Internal controls are a set of measures that help to prevent financial fraud within a business, keep accounting records accurate/organized, and be compliant with government regulations. Unlike large organizations, many small and medium-sized businesses (SMB) do not have adequate financial resources to put proper internal controls in place.
Nonetheless, it is imperative for a business owner to be cognizant of the repercussions that could arise in absence of effective internal controls - i.e, cash theft, inventory theft, employee fraud, just to name a few!
Implementing a procedure checklist can reduce the likelihood of aforementioned pitfalls. Note: this procedure checklist might seem obvious to most business owners/managers, but still many forgo or disregard efforts to implement and monitor them:
- All cheques should be signed by the business owner/manager: This would help to alleviate misappropriation of cash by a person who is not authorized to undertake disbursements.
- Refrain from putting one person in charge of petty cash: An approval from a second person (ideally the business owner/manager) should be required for petty cash transactions.
- Monitor point-of-sale transactions: Count cash in the register or drawer at the end of each business day. Use of point-of-sale software can help as it requires employees to log in, and would enable the business owner/manager to track who is on the cash register at a specific time.
- Conduct periodic inventory checks: There can be instances when inventory gets damaged while in transit, or is stolen or lost. In order to ensure inventory orders are filled accurately, inspect and count incoming inventory. In addition, designate persons who can sign for incoming and outgoing inventory.
- Review payroll prior to processing: Ensure timesheets are accurate and hours entered by employees confirm with their pre-approved schedules.
- Use accounting software that keeps work log: In cases where multiple individuals input transaction data into the accounting software, a work log would help to pinpoint who input data or made the change. This measure aids in mitigate tampering with accounting records.
Note: This is not an exhaustive checklist and some businesses may need to implement other procedures based on specific business operations. To discuss your specific business needs, contact Alpha Accuntzy, Accounting & Tax Solutions.