Internal controls are policies and procedures put in place to ensure the achievement of an organization’s operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
A good internal control system usually comprises the following components:
Segregation of Duties
This involves splitting responsibilities among management and accounting personnel, to create a system of checks and balances, and to prevent fraudulent acts.
Access to systems and data is restricted to authorized personnel, via passwords, lockouts and electronic access logs etc.
Physical Safeguards & Audits
Use of cameras, locks and physical barriers to protect property, such as merchandise inventory. Conduct periodic physical count and reconciliation of petty cash and cash register.
Review source documents to assure they are processed and posted in a timely manner. Periodically reconciliations can ensure that balances in your accounting system match up with that held by third parties, including banks, suppliers and credit customers.
Certain types of transactions, eg. a large payment, may require a specific approval from a higher level of personnel. By adding an extra layer of responsibility to accounting records this can further reduce the risk of fraud.
Maintain Good Record Keeping
All financial statements should be backed up by general ledger reports or additional schedules. Standardizing documents, such as invoices, purchase orders, inventories etc, can help maintain consistency in record keeping.
Internal Controls should be evaluated and improved periodically to make your business operation run more effectively and efficiently.
Dynamic Accountax will help you to set up and review your business internal controls, and ensure they are implemented smoothly and successfully.
Please refer to our Small Business Advice