The foundational control.
WHAT IT MEANS
No single person controls a transaction from beginning to end.
WHAT THE STAGES TYPICALLY ARE
Authorising it Executing it Recording it Holding the asset Reconciling
WHY SEPARATION WORKS
Concealing a loss requires control of both the transaction and the record.
WHAT TO SEPARATE AT MINIMUM
The person who approves a payment from the person who makes it The person who records cash from the person who holds it The person who orders from the person who receives The person who operates the bank account from the person who reconciles it
WHY RECONCILIATION SPECIFICALLY
Someone reconciling their own work will not find their own errors or concealment.
WHAT TO DO IN A SMALL BUSINESS
Separate what you can, and compensate for what you cannot.
WHY IT DESERVES SAYING
Full separation is impossible with few people, and that is not a reason to have none.
WHAT COMPENSATING CONTROLS LOOK LIKE
The owner reviewing bank statements directly The owner approving all payments above a threshold Periodic independent review Mandatory leave with someone else covering
WHY THE OWNER REVIEWING STATEMENTS DIRECTLY
It is the single most effective control available to a small business.
WHAT THAT MEANS PRACTICALLY
Receiving statements independently and examining them personally.
WHY INDEPENDENTLY
Statements provided by the person being checked are not a control.
WHAT TO ESTABLISH
Direct access to the bank account and its records.
WHAT TO WATCH FOR
Payments you do not recognise Payees you do not know Transfers between accounts Round-number payments Payments just below approval limits
WHAT TO ESTABLISH
That you would recognise an unfamiliar payee.
