The following are 8 things effective internal controls can do for your small business:
- Can help you to protect your cash
- Enables you to monitor debtors accounts
- Track your creditors accounts
- Can help you to track your bank account(s)
- Help you to monitor your fixed assets
- Enables you to track your stocks
- Monitor your payments
- Helps your business to run run smoothly
Internal controls are concerned with protecting all the assets owned by your business.
In every government, companies and institutions, there is usually present one form of internal control or another.
In this article, however, attention is focused on internal controls as they affect small businesses. Here we go!
Internal Controls: Can help to protect your Cash
Effective internal control system can help you to track, and maintain safe custody of your cash.
For example, it should ensure that custody and movement of cash out of your business comply with all financial instructions, rules and regulations put in place by management.
Furthermore, internal control should allow you to know by why, when, how and by whom Cash is leaving your business.
Most importantly, it can enable you to ensure that all financial outgoings are duly verified and approved by management.
Internal controls: Enable You To Monitor Debtors Accounts
Internal controls for debtors can enable you to know how much money debtors are owing your business.
is also important because it can enable you to detect or prevent frauds in accounts receivable.
For instance, a dishonest employee can manipulate a debtor’s account by:
- Not debiting the debtor’s account with the actual value of the goods supplied to the customer. In this case, the motive of the employee is usually to collect the difference from the debtor and convert it to his personal use.
- Deliberately reducing the balance in a debtor’s account without your knowledge and approval. Thus, making it possible for the debtor to pay amount less than what he actually owes.
- Intentionally omitting some amount of money from the customer’s account.
You can actually use internal content to determine credit limits for customers and know when they hit the roofs so that you halt further sales.
Therefore, with effective internal controls you can actually detect, prevent or reduce the chances of frauds in your small business.
Internal controls: help to monitor creditors accounts
Effective internal control systems will help you to monitor your creditors’ accounts.
You need to monitor creditors’ account to avoid fraud, errors and omissions from their end.
Therefore, if you discover any discrepancy, you should follow it and ensure that the error[s] is fixed quickly.
In all financial matters, accuracy require high priority attention because every N/$ matter.
Can help you to track your bank account(s)
Yet another important thing effective internal controls can do for you is that it will help you to track your financial transactions with your bank.
For example, reconciling the balance in your cash book with the bank balance will help to reduce the chances of fraud, errors or omissions.
Monitoring your business bank account is important to ensure that internet fraud stars and other dishonest people do not get anywhere near your bank account.
Help you to Monitor your fixed assets
In the same vein, internal control system should monitor the assets of your business.
Examples of Fixed assets include, Motor vehicles, Plants and Machinery. Others might include furniture, fittings and equipment.
Internal control measures should ensure that:
- Your vehicles are serviced regularly as recommended by the manufacturer so that they can continue to run optimally.
- Drivers maintain log books for their vehicles to monitor their movements to avoid abuses.
- Plants and machinery are maintained as recommended by the manufacturers
- all assets are safe and secure in their various locations
- And that they are in good working condition.
Internal Controls help you to manage your stocks
Effective internal controls can help you to track your stocks and inventory.
Remember that investment in stocks can be high in some small businesses such as yours.
Consequently, you can use effective internal controls to ensure that:
- Goods delivered to your shop are physically counted.
- Merchandise received from suppliers are immediately entered into their respective bin cards or computer system.
- Dishonest employees or customers do not make away with your stocks.
- Stock records are balanced automatically at the end of every transaction. This way, you can easily know the balance of each stock item.
- That the store keeper is not issuing more stocks to customers than what they paid for.
- You block all ways through which dishonest employees can steal stocks from your shop.
Effective Internal Controls should enable you to know when to place orders for merchandise.
Most importantly, you can use quantitative methods to determine Buffer Stock levels as well as Economic Order Quantity (EOQ) levels of your stocks.
Internal controls: Track your payments
Effective internal controls will help you to track your payments.
For example, it will help you to ensure that
- All payments are verified and approved before money leaves your business
- The right amount is paid to the right person at the right time.
- Receipts are obtained for all payments your business makes.
- Such receipts are filed away for future reference.
Consequently, you should review and update, from time to time, the internal control system you install in your small business. This will enable you to keep pace with changes that are constantly taking place in the business world.
By Samuel Ijenhi,
B. Sc. Accounting (University of Benin)
Benin City, Nigeria.