Sound internal controls are typically a priority for large businesses. However SMEs with resource constraints are often discouraged from developing them, making them vulnerable to fraud, financial errors and non-compliance. Here’s some simple steps you can take.
Internal controls help businesses safeguard their assets, assist in the accuracy and reliability of financial information, ensure compliance with financial and regulatory requirements and assist businesses to achieve their objectives.
Sound internal controls are seen as a priority for large businesses who dedicate significant resources to their development and monitoring. Fortunately, these controls are not entirely out of the reach of SMEs.
Here are some cost-effective measures that SMEs can adopt to develop internal controls and avoid common traps:
+ Document control: Sequential numbering of purchase orders, sales invoices, cheques etc. This eases identification of duplicate or missing documents which could indicate signs of fraud or error.
+ Timely reconciliation of bank statements and balance sheet clearing accounts: Unreconciled transactions can often dwell in the accounts for long periods of time and relate to unexplained and erroneous transactions.
+ Independent review and sign-off of payroll and batch payments: This essential control is often overlooked by many businesses. Payroll reports and batch payments can contain errors, either intentional or unintentional. Independent review of these documents increases the chances of such errors being detected and investigated in a timely manner.
+ Physical controls over petty cash and inventory: One person ought to be accountable for reconciliation and safeguarding of petty cash. This reduces the risk of unauthorised petty cash expenditures. High value and small-sized inventory items should be physically locked away and its access limited to the warehouse manager.
+ Separation of purchase requisition and payment authorisation: It is important to have two different roles involved in this function to ensure there is adequate review over purchases and reduce the risk of unauthorised purchases.
+ Limiting access levels of different staff within the accounting system: Staff within functions such as invoicing and receipting, purchases and payments, payroll and inventory should ideally be given access limited to their role. In cases where such controls aren’t possible due to limited staff numbers, other measures such as control over general journals and reversal of transactions can be implemented.
+ Independent review of staff reimbursements and expense claims: All staff reimbursements should be complemented with supporting documentation. Prior authorisation, in the form of expense claim forms, is a great way to ensure unauthorised expenses aren’t incurred and subsequently reimbursed.
+ Review and reconciliation of business credit cards: Credit card reconciliations ought to be carried out on a monthly basis. The card holders should be held accountable to provide supporting documentation for all transactions.
+ Compulsory annual leave policies: Often a fresh set of eyes within a function can highlight areas of inefficiency and identify errors and inaccuracies.
The above measures can be applied within most SMEs regardless of size and resources. We work closely with many SMEs to implement internal controls and achieve their business objectives. Please contact us if you would like assistance.