Do you have internal accounting controls in place for your business? Finding extra budget and staff is a common challenge among small business owners who often lack the resources to put a robust accounting and finance department in place. For some businesses, one person is responsible for the accounting function, or this falls on the business owner themselves, even if they have little education or background in accounting principles. If your accounting needs aren’t properly fulfilled, it can foster an environment of unpredictability, unnecessary and costly mistakes, and in some cases, fraud. You can prevent this from happening by instituting internal controls into your business operations.
Internal controls are the policies and procedures that a company has in place to ensure the accuracy and reliability of its financial reporting. They are important for a variety of reasons, including:
- Accuracy and Reliability – These controls help to ensure the accuracy and reliability of financial reporting. This is important for several business stakeholders, both internal and external. Accurate and reliable financial information is essential for making informed decisions about the company.
- Fraud Protection – Internal controls can help prevent fraud. Fraud can be costly for companies, both in terms of financial loss and damage to reputation. Internal controls can help to detect and prevent fraud by creating a system of checks and balances
- Compliance with Laws and Regulations – Companies are subject to a variety of laws and regulations, including those governing accounting, taxation and securities. Internal controls can help to ensure that the company remains in compliance at all times.
Implementing Internal Controls
If you do not have a formal internal controls system in place, consider creating and implementing a more detailed, written plan. Some of the most common types of internal controls include:
- Segregation of Duties – Segregation of duties involves assigning responsibilities for different tasks among different people. This helps to protect your business by making it more difficult for one person to commit fraud without being detected. An example is having someone prepare a bank reconciliation who is not involved in the actual check writing or depositing of cash.
- Authorization and Approval – This control requires the approval of a transaction by an authorized person. This helps to ensure that only authorized transactions are processed. An example is having two signatures on a check over a certain amount.
- Documentation – This involves keeping records of all transactions. This helps to provide support that can be used to verify the accuracy of past history.
- Independent Checks and Reviews – This involves assigning someone who is independent of the person who processed the transaction to review the transaction. This helps to detect errors and fraud, whether intentional or not.
In addition to the above, internal controls can also help to improve a company’s efficiency and effectiveness. By reducing the risk of fraud and errors and setting standard policies and procedures, a business owner can be assured that all operations are running smoothly. Overall, internal controls are an essential part of any business. Even in a small business, there are ways to compensate for the lack of controls. See our Outsourced Accounting Solutions page or contact us to learn more about how we can support your accounting team to ensure you have the proper controls in place to help you sleep at night.