Internal Controls Can Make or Break Your Business 

A prevailing characteristic of successful businesses in today's dynamic marketplace is a strong system of internal controls. Many small business owners have found that establishing and maintaining appropriate controls can greatly improve the effectiveness and efficiency of operations.

An organization's control structure is typically dependent on the entity's size and complexity. Small and mid-sized companies generally implement an informal system to ensure that internal control objectives are achieved.

Internal controls provide a system of checks and balances that keep dishonest employees from stealing from you and keep honest employees from making mistakes that cost the company money. 

There are a large number of potential internal controls and they must be carefully tailored to each individual business. A few examples of internal controls which are useful to small businesses include:

* Cash receipts. All checks received should be immediately stamped "for deposit only." Different individuals should be responsible for recording cash receipts, preparing deposits, and reconciling bank accounts. Bank accounts should be reconciled monthly.

* Cash disbursements. Blank checks should be stored in a locked cabinet, and access to blank checks should be limited.

* Accounts receivable. Customer credit-worthiness should be evaluated. Receivable balances should be aged, and customers with past due accounts should be contacted regularly. Balances should be written off once they reach a certain age or are determined to be uncollectible.

* Fixed assets. Furniture and equipment should be secured and properly accounted for. Purchases and disposals of fixed assets should be approved by the appropriate individuals.

* Inventory. Storage facilities should be locked and inventory should be counted periodically.

* Accounting records. Computer passwords should be used to restrict access to data. Backup tapes should be made nightly and stored off site.

The lack of adequate internal controls is the number one cause of fraud against business. Call us for assistance in reviewing your current system of controls or establishing procedures to protect your business.

© Copyright 2001 Raymond S. Kulzick. All rights reserved. 010414.