With the ever rising number of small businesses, there is a greater need for business owners to understand the importance of internal controls to help run a successful business. In other words, many business owners are not implementing the correct internal controls to effectively protect themselves from potential threats such as fraud and error.
One of the most effective internal controls is the separation of duties, which ensures that certain functions of the business are kept separate i.e. more than one person is required to complete a task or series of tasks.
Some examples of implementing effective separation of duties include:
- Not allowing the same employee to have access to the accounting software and the bank account – this ensures that an employee can’t pay money to themselves and then code the payment to a business expense account in the accounting software to ‘hide’ the transaction.
- Having separate people involved in raising, approving and paying invoices – again this helps ensure that only genuine invoices are being paid.
- Adding levels of system access permissions to accounting software so that only certain employees can make payments or change card details.
- Separation between the employee purchasing inventory and the person paying the invoices.
- Multiple approval process on paying large purchase invoices.
- Ensure your accounting software is password protected, preferably with two factor authentication.
Due to limited human resources in small businesses, duties aren’t often separated, however it leaves the business wide open to not only fraud but also unintentional errors being undetected. In recent years, several of our small business clients have experienced fraud due to the same employee having access to the bank account and also the accounting software. Therefore, we strongly recommend that you review your internal controls without delay.
If you would like to know more about implementing effective internal controls in your business, contact the team at MRG Redshaw today on (07) 3221 4004 or firstname.lastname@example.org.
General Advice Warning – The information in this article is educational and general in nature. It does not take into consideration your personal financial or taxation information, goals and objectives. Please ensure you seek appropriate financial and taxation advice.
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