Trust, But Verify

by | Sep 23, 2020 | Short & to the point.

Trust, But Verify

There is significant debate over whether there is validity to a management style of “trust, but verify”. There is no debating, however, that the old Russian proverb makes sense in considering an entity’s operations. As much as a business owner can, should and must trust their employees – especially those in positions handling valuables, including cash, receivables and inventories – there also needs to be verification of what they are doing. One term frequently used in this area is “segregation of duties”, which means that one person should not be doing everything in an area where misappropriation of assets or even errors causing loss of assets could occur.

Monitoring what employees are doing is a necessity. You are ensuring that there is not a fox guarding the henhouse while taking basic steps to ensure the henhouse is still guarded.

According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations, which summarized over 2500 fraud submissions from fraud examiners, over half the frauds noted in not-for-profits were the result of a lack of internal controls and management review. The number one source of detection of fraud is receipt of a tip. After that, internal monitoring such as management review, surveillance, IT controls and account reconciliations, detected about 36% of frauds. External audits – where the purpose is NOT to detect fraud – uncovered only 4%.

Keeping your own house in order is the best way to maintain your assets. What happens if you do not monitor your company? We will show a couple examples in the next post.

Updated Lease Accounting Guidance to Go into Effect Soon!

Updated Lease Accounting Guidance to Go into Effect Soon!

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, which created Accounting Standards Codification (ASC) Section 842, Leases (“ASC 842”). This new standard provides significant updated guidance for how non-public business entities account for operating and capital leases.

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