Internal controls are the system of checks and balances that help safeguard an organization’s assets. For example, doing a monthly bank reconciliation ensures that the amount the books show as Cash matches up with the amount the bank says you have. Having an invoice on hand for every check that’s written helps ensure that there was a legitimate business purpose for an expense. Having one person write checks and another person do the bank reconciliation is another common control practice.
Why have controls? Because as much as we trust the people who work with us, sometimes that trust gets betrayed. Even a long-time, competent, highly trusted individual might someday commit fraud or embezzlement. The pressures of personal life can erode a person’s judgment to the point that they commit a crime. Motive, opportunity and ability can get the best of even good people.
Some common ways in which employees steal from the workplace include falsifying travel expenses, taking receipts instead of turning them in, writing checks to themselves or an alias, taking inventory to sell or use personally, and falsifying timesheets. Internal controls try to prevent irregularities from happening, or at least catch them quickly before they do much harm.
Here’s a link to a free online book written by Bob Pedersen, CEO of Goodwill of North-Central Wisconsin, about a $500,000 embezzlement committed by a longtime employee of theirs a few years ago: http://www.goodwillncw.org (click on “Betrayal” on the left side of the page).
One of the first steps a public accountant takes when auditing a client’s books is to document the client’s system of internal controls. Controls should exist for cash receipts, cash disbursements, expense approvals, inventory, sales, fixed assets, and any other major process or asset the organization has. The auditor selects a sample of transactions and reviews them to test whether controls were followed properly. That sampling helps determine their level of confidence in the financial reports derived from the client’s accounting system.
Ruth Bittner can help you safeguard your organization’s assets by documenting, reviewing, and analyzing the organization’s internal control system and recommending enhancements. This service helps save you money by reducing the chances of employee crime, and it also can reduce audit costs by presenting the auditors with up-to-date, complete internal controls documentation and demonstrating a commitment to following proper business procedures.
For more information, contact Ruth today at the phone number or email shown on this page.