The most effective way to protect a company’s most precious asset, cash, is by having proper internal controls. The challenge to having useful internal controls in a small business is the potential for the overlapping of responsibilities since there may be a minimal amount of staff members. It is okay to have a few staff members wear multiple hats, however, you must be careful about which “hat” is worn and by who. Having a segregation of duties is possible and we provide two tips to help you achieve cash protection within your organization.
1. Make achieving effective controls the responsibility of the entire company
Accounting and finance staff personnel should not be solely responsible for instituting internal controls. Senior management can be used as "informed reviewers" to aid in the implementation of useful controls. However, a segregation of duties is necessary within senior management, as well. They should also have a solid understanding of the business' overall processes.
2. Have a segregation of duties amongst accounting staff
For instance, the Accounts Receivable Clerk who has the responsibility of applying payments to customer accounts, should not also be allowed to create journal entries or issue credits to customer accounts. Another example of segregation of duties relate to the performance of account reconciliations. Specifically, an account reconciliation should not be completed by the same staff person responsible for recording the transactions within the account (i.e. accoutns payable clerk who reconciles the checking account checks are cleared on).
Cash disbursements, cash receipts, accounts receivable, accounts payable and inventory are the small business functions at great risk. Achieving effective internal controls over these areas is done when all company staff is involved in the process and a clear separation of responsibilities are in place. Click on the button below to be taken to the next blog that will discuss how to achieve internal controls over the cash disbursement function:
