As a business grows, more people, transactions and systems become involved in daily operations. Without clear controls, small errors can become expensive problems. Internal controls do not need to be complicated, but they should be deliberate, documented and reviewed regularly.
1. Separate key financial duties
Where practical, the person approving a transaction should not be the same person recording it and reconciling the account. Separation of duties reduces the risk that errors or inappropriate transactions go undetected.
2. Require clear approval limits
Businesses should define who can approve purchases, vendor changes, payments, refunds and other significant transactions. Approval thresholds help staff understand when additional review is required.
3. Reconcile important accounts
Bank accounts, credit cards, accounts receivable, accounts payable and other key balances should be reconciled regularly. Differences should be investigated and resolved rather than carried forward without explanation.
4. Protect vendor and payment information
Changes to vendor banking details should be independently verified before payment information is updated. This is especially important when instructions arrive by email or when a change request is unusual.
5. Review exceptions and unusual activity
Management should periodically review duplicate payments, unusual journal entries, overdue receivables, large manual adjustments and other exceptions. Exception reporting can help focus attention on transactions that deserve a closer look.
Controls should evolve with the business
A control that worked when a company had three employees may not be adequate when it has thirty. New systems, locations, vendors and service lines can create new risks, so controls should be reviewed as the business changes.
Fair Value Global Services Ltd. supports businesses with internal-control reviews, audit and compliance support, risk assessment and process improvement.
Explore our Auditing & Compliance services or request a consultation.