According to a spokesperson from the Risk Unit of Marquette University of Milwaukee, Wisconsin, “Establishing effective internal controls can help a department operate more efficiently and effectively and provide a reasonable level of assurance that the processes and products for which it is responsible are adequately protected.”
How can you be certain that your company is protected via your own internal controls? Perhaps more importantly, are you aware whether your company even has internal controls?
Internal controls are categorized as “before” and “after” (or in industry terms, “preventive” and “detective”) controls.
Preventive controls are proactive. They are aimed at discouraging errors and irregularities. According to Vanderbilt University, examples include the following:
- Segregation of Duties: Simply put, assigning duties like accounting and approvals to different teams or employees.
- Approvals, Authorizations, and Verifications: A supervisor’s approval (manual or electronic) provides a checks and balances system because he or she has verified and validated that the activity or transaction conforms to your established policies and procedures.
- Security of Assets: Both preventive and detective in nature, these controls restrict access to assets like equipment, inventories, securities, and cash.
Whereas preventive controls are designed to discourage errors and irregularities, detective controls are designed to find them after they have occurred. Examples include the following:
- Performance reviews
- Physical inventories
Consider putting the following practices in place at your company right now:
- Locking your office when you leave, even for a short time.
- Reviewing monthly comptroller’s statements.
- Requiring authorizations.
- Performing reconciliations on accounts.
No business owner wants to believe that the employees he or she sought, hired, trained and has confidence in are doing anything deceitful. But sometimes, unexpected things happen, and steps need to be taken to protect your business.
If you are unsure of how to create and put into force internal controls at your company, call us. We have the background and knowledge to save your company a great deal in funds and assets.