These days, one might think that a cash-handling small business is a dinosaur, given how popular debit and credit cards have become among American consumers. But don’t be fooled – cash is still king when it comes to buying stuff. Yet for all of the effort put into ensuring business owners are aware of the risks associated with credit card fraud, little is shared about the risks of handling cash.

Here, you’ll find the five most common risks of handling cash and what you can do to protect your business against them.Tweet This

No. 1: Cash Theft

Cash theft – stealing directly from the till or cash box – is the easiest and most common type of fraud committed against businesses that deal mostly in cash. This is because it often takes a while before the theft is discovered. Usually, cash theft is only uncovered after the fact, when the sales numbers don’t correlate with the financial records.

In order to deter straight-up cash theft, a small-business owner has to establish controls over cash drawer keys and ensure  the company’s cash is securely held at all times. In addition, cash balances should be kept to a minimum and the balances should be recorded and verified regularly.

No. 2: Cash Transactions Go Intentionally Unrecorded

This type of theft occurs when an employee makes a sale, collects the cash, and then fails to record the transaction. The best way to control this risk is to use serialized receipts. The receipts should be accurate and complete, and if possible, automatically generated. In addition, if your company receives cash payments through the mail, then make sure all mail is opened in a controlled environment and all received cash is recorded. All income should be deposited into the company’s bank account, with all accounts reconciled regularly.

No. 3: Payment Frauds

There are several ways an employee can commit fraud involving payments, but the most common include:

  • Making illegal payment transfers
  • Submitting invoices for companies that don’t exist
  • Making duplicate payments
  • Paying the wrong person
  • Increasing the value of one payment at the expense of another

In order to prevent the risk of fraud, you should routinely review vendor lists to ensure accuracy and should separate duties so no single individual has control over more than one element of the payment process. Access to any system used to generate, alter, or authorize payments should be restricted, and all payment orders should be independently authorized by upper management prior to execution. Before the funds are finally transferred, all payment reports should also be reviewed for accuracy.

No. 4: Financial Records Are Falsified to Hide Unauthorized Payments

If an employee has too much access to account information, then it can be all too easy for them to falsify financial records to cover up unauthorized payments. It can be very difficult to track down this sort of fraud, so small-business owners need to be actively protect the integrity of account records.

All amendments to accounts should be independently authorized and signed, checked, and countersigned. Routine spot checks should be conducted, and all accounts need to be reconciled on a regular basis. Any unresolved discrepancies should be thoroughly investigated. In the event that they cannot be validated or resolved, then they should be reported as part of a formally defined process.

No. 5: Unauthorized Use of Company Checks

A small business should never leave its checkbook open and available for unrestricted use. It needs to be secured and used only by those with the delegated power to sign checks and payable orders. In addition, all non-transferrable payment instruments should be enforced as non-negotiable. All payments should be printed in tamper-proof indelible ink to make manipulation of payment amounts more difficult and easier to detect. Lastly, when issuing a payment for a substantial amount, ask the recipient to confirm receipt of the payment.

These risks are just a few that can impact a small business. Learn more about managing business risk.

Photo Credit: nina_p_v, Twenty20