Internal controls are important to help safeguard businesses against errors, theft, and fraud. There are many simple controls that a lot of business owners already have in place (locking up petty cash and blank cheques, background and criminal checks on employees and frequently changing passwords on programs). However, when it comes to accounting, some owners think they are too small to be able to implement any simple yet smart and effective internal controls.
5 simple internal controls a business owner can put in place around financial information:
1. Owner signs all cheques and only with appropriate supporting documentation attached. Proper supporting documentation would include authorized purchase order, receiving report, supplier invoice. Once paid, the invoice should be stamped or initialed to avoid duplicate payments.
2. Mail should be collected by the owner or someone who has no accounting functions. Mail should be opened by the owner but if time is a scarce resource then at a minimum the owner should open the monthly bank statements. This way bank statements cannot be tampered with and cheques and payments are received directly by the owner. If deposits at the bank are done by a person other than the owner, the owner should also complete the deposit slip before passing it off.
3. Prepare budgets as this will help owners develop expectations. Variances between actual to budget should be investigated thoroughly.
4. Review T4s for proper payroll deductions. It’s a good time to also check that the T4s match to real people who have been employed and source deductions make sense.
5. Review bank reconciliations as well as accounts receivable and payable sub-ledgers on a regular basis. This will help identify errors and unusual transactions. Reviewing the sub-ledger will allow for timely investigation of old receivable and payables which may improve cashflow.