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Small Business Accounting Decisions
What About Internal Controls?

Internal controls are not important, initially, when you start your business from home (assuming you have no staff).

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However, even at the beginning, you will want to put good bookkeeping policies and small business accounting procedures in place that have built in protection for your business ... so as the pace picks up, your backside is covered ... even if it is only from yourself!




Why Do I Need Internal Controls?

John Day, MBA of Real Life Accounting explains why small business owners need internal controls in his 2008 article Starting Or Buying A New Business.

Mr. Day says internal controls "protect against losses, both intentional and unintentional". He goes on to explain that these controls will:

  1. "protect cash and other assets;

  2. promote efficiency in processing transactions; and

  3. ensure reliability of financial records."

Mr. Day recommends setting up an control system early ... as a preventative measure. He feels it is more effective and efficient than a system that is setup retroactively ... which I'd say is a bit like closing the door after the horse has left the barn, so to speak.

He is very clear about what to do if there is only you (the owner) and your bookkeeper ... you SHOULD (my emphasis) "learn how to do some of the bookkeeping tasks so you can spot check the bookkeeper's work." I explain how you can do this in the article How to Supervise Your Bookkeeper - The Monthly Financial Review.


Suggestions For Your Consideration

I already discussed How to Create An Audit Trail and Why Account Reconciliations are Necessary. These two articles show you simple procedures to implement now.

Here are a few more suggestions.


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Segregation of Duties

I briefly chat about fraud detection for small business accounting in The Monthly Management Review article.

To reduce the probability of fraud, a basic technique is to ensure there is a segregation of duties. So if you have a bookkeeper, consider this listing of how to segregate duties. It was suggested by Bruce Director, CPA for SCORE NYC at a seminar at the New York Public Library.

image of list of segregation of duties for internal control purposes

As your business grows and you have more than just a bookkeeper for staff, you may need to restructure your internal controls.

Your most vulnerable areas are those where unauthorized purchases and payments can happen which are:

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The goal of setting these procedures in place is to help protect you and your business against the possibility of fraud.

Implementing these control procedures also reduces the likelihood of a bad tax audit because they help ensure good bookkeeping practices are being followed.

Don't procrastinate on implementing these simple internal controls now.

I don't know about you, but I could use a cup of tea!

image of script writing saying




These Are Good Places To Go Next

Go To How To Create An Audit Trail

Go To Benefits of Good Bookkeeping Practices

Go To Small Business Accounting Practices

Go To Home Page from Internal Controls

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From the Mail Bag
Visitor Comments



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Taking the worry away
Belledune, New Brunswick



BTW, did you say Bookkeeping? Cuz I fell asleep... just kidding!

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www.advice-with-dr-julia.com

(I love her humour!)



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R. Keith Pierce, CPA, P.A.
I'll Sweat The Small Stuff For You - JaxTaxPro.com
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