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1. Protect your cash.
You should consider using a cash lockbox to collect your rents rather than assigning this task to someone in your organization. Make sure that the person responsible for deposits is not able to issue credit memos or reconcile the bank account. On numerous occasions, bookkeepers are able to pocket cash collected and issue credit memos to clear the accounts receivable balances undetected. These situations become very difficult to detect especially if the accounts are not reconciled regularly, cluttered with numerous mis-postings or if the same person is responsible for all bookkeeping or accounting records and is reviewing his/her own work. |
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2. Review your monthly bank statements for unusual items/debit memos and ensure that a reconciliation of all cash to your accounting records is prepared regularly.
During this review you should evaluate the level of activity and how the total deposits and withdrawals relate to your financial data or expected rental income. You should question debit memos, since this is typically a technique used to divert funds without having the owner sign a check. Review the bank reconciliation on a regular basis for completeness and unusual adjustments that may be carried from month to month or unreconciled differences, which can be a sign of covering up missing deposits (circumvented cash) or inappropriate distributions. |
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3. Review monthly rent rolls for consistency, vacancies and frequent move-in and move-out activity.
The activity should be scrutinized for appropriate rental charges and to verify that vacancies are available and not being rented. This may require regular vacancy visits. In addition, the lease agreements should be reviewed and compared with the rent roll. Consider performing a mid-month rent roll reconciliation to ensure that your deposits agree with the rent rolls being presented. Control the cash collections of rental income, security deposits and late fees. Consider not accepting cash as a practice, if possible. |
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4. Review the general ledger activity on a monthly basis.
You should review the reasoning behind credit memos issued against rents receivable to ensure they are proper. In addition, review the charges to balance sheet accounts, specifically the fixed assets that are made throughout the year. This is a good place to post unuthorized expenses that are generally adjusted through your year-end journal entries and can go undetected. |
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5. Review the monthly credit card statements for unauthorized purchases.
Ensure that all credit card receipts are provided and expenses documented to support the charges on the statements. You should implement a policy stating that if the expenses charged by employees are not supported with the receipts and documentation supporting the business purpose of the expense, the expense will then be assumed to be personal and will be reported as additional compensation to the employees. |
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In today's challenging environment, it is important for you to take a fresh look at your business practices to ensure that you are generating complete accounting and tax records and protecting your assets. If you don't think it can happen to you, think again... |
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"The message to Corporate America is simple: Desperate people will do desperate things. Loyal employees have bills to pay and families to feed. In a good economy, they would never think of committing fraud against their employers. But especially now, organizations must be vigilant during these turbulent times by ensuring that proper fraud prevention procedures are in place."
James D. Ratley, CFE
President, Association of Certified Fraud Examiners
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