Internal Controls Every Small Business Should Have
According to the Association of Certified Fraud Examiners, businesses with fewer than 100 employees have the highest percentage of fraud instances.
Every small business should have some basic internal controls to help mitigate business risks, including employee fraud and accounting mistakes. Many small businesses rely on one person to do all the accounting, and do not have enough staff to segregate duties, but even a relatively small business can have some effective fraud deterring processes.
Five key controls to consider:
- Review monthly bank statements, including cancelled checks. This forces the owner to keep a close watch on expenses. When reviewing cancelled checks and electronic payments, make sure to know who is being paid and verify the amounts are valid expenses of the business. Even if you sign the checks, unauthorized transfers or payments may come through the bank.
- Sign checks yourself. If your schedule doesn’t allow for check signing, limit the number of individuals with authority to sign checks. Signature stamps are recommended.
- Review all credit and debit card statements. All employees should be required to keep detailed receipts to substantiate charge transactions.
- Conduct a background check before hiring. Employees who handle cash, payroll, and finances should be screened. Consider conducting a credit check on employees who handle cash.
- Monitor incoming cash. For point of sale transactions, count the cash drawer each day and log the cash over or short. For payments received at the office, keep track of the mail, and watch the accounts receivable listing for long past due accounts.
If you have a small office or your schedule keeps you away from the finances, you may consider employee theft insurance. For a small cost, you can have insurance protect you from major loss.
A few key controls can keep your accounting from getting away from you, and keep your money safe.
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