Accountants define internal controls as the most important item a business can focus on to improve quality and reduce risk within financial reporting. Business owners define internal controls as time consuming, expensive processes with limited rewards.

STORY TIME

Adam is a nice, quiet employee who works day and night in his office. He never asks for help or causes any issues. Adam leaves the company and then you realize he had been stealing from the company for years and took full advantage of the lack of controls in place as he gained more and more responsibility and trust from management or owners. 

Every time a story similar to this is on the news, the response is similar and quick; “good thing my employees are not like that.” Fraud is a bigger problem than you think. One of the most common types of employee fraud is stealing assets either directly or through fraudulent billing schemes or check tampering.

ARE INTERNAL CONTROLS NECESSARY?

Internal controls are necessary to reduce the risk of fraud, safeguard your assets, encourage good management and ensure proper financial reporting. The problem with limited or no internal controls is potentially allowing an employee to easily help themselves to the company’s assets. Without any internal controls, it is like leaving the car door unlocked with key in the ignition, hoping no one will steal the vehicle. Finding the right mix of internal controls and trust is vital to any business’s success.

HOW MUCH DO INTERNAL CONTROLS COST?

Integrating internal controls into a company’s processes does not need to mean severely increasing the overhead charges. Small tasks can be introduced to limit risk and use minimal time. For example, bank statements should be received and reviewed by someone outside of check writing and signing process. In addition, those statements should have copies of the checks included to verify the payee. Accounts receivable and accounts payable aging reports should be reviewed by someone outside of the accounting department who generates and maintains the listings.

If you are a business owner with very little accounting background, an accountant may be necessary to play a key advisory role in helping your business design and implement internal controls. For more information on this topic, contact your Smith Schafer professional or check out our Internal Control Audit Service Page.

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