Key Internal Controls for Small Business Owners

Written by on November 7, 2008 | Accounting Best Practice

  1. Open all the mail!  This is often a quickly relinquished responsibility and it really shouldn’t be!  Awareness of key documents include tax notices, tax assessments, payables, bank statements, cleared cheques, customer payments and legal notices… all need the attention of the owner even for 5 seconds!   Tax notices highlight late payments which might be an indicator of untimely bookkeeping, cleared cheques should be checked to ensure they are all valid, bills need to be inspected for fraud or errors, and customer payments or lack thereof need to be monitored for deposit prioritization or follow up.  You don’t need to spend a lot of time- just open, check and hand off to bookkeeper… or scan/fax using QCDocs of course.  Also consider using QCMail services whereby you receive your mail by email… kills several birds with one stone.
  2. Sign all the cheques!   This is rarely not in effect as it is pretty obvious.  I would point out that you should make a habit of requiring the back up documents to support cheques which is often skipped (ideally the voucher – PO, Packingslip, Invoice).  Also note that dual signatures is always the best unless you are the sole owner/shareholder!  What if you’re out of the office a lot… then get QCDocs Systems so you can do all this online!  
  3. Monitor online bank accounts and general business activities.   Monitoring controls are very important as they ensure that you are aware of unusual transactions and unusual behaviors.  Trust in your accounting/bookkeeping staff is tremendously important and you should hire accordingly but it isn’t a control!  Fraud occurs when owners are just so trusting that opportunities arrise and we hear about those stories every so often in the press.  Monitoring controls… ie. just taking an interest, requesting reports, reviewing documents, inspecting files on occassion is key to shutting those opportunities down!
  4. Segregation and access controls-  Control of cheque stock is critically important. Do not place reliance on your signature and the bank review.  You need preventable measures to watch for fraud and identity theft these days so control your cheque stock.  Also monitor online bank accounts and make sure you can identify transactions- EFT’s (“Electronic Funds Transfers/online payments, etc) are being coming more and more common but they don’t provide enough information to understand nature of payments sometimes.  Also control access to payroll systems (ADP control pretty much gives person ability to write a cheque to themselves by creating and paying a fictitious employee) so monitor this closely.  Those big lump sum autowithdrawals need to be monitored for unusual fluctuations and tied out to payroll reports. 
  5. Timely, involved review of monthly financial statements and bank reconciliations.  This one is rarely done and poorly understood.   On the 15th of every month you should have received a 3 month trended balance sheet, 3 month trended  P&L, a budget to actual, a G/L for the the month, bank recs, AP, AR and fixed assets listing .  Get them if they are “ready” or not! and get some perspective on where you’re numbers are at.  If you don’t understand them go through them with your accountant and get them to give you some perspectives on them and what you should be looking for specifically- or I’ll save that for another blog.

Tags: , ,