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General Internal Control Warning
Wednesday, 26 October 2011 15:29

How are you managing your business finances? Many business owners are discovering that their assets are not as well protected as they thought. This is especially true in small business environments where a single employee manages all the finances. Often there are no "checks and balances" to verify that transactions are accurate.

When proper, consistent procedures are not in place, employees can learn to manipulate the accounting system to their benefit. Whether they take money from the company or mistakes are undiscovered, the end result can greatly impact your company’s management discussions, financial reports and tax filings.Unfortunately, once financial records have been altered, discovering the problems can be extremely difficult. Most standard accounting practices are not designed to uncover internal issues such as embezzlement.   

Therefore, the best way to safeguard your company’s assets is to examine your internal control procedures to recognize and improve any weaknesses in these internal controls. The following business practices can help you minimize potential internal control problems: 

  • Related duties should be assigned to different people. Certain accounting functions are designed to cross-reference each other for accuracy: writing/signing checks, ordering/paying/receiving materials, handling cash/recording cash, etc. These procedures can help reveal inconsistencies in your records in a timely manner. 

 

  • Reconcile and scrutinize your bank statements every month. A bank statement can tell you a lot about your business if you review the information in a timely manner. Examine checks and endorsements, track transactions between accounts, compare payroll checks with employee records and ask questions.

 

  • Always ask for proof before you sign a check or authorize a transaction. When you insist on reviewing original documentation, your employees become more accurate and communicate their needs more clearly. You should also verify the names of your vendors and your employees occasionally. Remember to cancel supporting materials after signing a check.

 

  • Lock and protect your valuables. Keep blank checks and signature stamps secured and deposit cash and checks daily. It’s also important to secure fidelity bonds and insurance for all accounting and key personnel.

 

  • Know your employees and examine behavior changes. Always verify employee references before hiring. Also, consider the need for conducting other background checks as appropriate including, but not limited to, the need for credit information, motor vehicle report and criminal searches. Many white-collar crimes go unreported and continue to be repeated. Watch for common employee trouble signs such as possible substance abuse, change in lifestyle, living beyond means and/or possessiveness of work.

These internal controls can help you reveal many discrepancies, as well as recognize the excellent efforts of your staff.

Please print the Client Tool An Internal Control Checklist on our website at http://cnccpa.com/resources/client_tools.html to assist you in this process.  Our Firm can help you develop and implement any of these important internal controls.  Please contact your tax professional at (509) 663-1661 if you have any questions.  We will be happy to assist you.

 

 
 

  • "Cordell, Neher & Company helped us implement CenterPoint Accounting to manage our orchard operations. Although the software works great for us, I often need additional assistance. Tamara and Martin are always very patient and courteous answering my questions and resolving my issues. I feel very fortunate to have them both available as a resource and can’t thank them enough for their help."

     

    Gari Lynn Craver
    CraveOrganics
    Royal City, WA