Are you Controlling Your Accounting?

Most business owners understand the need for accounting to run their business, but not all are aware of the need for accounting controls. Accounting helps you track your business’ money, growth, and goals, but to safeguard all the above, businesses need to have accounting controls in place to ensure your money is managed well and protected from fraud.

Recently, I was working with a client whose company is growing and doing well. Great, right? Yes, but as she was adding employees and delegating responsibilities, she wanted to make sure the financial side of the business was protected but wasn’t sure where to start. Delegating responsibilities can be difficult (especially on the financial side) when you are used to managing everything yourself, but if you have the right processes and procedures (accounting controls) in place, you can feel more comfortable in doing so.

What Are Accounting Controls? 

Accounting controls are internal processes and procedures that are primarily put in place to prevent fraud. Embezzlement is a very real threat and often a business owner isn’t aware that it is happening until it’s too late. Controls are also a method to safeguard your financials and prevent accounting errors. Additionally, having documented accounting controls allows the right people to have insight into the financial health of the company by preventing accounting duties and information from being siloed to one person.

What Controls Are Needed?

Depending on the size of your business, the industry you are in and a variety of other factors, the controls you put in place may be unique to your business. Below are some common controls that make sense for most businesses to have.

Separation of duties

Separation of duties is key to assuring that no one person has the ability to manage the movement of money (fraud prevention) or create errors in the finances of the company. For example, the person who manages Accounts Payable/Accounts Receivable should not be responsible for reconciling bank or credit card accounts. If you have a small staff, it may not be an option to have separate people managing tasks. In this case, you may want to consider regularly rotating duties among staff or implementing an approval process where a separate person approves transactions.

Red flag alert: If you have any employee that is highly reluctant to take vacation, there may be an ulterior motive.  At a previous company I worked with, one accounting employee practically never took time off and when they finally did, and an audit was conducted of their duties. The no-vacation reason wasn’t dedication to the company, it was to hide financial fraud.

Approvals and Authorizations

As a sub-section of separation of duties, business should have an approval and authorization process that verifies that money going in or out of the business has been reviewed and signed off on by multiple people with the organization. This process ensures that no one person can solely control how money is managed and recorded.

Restricting access to financial system

When you are a microbusiness, it may not be uncommon for all partners to have access to the financials.  As you add employees, it may not be necessary for everyone to have access to all levels of financial information. Consider the various roles in your company and consider what information they need to be successful in their role. A department head will likely need all access to information for her department, but not necessarily information on other departments, whereas the accountant will need a global view of all finances. Some employees may require read-only access to reports, whereas others may need to enter information and run reports.

If you are using an accounting software like QuickBooks, setting up permissions by user is simple to set up.  Be sure your keep users and permissions up to date as employees come and go or as they change positions within the company.

Internal audit

Internal audits are conducted by high-level employees within the company who doesn’t normally participate in the process being audited. The goal is to objectively review the company’s process to be sure that it is complying with applicable laws and regulations and all information is accurate. Generally, internal audits review compliance, operations, and financials and are conducted 1-3x per year.

External Audits

An external audit is when a third-party accounting firm is hired to audit your books and processes. Audits may be used when a business owner suspects foul play within the organization. However, regular audits can be invaluable in verifying that all is above board in your company as well as helping you identify areas of potential risk and areas of improvement. As businesses grow, standard practice can be to conduct an internal audit every 3 years.  

Growing a business is an exciting process but it can also be stressful. The items above can be a starting point for business owners to develop controls in managing their accounting. As the owner of a business, you should have insight into the financials of your company, so be sure to regularly review your numbers with your accountant and bookkeeper. By implementing accounting controls that make sense for your business, you can protect the financial side of your company, as well as feel confident in the accuracy of your financial reports.

If you need help implementing controls into your accounting process, give us a call – we’d love to assist you in securing and growing your business.