Tailored Accounts facebook   +61 2 6169 5196

3 useful tips for shop owners to mitigate risk of sales fraud

20% of our clients are in the retail & food industry or in a business using a Point of Sales (POS) system. Their daily transactions are composed of 20-30% cash and 70-80% Electronic Funds Transfer at Point of Sales (EFTPOS). Though the level of cash transactions may be seen as low, substantial fraud can often take place in cash transactions. According to the research undertaken by Inside Retail Australia, cash fraud penalties for some retail owners exceeded one million dollars.

If shop owners do not have an appropriate procedure for daily reconciliation,it is extremely troublesome to identify irregularities after a few weeks.Thinking of my first casual job as a student at a restaurant, I was responsible for reconciliation between a cash register and a POS system. This sometimes took up to 3 hours per day, but had been proven to be a worthwhile practice,for the restaurant as a small business. As EFTPOS became more popular, shop owners started to pay less attention to their cash revenue, which accelerated risk of fraud. Since owners largely rely on an auto-settlement system provided by EFTPOS providers,fraud in cash transactions have been much overlooked.Furthermore, shop owners may not have thought about potential fraud from EFTPOS transactions.

To illustrate, we had a client running a small retail shop. The store adopted a EFTPOS payment method only to avoid complex cash reconciliation, leading to the owner’s believing their business was protected from fraud thanks to no cash transactions. Ironically, our client discovered that the business recorded strong sales during the next eight months after employing EFTPOS. However, the cash balance was not properly reconciled back to the sales figure. The forensic investigation revealed that one of the staff had misused the store’s EFTPOS by connecting it to the staff’s own PayPal account.In so doing, the employee had withdrawn payments made by customers for over 4 months. Fortunately, our client was able to get her money returned, but this lesson highlights the importance of cross-checking and reconciliation process in a timely fashion.

Many stores are not concerned about daily reconciliation of cash. At the end of sales, shops tend to count cash earned and deposit it to their bank accounts without validating it against a POS report. Some shops without a POS system have no chance to find discrepancies. Other businesses often use cash to pay their bills or staff salary directly from a cash register without any reconciliation. In fact, the most common question from these shop owners has been "Why does my business seems to generate sound profit, but there is not enough cash in our bank account?"

Here are three tips that we suggest to give you peace of mind as a shop owner:

1. For your cash sales: Consider multiple layers of reconciliation as a single layer of reconciliation, or lack thereof, is not sufficient.

As our client’s story demonstrated, you need a robust cross-checking or reconciliation procedure. Consider a Triple-layer reconciliation approach that can help reduce a threat of fraud. The example of multi-layer reconciliation includes:

Step 1: A shop manager counts cash earned and signs on a Total Daily Cash report.

Step 2: For your 1st layer of reconciliation,a daily cash reconciliation report between a total daily cash report and a POS cash report must be reviewed. Any discrepancy should be approved and reported by a shop manager on the day. Any transaction paid by cash out of a register will need to be recorded.Cash receipts will also be attached to a daily reconciliation report at the end of your trading day.

Step 3: Cash earned must be banked on the next day with a deposit slip to be attached to a daily reconciliation report, which will then be submitted to your bookkeeper.

Step 4: For your 2nd layer of reconciliation, your bookkeeper will reconcile between sales from a POS transaction report and cash deposited to the bank account.

Step 5: For your 3rd layer of reconciliation, your bookkeeper will make an investigation to reconcile individual cash sale receipts against cash deposited to the bank account, if any significant discrepancy is identified in the 1st or 2nd layers.

2. For your EFTPOS sales: Consider applying the reconciliation process from cash sales, but capitalise on technology from an automated reconciliation system. Moreover, we recommend:

Step 1: Stores to implement a fully integrated POS system compatible with online accounting software like XERO and any other inventory or E-commerce systems. The benefit of integrated system stems from the information flow between different applications without manual data entry. The automatic flow will help save the time spent on daily reconciliation and achieve accuracy simultaneously.

Step 2: Shops to select a POS system providing line items for transactions to your online accounting software. This particular implementation will enable your bookkeeper to undertake the 2nd and 3rd layers of reconciliation to safeguard your assets. POS systems,such as eWAY, Ezidebit, TYRO,are currently developing ways to accomplish a more streamlined, integral record-keeping for shop owners.

Step 3: Business owners to keep track of their cash movement in & out of their shop. A dashboard type of sale reports with visualised graphics and tablescan be helpful in achieving this. In particular, when your sales chart is trending up while cash deposit displays a downward drift, you should be alert to possible underlying causes. Reporting applications like Panalitix or Spotlight Reporting can be easily setup for closely monitoring your cash movement.

3. Consider adopting these fraud preventive strategies:

Step 1: Integrating a Triple-layer approach to your reconciliation process sends a strong message to potential fraudsters, emphasising you have developed and implemented a rigorous system for fraud detection.

Step 2: Providing regular training on a reconciliation procedure can raise the awareness of all staff on what to watch out for and how to escalate issues.

Step 3: Establishing better communication between your staff and bookkeeper/accountant improves the processes of validation and investigation.

Step 4: Rewarding your staff when they are keen to “do the right thing, to the cent” motivates your team!

Not only shops can benefit from these three useful tips, but also medical practices, pop-up retails, fund-raising community events, charities, and schools can utilise the tips to protect their interest – it is important to proactively safeguard your hard-earned resources. If you are concerned about the integrity of your cash protection strategies, Tailored Accounts is always ready to discuss with you on the integration of cash management systems and reconciliation processes customised to your business needs. With extensive experience, our experts can ensure you have the most productive tools to take control of your business’essential assets.