A Brighter Way
A Brighter Way
So, here we are in the midst of worst economic recession since the Great Depression. If you’re like many contractors, you’ve had to cut costs because your volume isn’t enough to support the layers of general and administrative expenses you needed during better times. You may even have had to let some office and administrative staff go. Now here is the kicker: What role did that employee have in your internal control?
Internal controls are the processes and systems (checks and balances) used to capture and properly record transactions in a timely manner. In addition, this system should identify and correct errors in accounting in a timely manner. Most people only think of internal controls as the first line of defense against employee fraud and theft. Employee theft is a realistic concern in these tough economic times. Segregation of duties is part of the internal control and can help deter theft; however, there are other benefits to a strong internal control structure.
Internal controls are at all levels of the company, from preparing and reviewing estimates for bids, to monitoring field employees, to approving invoices and coding them to the proper job, to preparing requests for payment, monitoring collections and cash flows. Internal controls play a direct impact on the two areas vital to the success of a contractor – cash flow and revenue recognition. If you have had to let office employees go, review your internal controls to make sure the person taking on the re-assigned tasks has both the knowledge and resources to fulfill the new duties. An employee that is not able to properly carry out his or her duties could be just as big a risk to the company as an employee that is stealing from the company.
Contact your financial advisor to discuss your internal control system or to learn more about this important part of your accounting function.
This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 12/4/2009.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.
