3 Important Things To Know About Internal Control Systems For Your Business
Posted on: 16 December 2015
If your company is growing and does not have an internal control system in place, you may want to consider hiring a forensic accounting firm to design and implement a system for you. Internal control systems are designed to reduce the chances of fraud taking place in an organization, and they are important for all types of companies. Here are three things you should know about internal control systems.
What Is An Internal Control System?
An internal control system refers to procedures and processes used to limit the risk of fraud taking place in a company. When a system is designed and in place, it reduces the chances of money laundering and other types of fraudulent activities. A system can only work if it is thorough, detailed, and followed.
Once you have a system in place, it is important to monitor and test the system from time to time. This is something you can do through a financial audit of your company, or you could hire a forensic accountant to evaluate it. At times, you may need to make changes to your system if there are areas that were not covered in the initial system.
What Other Goals Should Be Included In Your Internal Controls?
In addition to reducing fraud, a good internal control system should also be set up to ensure that financial records are kept and reported properly, accurately, and legally. This typically means hiring competent workers to maintain the books and prepare the financial statements. It also requires following accounting principles and legalities surrounding the way financial information is presented on statements.
What Are Some Of The Common Elements Of Internal Control Systems?
All companies create unique internal control systems to meet their own individual needs; however, there are certain elements that are usually present with all internal control systems. These include:
Segregation Of Duties
Segregating duties involves spreading out duties among numerous employees. This principle is often referred to as limiting the powers of each employee. The purpose of this is to hold a series of individuals accountable for certain tasks in the accounting system. By limiting the power of each person, there is a lower chance that something fraudulent could occur.
An example of this is hiring one person to prepare bank deposits, another person to make the deposits, and a third person to reconcile the bank accounts.
Safeguards
Safeguarding your business refers to the things you take to protect your assets and company information. An example of this is giving each person their own log in information for their computers. In addition, you may want to have a computer system in place that records what is done under each log in name. With this system in place, you can have a paper trail of what occurs on your computer system.
Safeguards can also include having locks on office doors and safes, and keeping all important documents sealed away from your employees that do not need access to the information.
Measures
A third component to have in place is a system to measure how efficient your internal control system is. Measuring the effectiveness of a system is vital to ensure that it is working properly, but you may also want to measure it to make sure that the system is cost-effective. Developing a system to measure your company's system can be tricky, which is why you may want to hire a forensic accountant to help you with this.
Internal controls are vital for companies of all sizes and types. If you are interested in learning more about this, contact a firm that specializes in financial forensics, such as Epps Forensic Consulting PLLC.
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