Why Internal Control Is Important To Your Business


Why Internal Control Is Important To Your Business


Internal Control is all about protecting the assets of your business.

Similarly, it is also concerned with preventing frauds, errors and omissions.

Internal control can be applied in nearly every aspect of your business.

Below are a few of the many instances where internal control can help to protect your business.

Internal Control: cash

Cash is a critical  asset to your business.

Unfortunately, unreliable employees can see it as a soft target to commit fraud.

You should use internal control measures that all outgoing payments are duly approved by you.

And that you obtain receipts for any payments you make to suppliers, creditors and so on.

Furthermore, there are still a number of strategies that you can use to control your cash.

Separation of duties

Separation of duties is great way to help you track your cash.

For example, if you have several selling points in your store you can link all sales to a computer database.

Thus, the database will be like a collection center for all your sales.

Additionally, getting customers to pay their bills via POS or bank transfers is also another great way to control your cash.

This way, your cashier can handle only limited amount of money to meet minor office or store expenses.

Internal controls: computer systems audit

You can get an employee with a knowledge of computer audit to help you track your cash.

It is the responsibility of such officer to reconcile all sales accounts on daily basis.

More importantly, if here is any unusual transactions, he can investigate them.

Thereafter, he can document his findings.

Furthermore, he will need to put measures in place to prevent them from occurring again in the future.

Internal Controls: stocks

Internal control is important when it comes to protecting your stocks.

It is possible that you have invested a large chunk of money into stocks.

Consequently, you need an effective and efficient internal control systems to monitor your stocks.

You need to track your stocks to guard against sharp practices by unreliable employees.

Unreliable employees can return goods to the supplier after they have been delivered to your store.

Most importantly, all goods leaving your premises must be thoroughly double checked by another employee, other than the store officer.

Placing order for goods

Internal control measures can help you to ensure that purchase only goods that your customers need.

This you can do by referring to your stock records to know:

  • Fast selling stocks
  • slow selling stocks

There are other methods you can use to control your stocks

Firstly, one of the tools you can use to ensure that you keep an optimal level of stocks is the EOQ (economic re-order quantity) model.

Secondly, if your store records have been properly kept, it can be easy for your accountant to determine the EOQ stock level.

Thirdly, you can easily  know when to place order.

Fourthly, you can also know the quantity of stocks you need.

Internal controls: accounts receivable

Accounts receivable is a very fertile ground for unreliable accounts clerks to defraud you.

For instance, an ledger clerk or accountant can:

  • Intentionally understate the value of goods supplied to a customer
  • Write off part of the debt owed by customer without your approval
  • intentionally forget to enter an invoice into a customers account

Therefore, you should always monitor the movement of your stocks to ensure that your stocks are intact.

Compliance with Rules and regulations

You must ensure that your business complies with all relevant internal rules of your business.

Similarly, you need to comply with all external rules and regulations.

For example, you will need to comply with the provisions of company’s laws, rules and regulation.

You need to comply to avoid possible sanctions.

Therefore, your internal auditor need to ensure that all rules and regulations are complied with.

Wide application of internal controls

You can apply internal control in a wide range of situations or business activities.

For example, if you are running an audit firm, you need to ensure that your report meet the recommended standards.

Similarly, if you are into manufacturing, you need to ensure that you comply with quality and safety standards as laid down by your industry.

More importantly, that a cashier has worked for you for x number of years is not a guarantee that he cannot steal your cash, if he has the chance.

Similarly, that a storekeeper has worked for you for x number of years is not a guarantee that he cannot steal your stocks, if he has the chance.

Therefore, you should not take anything and everything for granted.

Related: 10 Ways Poor Financial Management Can Hurt Your Business

Additional Tips

  • Ensure that stock records are updated after every transaction
  • The cash book must be updated and balanced on daily basis.
  • Your bookkeeper must prepare monthly bank reconciliation statement
  • He must investigate any discrepancies and correct them
  • Your business vehicles must be used only for official purposes
  • Use vehicle log book to control movement of your vehicles.
  • Review and update your internal control systems regularly.


By Samuel Ijenhi

B.Sc. Accounting, (University of Benin)

Benin City, Nigeria

Email: info@samuelijenhi.com.ng

About Samuel Ijenhi

A graduate in Accounting, University of Benin, Benin City, Edo State, Nigeria.
View all posts by Samuel Ijenhi →

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