Friday, 18 November 2011

Internal Control: A Preventive Maintenance Program

You read about it in newspapers in cities across the country: Some accounts adopted by the owner of a small business, diverting thousands of dollars. If the flight is not the owner of its activities undoubtedly cause a major headache.

That's why we hear so often in these cases is that a small business, can only be the owner and the accountant. Owner of the books that do not understand them, and rely on this person, just to do business. Accountant, who is generally a personal financial difficulties, takes a small amount of money is to repay. No one seems to notice, more is taken. Over time, it begins to install up to a lot of money.

This is where the concept of "internal control" comes in. Essentially, every business should have, at some level, a system of internal controls to protect against loss, whether intentional or unintentional. This is because "internal control" systems: 1) protect cash and other assets, 2) promote efficiency in processing transactions, and 3) ensure the reliability of financial records. An internal control system consists primarily of policies and procedures designed to provide reasonable assurance that these objectives will be achieved. The size and complexity of the company will determine the scope of the internal control system.

Regardless of size, one of the most important aspects of the internal control system is the concept of separation of duties. The separation of the most difficult for theft and errors are not detected. It 'very unusual for two employees are "quietly" trying to steal the company.

I worked with the internal auditor in the chain as three years. My job was to walk in the newspaper offices unannounced and go directly to the box, count them, and check your receipts. One of the most important of the checks was to ensure internal control procedures are in place and working properly. Here are some suggestions for internal control procedures for cash management:

- Allow only certain persons designated to deal in cash.

- Give responsibility for bookkeeping is an individual who does not handle cash.

- Use numbered receipts to document all payments.

- Make all bank deposits promptly.

- The person who prepares the bank reconciliation should be different from the treatment of cash.

- If possible, the person making bank deposits be any different from the treatment of cash and preparing bank reconciliations.

- Make deposits intact with no amounts withdrawn to pay expenses.

- Keep cash and checks in a locked drawer or cash register.

- From boxes will never be 100 orrect all the time, to establish a tolerance for excess and shortages to determine the point at which corrective action is triggered.

- Make all payments by check, except minimal amounts paid by petty cash.

- Make sure that each payment is linked to a paper document into a good, to ensure that a paper trail exists for all disbursements.

- Execute the charge of occasional surprise petty cash boxes and cash.

- Count inventory and other assets frequently and compare with the books of the company.

Internal control system was established as a preventive measure is more effective definition of a corrective response to loss of the system. If it happens that only you and your accountant for your small business, you must learn to do a little 'bookkeeping tasks so you can work accountant random. This in itself is an excellent preventive measure.