July 10, 2017 by Jay Anstey

Small businesses, you need these financial controls

Most small business owners aren’t aware there are financial controls they should be putting in place, but if they operate a business without them, they may be vulnerable to a number of risks, including fraud and lost profits. To ensure that no problems are overlooked, small business owners need to learn to think from an auditor’s POV. They need to rely on the kinds of tests an auditor would implement and have their business manager perform those tests. Here are some of the key risk areas to keep in mind.


Cash is always a risky area. In many cases, small business owners don’t regularly do a bank reconciliation, a simple procedure that should be done every month. They often make the mistake of waiting until the end of the year to complete this step. Companies should also make sure that all petty cash is reconciled — detailed receipts should be attached to account for any cash used - as it is cash on hand that is most likely to disappear.


The main area where we see payroll fraud is when payroll authority has been delegated. If you’re a business owner and have someone else doing your payroll, you need to review their work, ensuring that there are no fictitious employees on the pay chart, the pay rates are correct and hours worked, source deduction and personal information has been entered into the system accurately. If you’re delegating to a manager to review time cards and other payroll work, you should also make sure they are signing off on employees’ time submissions, as there’s a risk fraudulent entries can be slipped in without the manager’s knowledge. As the owner, you should periodically review time cards yourself, just to make sure that the manager isn’t letting any misstated hours slip by.

Cheque fraud

Cheque fraud is another worrisome trend that can be addressed through bank reconciliations. You still often see ink being lifted off cheques. Typically it’s a cheque in the $10,000-$20,000 range, which someone intercepts, lifts the ink, changes the vendor name and then cashes. Again, the bank reconciliation will allow you to see the image of the cheque on the bank statements, giving you the ability to verify that all details are accurate.


Missing inventory is one of the biggest problems that goes unnoticed. To combat this, companies should do regular counts so they know where their inventory levels are. They can also use that count to perform a gross margin analysis, so they know the relationship between sales and profit. If inventory goes missing, your gross profit is likely to be lower than expected.


Some businesses make careless mistakes with their IT infrastructure. A common one is failing to back up information. In recent months, we have seen an increase in reports of ransomware scenarios — where thieves hack, then hold your information hostage until you pay a ransom. In addition to ransomware, we see employees accidentally deleting content or disgruntled employees going in and changing information. If your information is backed up, you are better protected against these threats. Most people are maintaining their backups in the cloud, but having a physical copy offsite is also important because even clouds can be hacked and information stolen.

Jay Anstey, BAcc, CPA, CA, is a partner at Collins Barrow SGB LLP. In addition to his extensive experience with a wide array of non-profit and for-profit organizations, Jay provides accounting and assurance services to municipalities and rate-regulated hydro electricity distributors.

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Jay Anstey Jay Anstey
Collingwood, Ontario
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