Is there too much trust in our organizations?

By: Robert Hendrix, Audit Manager

No owner of a business or executive director of a non-profit wants to think that their employees would ever steal from them. The people in our organizations become like family. Outside of our spouse’s, these people are the ones we spend the most time with during our day. We want to trust them. We need to trust them. But, if you have ever heard anyone’s story of an internal theft, the phrase that always is mentioned is, “But I trusted them”!

I’m not telling you not to trust your employees. Trust is a big part of organizational success. Trust though without the proper internal controls is a recipe for fraud. So how can you strengthen the internal controls of your organization to help mitigate the opportunity of fraud?

  1. Separate the duties of your personnel– this involves designing the procedures of your financial system in which one person doesn’t do all of your accounting tasks. For example, the employee that makes your deposits shouldn’t be the same person that manages your receivables nor opens your mail. Even in small organizations, tightening up your procedures to make sure that you limit the opportunities for someone to steal is imperative.
  2. Culture of the organization – the tone set by the owners, the Executive Director and the Board of Directors of the organization plays a huge part in creating a healthy work environment. If the employees know that the top of the organization will not tolerate certain behavior and that integrity is rewarded, it creates a culture of honesty.
  3. Oversight – creating procedures where specific employees or managers have to sign off on certain types of transactions in a timely fashion can help create a layer of accountability to the staff. When employees know they are being watched, they are more likely to not be swayed to do the wrong thing.
  4. Third party review – having your independent CPA firm review your organization by doing a risk assessment of your company can tighten your controls and make you aware of potential issues. 

Most employees are hardworking and trustworthy to your organization…you wouldn’t have hired them if they weren’t.  Creating an environment that rewards high ethical behavior and creating procedures to mitigate fraud can help keep those trusted employees from doing the wrong thing. 

Trust is not a scary word, if properly managed.

For more information call Osborne Rincon CPAs at 760-777-9805.