5 Ways to Implement Internal Controls at Your Company or Organization
As a business owner or manager, the growth of your business and bottom line is paramount. Internal controls play an important role in this growth. They establish boundaries for the roles and duties of your staff, providing helpful checks and balances. And they create opportunities to prevent issues or to identify little issues before they turn into big ones. Below are a few ways you can begin to implement internal controls of your own.
Segregation of Duties in the Cash Receipts Cycle
One of the fundamentals of internal controls is “segregation of duties” – you don’t want the same person performing too many of the duties within a given transaction cycle. Think of “ARC” – authorization, recordkeeping, custody. The same person should not be doing more than one of those. For instance, the person opening all of the mail containing checks and cash is logging these on a daily cash summary and giving this to another person to make the deposit. And then a different person from those two would ideally be performing the bank reconciliation each month.
Systems Access and Security
Keep your various information systems (accounting, banking, procurement, payroll, etc.) on a “need-to-know basis”. It is incredibly important that your staff have the required levels of access needed to perform their day-to-day duties…and nothing more. In keeping with the segregation of duties mantra from above, you should consider whether circumstances exist where an individual has access levels that would allow him or her to create a vendor in the system and then process a payment to that vendor.
The physical safeguarding of the company’s assets is very important. Maybe the business operates heavily in cash. Once received, cash and checks need to be secured in a timely manner for the financial well-being of the company and for the safety of your employees. Keep the petty cash fund to a minimum and keep it locked up. Perhaps there are opportunities for valuable inventory to “walk out of the warehouse”, or for tools and machinery to “walk off the jobsite”. Take a step back and assess where the cracks lie regarding access to your valuable assets.
Every company should have some form of an approval process. Take for instance invoices from suppliers that are mailed directly to your accounts payable department. If you are the owner of the company wouldn’t you prefer it if a manager or department head physically reviewed the propriety of the invoice and whether or not the supplier or vendor performed their duties, and that this review and approval occurred before being sent to accounts payable?
Does your company have a robust review process? Do top management and owners review monthly or quarterly financial statements, preferably disaggregated? This could be an eye-opening exercise. A monthly or quarterly review of the company’s operations will provide top management and owners with insight into real-time financial performance where they might note activity that is unexpected or other anomalies. It could be helpful to benchmark this financial information to budgets, forecasts, and historical data.
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