Internal controls are vital to every organization. These processes can be challenging for smaller organizations because of limited employee numbers and operating budget constraints. Management in small organizations takes on many duties that would ordinarily be separated in larger organizations. This can leave smaller organizations open to financial and other risks. By having proper internal controls in place, organizations can mitigate the damage that can occur from mistakes and infractions.
Internal Control Purpose
What exactly are internal controls and how do they help you protect an organization? Internal controls are a collection of procedures and policies that are implemented to safeguard your organization’s assets and prevent fraud. They not only mitigate accidental errors and intentional fraud, but internal controls can also make an organization’s daily operations more efficient. By having strong controls in place, your organization will be able to more easily prevent, detect, and correct mistakes in financial reporting. By reviewing internal controls regularly, organizations can make sure they are still relevant and are consistently applied. Internal controls also encourage an organizational culture of transparency and financial responsibility.
Clearly Defining Responsibilities
Employees in every position should have clearly defined responsibilities. An organization chart that covers who is responsible for what area of operations is a great tool. All employees should have clear knowledge of what they should be completing on a daily, weekly, monthly, quarterly, and annual basis. This ensures no steps in the process are skipped, which can lead to errors in financial reporting. It starts with management setting a consistent tone and following through on the control policies and procedures when completing their duties. This sense of duty will flow down to others in the organization and create a positive impact for the entire organization.
Training to Prevent Fraud
To identify and deter fraud, employees can be one of your greatest resources. However, if they haven’t been trained in what to look for, they can’t take on this responsibility. By training your employees to understand what is actually considered fraud, they can identify and report suspicious activity. Your employees should be comfortable going to upper management with suspected fraud so that it can be dealt with in a timely manner. A zero-tolerance policy for fraud must be communicated to all employees.
Transparency in Bank Accounts
In many situations, just a few people handle most, if not all of the accounting for small organizations. It is vital that someone beyond the bookkeeper has direct access to bank statements. This individual needs to open and review the statements looking for any unusual activity and oversee the reconciliation process. By having a second individual involved in reviewing and reconciling bank accounts on a monthly basis, fraud likelihood decreases markedly.
By having controls in place to train employees, check for fraud, and report suspicious activity, an organization can drastically reduce the chance of an occurrence of fraud. But what if you’re not sure exactly what kind of controls you should be putting into place? No matter the size of your organization, there are a range of options that will help protect your organization’s resources from errors and fraud by adding internal controls. Though internal controls may seem difficult to implement, MichaelSilver can help you move in the right direction to reduce risk and exposure. If you have any questions or need help developing proper internal controls, policies and procedures for your organization, please contact Janell Wilson at 847.982.0333.
Janell Wilson, CPA – Partner, has served as a trusted advisor to clients for over 20 years focusing on accounting and assurance for various industries within the private middle market sector. She enjoys working closely with entrepreneurs and business owners to improve accounting systems and procedures and strengthen internal controls. Her industry specializations include manufacturers, automobile dealerships, professional service providers, retailers, and leasing companies. Janell works with nonprofit organizations, including religious organizations, arts and cultural organizations, trade associations, and other public charities and private foundations. Janell also has extensive experience with employee benefit plans.