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A New Trend for Dairies: Embezzlement
Aug 05, 2013
Advice on how to manage the additional risks that emerge with the return of positive cash flow.
By Mark A. Brady, CPA, CVA, Partner
Cooper Norman Certified Public Accountants
The past few months have seen some positive changes in the dairy industry. In the last six to 12 months, some dairy operations have been able to refinance with new lenders and move out of the special or troubled assets branch of their old lender. Operators have learned to manage on slimmer margins, and margins have at least opened up to offer the ability to turn a small profit with positive cash flows. We need to make sure we are planning for the future in a prudent, fiscally responsible manner.
I’m not sure why, but it appears a new interesting trend has emerged, one that indicates more than just that the owners are aware that cash flows are now generally on the positive side. For the last couple of years, we spent all our time while working with managers, working on staying afloat and in the game in regard to low cash flows. Currently, we are doing the same, only in a really different way. The issues now involve the protection of the assets, including the excess cash flows, or in other terms, the avoidance of embezzlement.
Operations have been able to use the excess positive cash flows to catch up on debt and vendor payments. It was never left lying around in bank accounts or excess inventory levels. Since cash flows have created the ability to catch up with liability payments, a few are starting to see some growth in their cash balances or reductions in their lines of credit. This positive cash flow takes on additional risks.
It does not take much time surfing the Net to find hundreds of articles about an employee being terminated and charged for misuse or misappropriation of funds. And if you look, you will find the perpetrators are not from any specific area of an organization. It can be the janitor/cleaner staff as easily as it can be the bookkeeper you have trusted for the past 15 years. Keep in mind, the recorded information we are able to research and review on the Net represents only the cases that are reported. How many cases actually exist, where embezzlement is actually identified by an employer and it merely ends with the employee being terminated? This is generally the case more often than not.
Generally smaller businesses are at greater risk because, they typically have very few controls or the resources to implement and enforce controls. More often than not, the small business owner ends up relying on his or her bookkeeper or CPA. Spending a few minutes to make sure the appropriate basic controls are in place can go a long way toward helping remove any opportunities to misuse, misdirect or misappropriate funds that may exist. A basic study performed by someone outside your business does not have to be massive or costly.
If you remember some of our earlier "Fiscal Fitness" blogs, we spoke about the need for a management team and its ability to change as your business moves forward. This is an issue that might need a different type of consultant than you currently are using. We cannot express enough that a second opinion regarding your businesses financial health can be just as important as that second opinion we all look for when dealing with our personal physical health.
Now that your business and you are coming out of a pretty severe economic storm, be sure to make the needed repairs and then move forward preparing for the future. Do not let someone else begin to prepare for their future at the expense of you and your business’s future. Give your CPA a call and have him or her come in and give your financial record processes a health check-up. If you get a clean bill of health, great! If not, then let’s start the healing process and begin to really enjoy life.
Based in Idaho, Mark A. Brady is a partner with the firm of Cooper Norman Certified Public Accountants. Brady is a Certified Public Accountant (CPA) and a Certified Valuation Analyst (CVA). He grew up on a Montana dairy. Contact him at 208-733-6581 or firstname.lastname@example.org.