In any business, especially when the owner is not always on site, maintaining control and accuracy over financial transactions is crucial. One area where effective controls are often overlooked is in handling checks. Poor check control can lead to significant issues, as illustrated by real-life scenarios faced by businesses.
The Risks of Poor Check Control
Consider a situation where deliveries are made or services are rendered while the business owner is away, and employees handle the writing and management of checks. Without proper controls, several problems can arise:
Incomplete Checks: In one case, an employee wrote a check but failed to fill out the "Pay to the Order of" line. The bank cashed the check without this detail, making it impossible to accurately record who was paid and what the expense was for. This lack of clarity led to confusion and financial discrepancies that were difficult to trace.
Inaccurate Amounts: In another instance, an employee wrote an amount in the numeric box but omitted the corresponding amount in words. The person who cashed the check wrote in words for $1,000 more, and the bank honored the higher amount. This discrepancy caused unexpected financial strain on the business and eroded trust with vendors and employees.
Implementing Effective Check Control Measures
To prevent such issues and protect your business, consider implementing these check control measures:
Designate Authorized Signers: Limit the authority to sign checks to trusted individuals. Ensure these signers are well-trained in proper check handling procedures.
Use Pre-Printed Checks: Pre-printed checks with secure features (such as watermarks or special ink) reduce the risk of unauthorized alterations.
Implement Authorization Thresholds: For larger amounts, set thresholds, such as allowing authorized individuals to write checks up to $1,000. For higher amounts, require that another person with more authority approves the check.
Regular Reconciliation: Regularly reconcile your bank statements with your accounting records to catch discrepancies early. This ensures all checks are accounted for and accurately recorded.
Monitor Check Usage: Keep track of check stock and monitor usage to prevent theft or misuse. Record each check issued and verify against your records.
Educate Employees: Train employees responsible for writing checks on proper procedures. Ensure they understand the importance of filling out all check fields accurately and consistently.
Conclusion
Effective check control and accuracy are essential for safeguarding your business’s finances. By implementing robust check management practices and ensuring all employees are aware of proper procedures, you can prevent costly errors and maintain financial integrity. Remember, a small oversight in check handling can lead to significant issues, so investing in proper controls is a wise decision for any business.
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