White collar crime is something we hear about more and more these days. White collar crime refers to a financially motivated nonviolent crime committed by employees of a business and government professionals, and it is estimated to cost U.S. corporations billions of dollars a year. It is generally acknowledged that this type of crime has reached epidemic proportions, severely hurting both large and smaller firms. Yet, much of this crime wave might be preventable by the establishment of sound internal control procedures.
Who‚Äôs at Risk?
According to the FBI, the numbers and percentage of inside criminals that are prosecuted versus outside criminals have completely reversed, with a far greater number of insiders being caught, charged and prosecuted. Right about now you may be asking ‚ÄúWhy should I care? My company is a start-up. I don‚Äôt have that much for anyone to steal, and I do reference checks on all my employees.‚Äù But, sadly, the size of your business ‚Äì or those reference checks you think are solid ‚Äì do not provide 100% protection from white collar crime, and any business can become a victim.
Admittedly, in a start-up business, internal control is seldom necessary since the owner is typically supervising all the company‚Äôs activities and personally controlling cash inflows and outflows. But as an organization grows, and authority and responsibility are delegated, a sound internal control system becomes vital for management to obtain accurate financial and operational information, to safeguard the firm’s assets from theft and waste, and plan and monitor future growth. And it is a wise idea to start building the internal control system before you need it so it is in place when you need it.
While there is no foolproof way to insulate an organization from white collar crime, I suggest companies reduce their risk by establishing sound internal control systems. Elements that should be present in a soundly functioning system include:
The sooner you implement these practices in your organization, the better you will sleep at night. With internal controls in place, you will have less to worry about even if you experience a more rapid growth than you anticipated and need to start delegating sooner than you thought you might. Besides, most of these are sound business practices even if you are a sole-practitioner or single member LLC.
I hope you will never have to test your organization‚Äôs need for internal controls or ensure the ones you set up will protect you from a loss. I‚Äôve identified 10 steps to implementing internal controls that have proven to be sufficient for most of our client organizations. I‚Äôd be happy to discuss these with you and how they apply to your business.