5 Internal Control Tips for Small Businesses
It is quite troubling that hundreds of theft cases are recorded each year within small businesses; the reality is that small businesses are more vulnerable to fraud and theft because we do not have the resources to institute the necessary controls. I have personally experienced clients go through this ordeal and it is devastating. It could literally crumble your business and all your hard work could be gone in a second.
I understand that we as business owners can get really busy and focus on other priorities but I want to urge you to be vigilant because you can be a victim of theft too. Having been a financial controller for many years, I want to share five internal control tips that you can implement to protect your company from theft.
Separation of accounting duties where possible. I know that this can be a challenge if you only have one accounting team member, but you can still find creative ways to implement separation of duties within an accounting process. For example you should not have one person doing end to end payroll, and if you only have one accounting team member, you can add a layer of control where you do the final review and approval of payroll.
Proper paper trail and documentation. Whether you are paying bills or receiving payments from clients, you should establish a system that requires documentation and a paper trail. This avoids any third party foul play; believe me I have seen this happen. For example do not sign vendor checks without the approved original bill attached.
Review your bank statements. Make it a habit of reviewing your bank and credit card statements each month. Sometimes the theft is so obvious that it is staring you right in the face.
Implement checks and balances. Find areas that are vulnerable to theft and include extra checks and balances. Example one - petty cash should be reconciled before additional disbursements are made. Example two - checks should be kept in a safe, tracked by check number and released upon request. Example three - implement a check request process for any spending to ensure proper scrutiny and approval.
Review your financial statements. After month end closings, set a date to review your financial statements. Review the statements in a month by month comparison view so that you can see any changes in spending categories. Make sure your statements are generated directly from your accounting system and not formatted for reporting purposes.
Ultimately when employees know that your eyes are on the books they are less likely to steal from the company. So implementing these internal controls will go a long way to avoid theft from even occurring.