Increase your profitability by decreasing fraud, waste and inefficiencies.
What are Internal Controls?
Internal controls are steps that are put in place within processes or activities to ensure harm or damage is minimized. In a personal example, a process most of us complete on a daily basis is our drive to work, school, or to other places. Imagine if there were no controls in place during your commute – no traffic rules, no licensing to monitor drivers, poor road conditions, etc. Your insurance rates would be astronomically high and more often than not your commute would be not only dangerous, but costly. Therefore, measures have been put into place to minimize the harm during everyone’s commute. These controls are things such as speed limits, stop lights, traffic rules, license testing, air bags and seat belts. These controls working in concert dramatically reduce your chances of being injured during your commute.
A business definition of internal controls: plans, methods, and procedures established by management to achieve desired results and provide reasonable assurance that the goals and objectives are being met.
Examples of Basic Internal Controls for a Small Business:
This is a short list and is not all-inclusive: maintain a proper control environment; know your employees; perform regular bank reconciliations; review disbursements regularly; maintain accurate inventory records; segregate duties (if budget allows); restrict access to sensitive customer information; request and review monthly financial reports; use ratios to analyze the changes on your financial statements.
Controls may not always work as intended. For example, small businesses often cannot enforce proper segregation of duties because of operational needs or a lack of staff. However, it is not the accountant who is actually responsible for controls working properly – it is the business process owner - namely, you. Just because a control (rule or guideline) is well written, it does not ensure success. The control has to be placed into service by management and continually monitored for effectiveness.
Small Business Fraud Prevention
Internal Controls also help to deter and prevent business fraud. Small businesses lose an average of $200,000 a year, with an average loss of 7% of gross sales, to fraud that could be prevented with education. We are partnering with Business Fraud Prevention, LLC, to lower the fraud frequency in small businesses by giving them the affordable tools and educational resources they need. Business Fraud Prevention, LLC, was founded by Julie A. Aydlott, CFE, and is a Non-Profit Limited Liability Corporation.
To find out more, visit the Business Fraud Prevention, LLC website at www.businessfraudprevention.org
Remember, it is easier to deter fraud than it is to detect it, so let’s deter fraud and prevent it from happening in the first place.
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