June 20, 2023

The Power of Internal Controls

AUTHOR

Megan Plumridge

We all recognise the importance of trust when it comes to relying on employees to fulfil their responsibilities with the same care and dedication that business owners invest in their businesses. However, it’s natural to feel a sense of uncertainty, particularly in sensitive areas like business finances and critical operations. This is where internal controls step in to provide a reliable safeguard and instil confidence.

Internal controls are the superheroes of the business world, designed to protect assets, ensure accurate financial reporting, and minimise the risk of fraud.

Here are 10 practical steps business owners can consider when implementing internal controls in their business:

  • Assess risks: Take a good look at the potential risks your business could face, such as fraud, mismanaged assets, or messy financial reporting. Think about what could go wrong both inside and outside of your business.
  • Get your priorities straight: Determine the most important controls for tackling those risks head-on. Start with the high-priority matters that need immediate attention. Focus on the controls that will make the biggest impact.
  • Divide and conquer: Make sure different employees handle different tasks to avoid errors and fraudulent activities. One person authorises, another person processes, and someone else reviews transactions. It’s teamwork with a built-in safety net.
  • Put it in writing: Jot down simple policies and procedures that explain how things should be done. Make sure the team knows these policies exist and where to find them.
  • Implement official processes for authorising and approving financial transactions and purchases.
  • Regularly double-check and balance your financial accounts, inventory records, and important data. Make sure everything adds up; if it doesn’t, fix it fast! Regular stock takes and balance sheet reconciliations are critical to ensuring you don’t get any unpleasant surprises. Know your numbers! Understanding your numbers is crucial to pick up errors or issues early.
  • Secure your valuable assets with physical measures like locked storage and restricted access. When it comes to IT, beef up your security with strong passwords, firewalls, antivirus software, and regular data backups. Use password protection vaults such as LastPass to encourage the team to easily set and remember passwords that are less likely to be hacked.
  • Regular monitoring: Remember to monitor and review how well your internal controls are doing. You can hire someone to take a look (like us) or do it yourself. Either way, make sure your controls are on point and adjust them as needed.
  • Share the knowledge: Let your employees know why internal controls matter and teach them their roles and responsibilities. Spread the word about ethics, integrity, and accountability. It’s all about being a team and doing things the right way.
  • Constant improvement: Internal controls aren’t set in stone. They need to keep up with your business. So, regularly check how well your controls are working, ask for feedback from your team and your advisors, and make changes to tackle new risks or challenges that pop up.

 

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Remember, internal controls make your business stronger and more secure. Knowing where to start is often overwhelming; the important thing is just to start somewhere and initiate the process.