Internal controls are systems and procedures designed to ensure that all employees perform their duties ethically and honestly. Accounting controls deal specifically with the integrity of internal financial information and the accuracy of financial reports provided to outsiders. Establishing effective accounting control procedures early in your small business helps to create a culture of ethical financial management.
Control of cash is one of the most important aspects of an internal accounting control system. Allow only a few trusted employees to make cash deposits, and require these employees to make deposits as soon and as frequently as possible. Keep records of all deposits--both internally generated records and bank deposit slips--and compare them to your bank statement each month. Hold cash in a secure location when it is on hand. Keep prepared deposits in a locked safe until the deposits are made, and secure cash registers with individual authentication so that you know who accessed which register at which times. Require approval from a select few employees for all cash disbursements, including payroll, accounts payable and refunds to customers.
Separation of Duties
Assign separate cash handling and accounting duties among various staff members, and even various departments, if possible. For example, do not allow the person who makes bank deposits to be the only one running the cash register, and do not allow the person who places supplies orders to sign off on checks to suppliers. Make sure that cash reporting responsibilities are spread out enough to prevent theft by collusion. This can be done by giving some responsibility to front-line employees, some to front-line managers, and some to upper-level managers.
Store copies of all cash register tapes, receipts, invoices, cancelled checks and any other documentation that records cash transactions. Use these documents as a paper trail to investigate cash losses and discrepancies between internal records and bank statements.
Implement physical and electronic security measures to ensure the safety of financial information. Store sensitive documents in secure areas, such as locked filing cabinets that are accessible only to select employees. Protect financial data stored on your company network by hiring a network administration team or contracting with a third-party network security company. Anyone with physical or electronic access to financial data can alter, replace, steal or destroy evidence of theft or other financial mismanagement.
Obtain third-party accounting audits, from time to time, to get an outsider's look into your financial control systems. Only work with auditors who have no material connection to your company or employees. Remember that you need auditors to discover the truth about your financial picture, even if it is bad news. Using a third-party auditor to discover financial mismanagement within your company can save you from undergoing costly litigation or financial turmoil in the future.
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