By I’ve worked with many companies from small to large (from the World Bank to the local Church) and one area of accounting that all businesses (particularly the small business) need to be attentive is internal controls. I’m focusing here on small businesses because most larger companies undergo annual audits, in which, internal controls are reviewed/assessed and any shortcomings found are formally presented to management.
First off, If you are a small business owner and the whole concept of internal control is foreign to you, I highly suggest you go to our main site (http://accountantdirectory.com) and find a local accountant who can educate you and/or assist you in establishing proper internal control for your business.
The focus of this topical post is internal controls surrounding cash. As you may or may not have heard, the old saying is true… ‘Cash is King’. As such there needs to be extra attention to ensuring that your cash is secure. In a one man operation this is done easily, but when additional employees are hired things can a get a bit tricky. The key behind all internal controls is segregation of duties. I think this point can be best explained via a few examples (all small business examples):
- The individual writing checks (possibly an accounts payable clerk) should NOT be the person signing checks.
- The monthly bank statement should be received and opened by the business owner
- The monthly bank statement should be reviewed in detail (I.e. all cancelled checks should be reviewed ensuring no signature forgeries, large unfamiliar transactions should be investigated)
- If a material amount of the business’ revenues is from cash receipts, at least two people (custodians) must be handling cash at a time, a cash receipts log should be generated with the written verification of both custodians and a bank deposit slip should be generated by both . Cash deposits per bank statement should be verified with bank deposit slips generated by the cash deposit custodians.
I hope these examples help you grasp the concept of internal control.
Stay tuned as I continue this discussion of internal control in forthcoming blog posts.