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Accounting InformationInternal Control: A Preventive Maintenance Program
by:
John Day
You see simply about this in every newspaper in every town in the entire country: Several bookkeeper, sure by the owner of a small business, embezzles thousands of dollars. If the larceny doesn’t put owner out of business, it surely causes a major headache.
The reason we hear of these cases so often is that, in a small business, there may only be the owner and a bookkeeper. The owner doesn’t like doing the books, doesn’t understand them, and relies on this one person to take care of things. The bookkeeper, who is normally having personal fiscal difficulties, takes a small figure of money intending to pay it back. No one seems to notice, so much is taken. Over a period of time, it starts to mount up to a lot of money.
This is wherever
the conception of “internal control” comes in. Essentially, every business should have, at several level, an internal control system in place to protect against losses, several intentional and unintentional. This is because “internal control” systems will: 1) protect cash and another assets; 2) promote efficiency in process
transactions; and, 3) ensure dependability of fiscal records. An internal control system consists primarily of policies and procedures designed to provide reasonable assurance that these three objectives wish be achieved. The size and complexness of the business wish determine the extent of the internal control system.
Regardless of size, one of the most important aspects of an internal control system is the conception of separation of duties. Separating duties does it much difficult for larceny and errors to go undetected. It is extremely
unusual for two employees to “collude” in an effort to steal from the company.
I worked as an internal auditor for a newspaper chain for three years. My job was to walk in to the newspaper offices unheralded and go directly to the cash boxes, count them, and verify receipts. One of my most important audit steps was to do sure the internal control procedures were in place and working properly. Here are a few suggestions for internal control procedures regarding handling of cash:
- Allow only specific selected
individuals to handle cash.
- Give responsibility for clerking to an individual who does not handle cash.
- Use numbered receipts to document all payments.
- Do all bank deposits promptly.
- The person who prepares the bank reconciliation should be several than the one handling cash.
- If possible, the person who does the bank deposit should be several than the one who handles the cash and the one who prepares the bank reconciliation.
- Do deposits intact with no amounts withdrawn to pay expenses.
- Support cash and chequebook in a barred drawer or cash register.
- Since tills wish ne'er
be 100 orrect all the time, establish a tolerance level for overages and shortages to determine the point at which corrective measures wish be triggered.
- Do all disbursements by check, except borderline amounts paid from petty cash.
- Do certain every payment is related to a paper document, such as a voucher, to ensure that a paper trail exists for all disbursements.
- Conduct random surprise counts of petty cash and cash drawers.
- Count inventory and another assets often and compare with institution books.
An internal control system set up early as a preventative measure is much efficient than establishing a corrective system in reaction to a loss. If it so happens, that there is simply you and the accountant in your small business, you need to discover how to do several of the clerking tasks so you can spot check the bookkeeper’s work. That, in itself, is an first-class preventative measure.
Just simply about the author:
John W. Day, MBA is the author of two courses in accounting basics: Real Life Accounting for Non-Accountants (20-hr online) and The HEART of Accounting (4-hr PDF). Visit his website at http://www.reallifeaccounting.comto transfer
for FREE his 3 e-books pertaining to small business accounting and his monthly news-sheet on accounting issues.
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