Building an effective system of internal controls is an essential part of safeguarding your business and reducing risk exposure.
Why?
A small business is often an owner’s largest asset and needs to be protected against theft and other loss due to errors. As a business grows, owners have less time to observe things closely and the opportunity for fraud and potential for error increases.
Fraud, theft and errors occur where an opportunity exists, controls seek to minimise this opportunity and remove temptation. We naturally trust our employees to not steal from us, but with effective processes to prevent wrongdoing, we can avoid finding out the hard way.
How?
Many small business owners believe implementing internal controls will be time consuming. The reality is practical processes to prevent wrongdoing and identify errors don’t need to be complex. These processes can put your mind at ease that you are doing what you can to protect your business.
Examples of internal controls and associated processes that can assist your business:
- Promote a culture where getting things right is important (tone at the top).
- Communicate that internal controls also seek to protect employees from suspicion by implementing effective processes.
- Ensure at least two people perform separate parts of certain tasks (segregation of duties).
- Put levels of authorisation in place to cover processes such as approval of payments.
- Set controls over who can access certain parts of your computer system and software.
- Implement checks and balances to identify mistakes or anomalies.
- Review your financial results regularly.
- Secure important documents and assets.
- Develop a process for staff to report breaches of internal controls and report suspicious behaviour.
- Provide appropriate training to improve financial reporting accuracy.
- Record transactions regularly and ensure supporting documents are saved.
Published 30 March, 2023