Internal controls are the processes, checks and balances that need to be put into place to reduce the likelihood of errors, duplication, omissions or fraud.
They are critical and are used for safeguarding assets of the business. By having a system of internal control, including segregation of duties, the business will run more efficiently, resources won't be lost and there will be few unexpected surprises.
Internal controls assist the business to:
Help align objectives
Safeguard assets
Prevent and detect fraud and error
Encourage good management
Allow action to be taken against undesirable performance
Reduce exposure to risks
Ensure proper financial reporting
Small businesses are the most vulnerable to fraud as they often don't have good internal controls, and in particular don't have segregation of duties.
SEGREGATION OF DUTIES
One of the key concepts of internal controls is segregation of duties
This concept serves two key purposes:
It ensures that there is oversight and opportunity to review and catch errors
It helps prevent fraud or theft
Where possible, duties should be performed by separate people to help reduce the risk of error or fraud.
There have been many examples of trusted employees stealing from businesses due to improper internal controls. By segregating the duties between who is paying the expenses and who is entering them into the accounting system, you are creating an internal control that not only reduces the risk of fraud, but provides an opportunity to review and catch errors.
It is important to remember that fraud requires two elements - opportunity and motivation.
By reducing opportunity, you are reducing the likelihood of fraud occurring in your business.
Please contact KK Partners Group if you wish to discuss your needs further.