You work hard for your money: How every entrepreneur can establish internal controls

As an entrepreneur, you work hard for your money. There is almost nothing worse than experiencing pilferage, embezzlementnt, and other types of misappropriation. Internal controls are extremely important to the entrepreneurial company.

We have put together some practical advice to help you protect the earnings and assets of your company. Should you have any questions we are only a telephone call away.

Entrepreneurs usually can’t afford cfo2go1to hire internal auditors or set up complete separation of duties. You can, however, establish controls in certain high-risk areas, such as the following:

Cash disbursements: If at all possible, the owner/manager should sign checks. This control has a dual purpose: management sees how the company is spending its money, and the cash disbursement function is kept separate from bookkeeping or accounting. If the same person signs checks and enters disbursement transactions in the accounting records, embezzlement is harder to prevent. Requiring two signatures on checks above a certain amount also provides greater control.
Customer collections: The entrepreneur should consider opening the mail. Alternatively, you might ask someone separate from the accounting function to open the mail and prepare the deposit slip. The practice of making daily deposits is also a good practice.

Personnel practices: Perform background checks before hiring key employees, especially those who will be handling cash or other high-risk assets, Unfortunately, financial pressures, addictions, and other factors can corrupt even good employees.

Perhaps an entrepreneur’s greatest control is the “tone at the top.” If management sets a high standard, employees generally follow. However, if a manager is perceived as lax or dishonest – for example, he or she doesn’t respond quickly when evidence of misappropriation surfaces – employees might conclude that theft isn’t such a big deal.

Make sure to remember: A company that fails to establish minimum controls is providing a golden opportunity for fraud. If you’d like help reviewing your firm’s controls, give us a call.