Vitamins. Regular exercise. Yearly doctors’ appointments. Even a good night’s sleep. These are all ways you build and maintain your body’s immune system. And just like these steps you take for yourself, you should take similar steps to build your organization’s immunity to fraud.
Before we go any further, let me just say that no organization is fully immune to fraud. Just like we aren’t completely immune to viruses. But, there are steps you can take to lessen your organization’s exposure to fraud.
Internal Controls – Doctor’s Accountant’s Orders
Internal controls are procedures that an organization sets up to safeguard its assets and financial reporting from fraud. Fraud does not discriminate – all organizations should have some type of internal controls in place no matter the size of the organization. So how exactly can internal controls help deter fraud? Internal controls:
- Creates a separation of duties to ensure a system for checks and balances.
- Reduces or lessens “opportunities” for errors
But what’s most important to know is that the lack of internal controls leaves organizations vulnerable to misuse of organization assets and theft.
Implementing Internal Controls
You’ve got a lot on your plate, and you’re probably wondering where to even begin implementing internal controls. Here’s a list of steps you can take to begin strengthening your business’s internal controls.
- Create internal control policies, and ensure these policies are communicated to everyone within your organization.
- Whistleblower Policy
- Document Retention Policy
- Personnel policies
- Conflict of Interest policies
- Create separation of duties and define who is responsible for what.
- Bank reconciliations should be made by someone other than the person who creates the checks.
- Ensure multiple users have access to and the ability to view the organization’s bank account.
- Be sure someone signs off on payroll checks and time cards.
- The individual who signs the checks should be different that the person who handles the money.
- Have two individuals open the mail together.
- Whoever is responsible for recording fixed assets should not make general ledger entries.
- Require that authorization be obtained for capital asset purchases and disposals, as well as purchases of any kind over a certain dollar amount.
- Be sure to have two signatures on all checks
- Other internal controls to consider implementing:
- Lock up valuables, blank checks and cash.
- Ensure you conduct timely financial reports.
- Instruct customers or donors to write-out the full name of your organization on checks.
- Ensure a copy of check registers accompanies checks for signature. And be sure there are no missing checks and keep track of consecutive checks.
- Periodically complete a physical inventory count.
- Use purchase order (PO) for purchases.
Make Internal Controls A Priority
Don’t wait for fraud to happen. If your organization doesn’t have internal controls in place, start an implementation plan today. If you need assistance or have further questions about internal controls can help you, email Rea & Associates.
By Katie Brown, CPA, (Zanesville office)