Small Business Fraud Series - Importance of Physical Cash and Inventory Counts

As your small business grows, your internal control structure must grow with you and a sound control environment becomes more critical. One of the most important controls in a small business is conducting surprise counts of assets in which are easily susceptible to theft such as cash and inventory.

 Cash - For retail or cash transaction heavy businesses, periodic cash counts are vital to an effective fraud prevention process whether performed by an internal audit department or by management. Generally, the simplest procedures are the most effective. Some procedures in which can assist in the identification of fraud include reconciliation of deposit slips to the vouchers provided with cash payments, reconciliation of cash receipts to cumulative cash register readings, spot audits of cash drawers, etc. A good program to follow when performing cash counts can be found here. This program can be tailored to your specific needs.

Inventory - Depending on the product, inventory is generally the most susceptible asset to fraud. Inventory counts can be made periodically or perpetually. Periodic counts are generally performed quarterly or on an annual basis whereby 100% or close there to of the inventory is counted. Perpetual accounts, referred to as cycle counts, are generally performed throughout the year with only a small percentage of the population being counted at each count. Inventory counts are important as they can assist in the identification of missing, misplaced, excess, obsolete, etc inventory. A link explaining steps to a successful inventory count can be found here.

To be successful in these areas designate a specific individual with the responsibility of these task. This individual should be independent to the cash and inventory process. Consistently and following up is important.  You must make a commitment to the procedures in order to assist in the deterant of fraudulent behaviors.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.