Secure Your Business With Internal Control and Auditing

Every business must have internal controls and auditing. Even a profitable business may suffer losses without the proper internal controls. In small businesses, there is a tendency to rely more on trust than on formal checks and balances. In larger organizations, which normally already have formal internal control systems, the weak point is frequently in the auditing policies.

Knowledge of internal control and auditing is important not only for accountants but also for many other people, especially managers and business owners. While knowledge of accounting would be helpful, even those with no background can understand the fundamental concepts.

To give some guidance to those who have little idea on the subject, here is a list of some basic principles:

Clarity of responsibilities. There must be a person or persons accountable for every transaction and asset. It must also be clear what the person is to do and what would be the consequences if he or she fails in the task.

Different people in charge of record-keeping from the one with custody over assets. This would serve as a control to the person in charge of the assets. It would not be possible or, at least, it would be more difficult to pilfer if the shortage is reflected in the records. If internal theft still occurs, there is a possibility of collusion between the two persons.

Physical security. This is also within the scope of internal control and includes company property, the safety of company personnel, documents, databases, etc. Every asset must be protected from theft and damage from both external and internal causes. One of the most crucial aspects here is the security of cash from point of sale up to deposit in the bank. Some of the things that must be done for physical security are rooms with sturdy locks, fencing, clear CCTVs, and offsite backups for databases and important documents. Finally, adequate insurance must be provided.

Asset records maintenance. Records that must be maintained generally fall into two classifications: the legal mandated records like books of accounts and receipts, and the other types like contracts, personnel and customer records. Not only must they be stored in good condition, but they must also be easily located when needed. The level of authority needed to have access to the records must be established, along with how long the records should be kept.

Regular and random auditing. There must be a continuing effort to check compliance with control procedures. Besides regular checking of the records, there must also be random auditing to improve the chances of uncovering irregularities. The physical assets must also be seen and counted if they tally with the records. Checking with other parties like banks for verifying deposits and other assets and liabilities is also essential. These are just some of the many techniques of auditing.

Having the right internal controls and continuous auditing is needed primarily for a company to avoid or reduce losses from theft, both internal and external. To know more about this topic, BusinessCoach, Inc., a leading business seminar provider, conducts a seminar entitled, “Internal Control and Auditing.” Contact (02) 727-5628, (02) 727-8860, (0915) 205-0133 or visit www.businesscoachphil.com for details

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*Originally published by the Manila Bulletin. C-6, Sunday, November 10, 2013. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.