As a business or government leader, how do you monitor what’s going on inside your organization? Could there be fraudulent activity taking place right under your nose? Have you ever established internal controls? And if you have these controls, have you ever considered how strong your internal controls are?
Internal controls are methods in which an entity protects and ensures it has control over daily accounting procedures and that these procedures are being followed. Internal controls helps to safeguard assets against possible fraud and corruption.
Internal controls are a good preventative measure for fraudulent acts that can help you prevent and deter fraud from happening within your organization. So ask yourself these questions:
- Are you requiring dual signatures on purchase orders and requisitions?
- Have you ever thought about the receiving report or invoice?
- Have you included segregation of duties into your internal controls?
Are you having trouble answering any of these questions? If so, read on.
Consequences for Lack of Internal Controls
Many organizations struggle with segregation of duties. If one person has the authority to approve all forms of purchasing and receiving, you should be concerned. For example, a maintenance supervisor fills out the requisition for approval of cleaning supplies and then after the approval process, also fills out the purchase order and signs it. Then after the purchase order is processed, the same individual is responsible for marking the items as received on the invoice or signing the receiving report.
While many entities would claim they have strong internal controls, the example above is all too common. We typically see failure in the segregation of duties involving the approval process for requesting goods and the approval of receiving the goods. With the same person ordering and receiving the goods, who is to say that certain items are not walking out the door? Keep in mind all of the different departments that this could affect. Is the technology coordinator responsible for purchasing and disbursing all the laptops, iPads, smartphones, etc. to everyone and all the different locations of the entity? Implementing a procedure where a separate employee signs the receiving report essentially strengthens your company’s controls, and reduces items that could be stolen.
So it’s important to keep in mind your business’s internal controls. Is the employee that performs the accounts payable or payroll functions, the same employee that performs and approves the bank reconciliations? Is the same person who collects the game ticket sales the same person who reconciles the ticket receipts to the stubs and deposits the money? Adding one extra person into the mix can help to prevent and deter fraud just a little more.
This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 9/11/2013.
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.