Do You Have the Appropriate Controls in Place?
Establishing appropriate financial controls may not be the most exciting part of opening a business, but it is certainly one of the most important. The best time to put consistent, compliant, and careful cash management and accounting practices in place is day one. Doing so could spare you cash flow headaches down the road and prevent the kind of financial catastrophes that cause too many young companies to stumble or even fail. Do not make running a business any harder than it needs to be – set it up for success by following at least the following financial controls:
- Separation of Duties – Assign responsibility for different cash management processes – receiving bills, reviewing, and approving bills, bookkeeping, receiving checks, depositing checks, reporting, etc – to different people to lower the risk of fraud. In small accounting departments where one person handles multiple processes, have their work separated and include a final approved to ensure everything is double-checked by someone with authority.
- Access Controls – Decide who does and does not have access to the bank account and accounting systems. Additionally, it is important to restrict access and editing options to ensure people cannot make changes without the proper approvals. There should also be an electronic log of who made what changes to track instances of errors or fraud back to the right person.
- Physical Audits – Count by hand any important physical objects, whether that be inventory, equipment, or cash. Conducting these kinds of audits on a regular basis reveals any discrepancies between the information in the accounting system and the reality on the ground.
- Standardized Documentation – Use standardized documents for invoices, expense reports, and all other accounting matters. Likewise, use standard procedures to submit, handle, and store each of these documents. Consistency makes accounting more efficient while helping to highlight anything that deviates from the norm.
- Trial Balances – Review trial balances on a regular basis to confirm that errors and anomalies are not present in the double-entry accounting system. Catching these problems early and addressing them immediately keeps small, often innocent mistakes from compounding into something worse.
- Periodic Reconciliations – Compare the information in the accounting system against account information with other entities like banks, suppliers, and creditors. Periodic reconciliations can reveal issues with your own accounting or with the other parties. In either case, they need to be investigated and addressed.
- Approval Requirements – Appoint someone to review and approve vendor and employee payments. Establish how much employees are allowed to spend and who may enter into contracts on the company’s behalf. Creating rules and confirming they have been followed discourages employee misconduct.
It bears repeating that these are the minimum financial controls any business should have. Many will have more, applicable to every accounting activity they engage in. The challenge is putting all the necessary controls in place to prevent financial risks without making accounting onerous and inefficient in the process.
Instead of figuring out what works through trial and error, rely on Proseer to implement essential financial controls and proven accounting practices. We offer this and a spectrum of other consulting services to help new, growing, or pivoting companies achieve financial excellence. Contact us to get it right.
