Tips on Establishing Internal Controls for Company’s Growth

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.