Safeguarding assets and ensuring financial integrity are essential to a small business’s success. Internal controls are the foundation to these efforts.
In this guide, we highlight the key elements of internal controls. That way, you understand their significance and basic implementation.
Internal Controls Defined
Internal controls are the financial processes and rules set by your business to shield its assets from potential risks and threats. By establishing internal controls, you help to encourage accountability and prevent fraud.
Basic Principles of Internal Controls
A cornerstone of internal controls is separation of duties. By dividing responsibilities between multiple individuals, the likelihood of errors, fraud or mismanagement is greatly reduced.
Establishing key responsibilities is another principle of internal controls. And recording those responsibilities in an official company document, accessible by personnel needed for the tasks, is just as critical.
Physical controls – like safes for money and other valuable items, inventories of goods and company equipment, employee access procedures – play a key role in your business’s internal controls.
Examples of Internal Controls
For financial transactions, the person responsible for writing checks should not be the one signing them. This division lessens the chance of unauthorized disbursements or changes to the amount.
And for procurement and approval, the individual placing the order for products or services for your business should not be the same person approving the invoice. This dual oversight helps to ensure cost-effective, appropriate purchasing.
Morgan & Associates Can Help with Internal Controls
For a small business, every financial decision matters. And internal controls give you procedures and best practices, which help to lessen the chance of fraud and errors, while increasing accountability, financial integrity, and overall confidence in your financial state.
We’ve worked with hundreds of small businesses to establish internal controls appropriate for their industry and company size. We’d love to talk with you too.