Tips on Establishing Internal Controls for Company’s Growth

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Internal controls play an integral role in a business or company’s success. Too many businesses never think about internal controls until they start losing efficiency, investors demand it, or a financial disaster occurs.

What is Internal Control For?

As a business owner, you need to structure and implement strong internal controls to help you ensure the achievement of objectives in the following categories:

  • Effectivity and efficiency of operations
  • Reliability of financial reporting system
  • Compliance with applicable laws and regulations

 

Characteristics of a Proper Internal Control

An effective internal control includes organizational planning and adopts system and process to fulfill the following objectives:

  • Protection of the company’s assets;
  • Compliance with organization policies and applicable laws and regulations of the country
  • Evaluation of performance of employees
  • Accuracy of accounting records

 

Here is basic internal control checklist to help you look critically into your control procedures:

  • Segregation of duties of the employees
  • It means that each employee is assigned with specific tasks.
  • It reduces the possibility of stealing assets and if stolen, detection becomes easier.
  • Assignment of specific duties to each employee
  • The employee assigned with a specific duty is held responsible for his assigned activities.
  • An employee assigned with a particular job can easily provide necessary information regarding that job.
  • Rotation of job assignments of the employees
  • Routine job rotation is a powerful key to avoid fraud-forgery and it helps prevent other misdeeds such as sabotage and information misuse as well.
  • Use of mechanical devices
  • Adoption of various mechanical devices (installation of security measures) is an effective measure to protect both the company’s physical and non-physical assets.
  • Compliance with organization policies and applicable laws and regulations of the country
  • To make internal control system effective and ensured, efficient and trustworthy employees are required to be appointed.
  • There should be a training program for the newly appointed employees and policies of the business concerns are to be communicated to them properly.
  • Evaluation of performance of employees
  • The performance of the employees is evaluated at intervals. By the supervisors to ensure that the policies of the business are followed by the employees.
  • Accuracy of accounting records
  • Keeping appropriate records ensures that documentation exists for each business transaction. These documents are to be arranged serially for convenient control.
  • There must be clear-cut rules on who can create and modify financial records to ensure the accuracy and timeliness of financial reports.
  • Regular accounts reconciliation must always be performed.
  • Books must also be reviewed and the generally accepted accounting principles/ relevant accounting standards must be adhered to.