“The word ACCOUNTING comes from the word ACCOUNTABILITY. If you are going to be rich, you need to be accountable for your money” -Robert Kiyosaki
As a small business accountant and entrepreneur myself, It is common for us to witness different struggles by small business owners in dealing with their financial management needs. From messy books, unnecessary taxes, cash flow fluctuations, excessive expenses and optimal pricing of their goods/services due to an oversight in reviewing their business transactions or have no system at all to consider this.
As a small business owner, we are usually too occupied wearing different hats to keep our head above the water. Anything that we thought we can do it our own, we tend to embrace all areas of the business. There is nothing wrong with this, but some aspect of the business like Accounting is not something that small business owners can DIY ( Do it yourself) thing. Except of course if you are running your Accounting practice and you are an Accountant yourself.
If your business is in the stage wherein you cannot afford to hire a full-time accountant or internal auditor below are the lists of items worth revisiting to improve the internal control in a Small Business Company. Strong internal control =less fraud.
Monthly Variance Analysis- Monthly comparison of your Income Statement accounts, this can be easily generated by your bookkeeper from the accounting software. Watch for any unusual variances and ask for clarifications from your bookkeeper or ask detailed listing of the affected accounts. Watch for any unusual entries and check the backup.
2 levels of controls for cheque signatory. Check writing authority should have no access to accounting records. Accountants/Bookkeepers should not be given under any circumstances access to sign checks as they have access to the accounting records.
Segregation of duties- This is usually a big challenge to small business owners due to a lack of staff. Segregation of duties can help the company to monitor the check and balance process. Thereby minimizing internal fraud or theft. For example, staff handling AR-related matters should not have access to AP matters, as these two functions can easily be manipulated.
Watch out for questionable spending of the staff that has access to procurement process or disbursements – Encourage them to take vacations /off from their routine duties. Embezzlement can easily be detected this way.
Conduct background checks before hiring- This is important for those positions that handle the finances of the company such as bookkeeper, accountant, or payroll provider. Example: Staff that has a previous gambling history or misappropriation charges from their previous employer might not be a right fit for these positions.
Review Credit Card/Debit card of the company- Having a credit card or debit card for business expenses can help to simplify the tax reporting process. However, having more employees who have access to these cards can put the company at risk of fraudulent transactions. Constant review of credit/debit card statements is a must to protect against misappropriation. Have all expenses duly supported with receipts and verify them as well.
Create monthly cash flow projections- If your actual monthly cash flow falls short of projections, investigate the reasoning behind.
Above list is not an exhaustive list but can be used as minimum requirements to strengthen company’s internal control, thereby protecting the assets/income of your small business company.
