Smart Business Magazine, July 2015

40 Smart Business Columbus July 2015 Safeguard your assets How to set up internal controls on limited resources Setting up internal controls is challenging for small and midsized companies Generally you dont have that many employees and they tend to wear multiple hats The business processes that fuel day to day operations take priority while the internal control aspect often takes a backseat We often hear This is too much work I dont have time for this says Michaela McGinn CPA principal and director of assurance services at Rea Associates If you dont have time to look at who has control of your cash then and this is a great example given to me if I handed you a briefcase of 100000 and said Here hold this for me would you be OK with that she says The answer might be yes but what if it was 500000 or 1 million Thats what youre doing when you give full access to information and resources with no one monitoring it Smart Business spoke with McGinn about key internal controls that even organizations with limited resources can implement How do internal controls differ among different sized organizations A single owner and two to three people in an accounting department cannot recreate the control environment of a Fortune 100 company but you can still provide yourself a level of comfort and oversight There are two types of internal controls Preventative controls are established to ensure something doesnt happen such as limits on certain transactions and segregation of duties A detective control is a check on the backside to make sure there wasnt human error and your assets are secure An example is the reconciliation of accounts and a review of that reconciliation Smaller companies may need to utilize more detective than preventative controls because there is a greater chance that one person has full access to funds from making deposits to issuing checks and payroll to performing monthly bank reconciliations Its a matter of choosing what controls can be done in a timely economic efficient way If you trust your employees completely are controls even necessary If Mary has worked for you for 30 years and you trust her with everything you still need to implement controls for both her benefit and yours Dont put Mary in a position if you truly trust her where that trust is being questioned The more you separate out the different pieces of a process the more you reduce the potential risk associated with inaccuracies or coverage of assets What are some best practices for setting up these controls All operational processes need to be documented and re evaluated at least annually If possible more than one employee needs to be familiar with the process so in the case of death sickness or job loss someone else can pick up the task Do monthly reconciliations of key accounts such as receivables cash inventory payables payroll costs etc Then have those reconciliations independently reviewed For example the controller or business owner could review reconciliations by a payroll clerk Limit your exposure with approval processes and limits on transactions You also can restrict access to the general ledger allowing only a very limited number of individuals the ability to post entries vs read only access Review your vendor lists to keep them up to date and have someone look over the standard and nonstandard journal entries On the receivables side put together a policy for creating credit limits for customers and then evaluate that policy regularly to ensure youre following it Other areas to monitor are where employees have the ability to manipulate something for the benefit of somebody else If you have a bonus or commission structure based on a formula determine whether people can beef up sales financial information to make it look better If youre unsure where to start with the help of your accountant or auditor pick a few key controls and weave them into the day to day or monthly process There are many ways to accomplish this without hiring additional bodies or increasing the roles and responsibilities of your people on a significant level and at the end of the day it provides a greater peace of mind and helps protect whats most important to the company and its owners MICHAELA McGINN CPA Principal Director of Assurance Services Rea Associates 614 889 8725 michaela mcginn@ reacpa com Insights Accounting is brought to you by Rea Associates BLOG To get more tips and best practices for creating a strong internal control structure for your business subscribe to Reas blog www deardrebit com subscribe INTERVIEWED BY JAYNE GEST INSIGHTS ACCOUNTING