduct but also practice what you preach by following those standards in order to set the tone from the top.

Keen Monitoring and Observation

Keep a watchful eye of signs that may lend themselves to a risky situation developing. A common example is an employee involved in a theft scheme never takes vacation to ensure the scheme is not uncovered. Also, changes in behavior or actions by an offending employee can be a red flag. In my friend’s company, hindsight analysis revealed that the offending employee’s financial problems seemed to evaporate and even improve over time and yet there was no significant change in the employee’s pay.

Establishing Internal Controls

An internal control is a process or procedure designed to minimize risk. They can take on various forms depending upon the nature of your business. There are too many internal control procedures to lay out in detail here, but you should think about where the risk lies in your own business. For example, cash intensive businesses should look at the business processes for collecting and safeguarding cash as well as check and balances for detecting problems. If you have inventory that can be easily used, sold or concealed, you should review inventory control procedures to ensure that inventory is monitored and safeguarded to prevent theft. According to an often-cited statistic from the National Restaurant Association, they estimate that 75% of inventory loss in restaurants is due to employee theft.

Regularly Reviewing Internal Controls

It’s also important to review internal controls periodically. In cases where there’s a change in business process or even the business environment, controls that were in place may no longer be effective. Also, make sure controls continue to be followed over time. In the case of my friend’s company, an internal control in place stopped being followed by the person who took over the head accounting position. That failure to follow the control procedure allowed the 1st theft to go undiscovered for years.

Establishing anti-theft policies and practices

According to the survey, besides management review, the other top ways smaller companies detected theft was “by accident” and “by a tip” [1]. Sadly, we can’t always rely on chance or accident. However, setting the tone through your code of conduct and good communications allows tips will come more freely in an open and honest work environment. A few examples of other policies and practices that help are required vacations, regular reconciliations of bank accounts, supervisory sign-offs and regular inventory counts.

Now, you’re aware of some of the ways smaller companies can try to control theft or at least deter theft in their business. Take a hard look at your own business. There may be some small changes you can make that in the long run can save you a lot of money and a lot of heartache. For more about Controlling Theft of Cash Receipts check out my earlier post here.

[1] Report to the Nations on Occupational Fraud and Abuse, 2012 Global Fraud Study. © 2012 Association of Certified Fraud Examiners. pp. 26-27 and p.18.