In January, headlines reported the dramatic collapse of QuadrigaCX, Canada’s largest cryptocurrency exchange.  The source of QuadrigaCX’s problems provides a vital Lesson Found for owners.

Initial reports tied the cause of QuadrigaCX’s collapse to the death of its founder, Gerald Cotten, since he was the sole person who knew the passwords to access cryptocurrencies valued at $136 million. A subsequent audit revealed that a large portion of those funds had been redirected by Cotten for his own personal use.  The audit identified how this was possible: “Activities were largely directed by a single individual, Mr. Cotten, and, as a result, typical segregation of duties and basic internal controls did not appear to exist.”  In the end, QuadrigaCX’s 115,000 users lost over $100 million.

This story’s lesson on carefully vetting who manages your investments is clear.  But for owners, it is also a Lesson Found on establishing robust internal controls on management of company funds. Basics include locking up financial records and securing computers and accounts with strong passwords that are not shared.  If someone other than the owner handles daily bookkeeping tasks, separate checking accounts for payroll and operating expenses allow the owner to monitor outflows either by personally authorizing transfers into these accounts or through regular auto deposits at predetermined levels. Of course, the first line of defense is hiring someone who can absolutely be trusted with cash management.  But even if that person seems above reproach, their circumstances can change and/or they will not be in that position forever.  Either way, it is wise to follow President Reagan’s model to “trust, but verify”.

Of course, the highest form of security is for the owner to personally handle all deposits, payments, and payroll processing.  This way the owner has direct knowledge of cash flow.  However, knowledge gained by focusing on daily or weekly cash flow distracts from a true understanding of the company’s overall performance.  Rather, regular reviews of the financial statements provide a more pragmatic assessment of progress towards long-term goals.  That progress on long-term goals can also be undermined by owners being solely responsible for all cash management activities. As one author put it: Every minute that you spend working on tasks that can be delegated is a minute that you are not planning, strategizing and building the best business possible.” Your accountant and banker can suggest solutions to secure and control management of your company’s funds.

These solutions should then be integrated into your operations.  To learn more on how to accomplish this without disruption to current operations, email me or call (717-439-6254) to setup your free, no obligation consultation.

Life brings us lessons every day.  Sometimes from expected sources.  And sometimes from sources and situations we never would have thought possible.  Either way, they are a gift found. I am fortunate to find these types of lessons regularly and wanted to share them with you with this weekly series of “Lessons Found”.
Did you recently receive the gift of a Lesson Found that has helped you with management, marketing or another aspect in business? I would love to hear about it. Comment below or send me an email to let me know.