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.
