| You read about this in every newspaper in every | | | | procedures were in place and working properly. |
| town in the entire country: Some bookkeeper, | | | | Here are a few suggestions for internal control |
| trusted by the owner of a small business, | | | | procedures regarding handling of cash: |
| embezzles thousands of dollars. If the theft | | | | - Allow only specific designated individuals to |
| doesn’t put owner out of business, it certainly | | | | handle cash. |
| causes a major headache. | | | | - Give responsibility for bookkeeping to an |
| The reason we hear of these cases so often is | | | | individual who does not handle cash. |
| that, in a small business, there may only be the | | | | - Use numbered receipts to document all |
| owner and a bookkeeper. The owner doesn’t | | | | payments. |
| like doing the books, doesn’t understand | | | | - Make all bank deposits promptly. |
| them, and relies on this one person to take care | | | | - The person who prepares the bank reconciliation |
| of things. The bookkeeper, who is usually having | | | | should be different than the one handling cash. |
| personal financial difficulties, takes a small amount | | | | - If possible, the person who makes the bank |
| of money intending to pay it back. No one seems | | | | deposit should be different than the one who |
| to notice, so more is taken. Over a period of | | | | handles the cash and the one who prepares the |
| time, it starts to mount up to a lot of money. | | | | bank reconciliation. |
| This is where the concept of “internal | | | | - Make deposits intact with no amounts |
| control” comes in. Essentially, every business | | | | withdrawn to pay expenses. |
| should have, at some level, an internal control | | | | - Keep cash and checkbook in a locked drawer or |
| system in place to protect against losses, both | | | | cash register. |
| intentional and unintentional. This is because | | | | - Since tills will never be 100 orrect all the time, |
| “internal control” systems will: 1) protect | | | | establish a tolerance level for overages and |
| cash and other assets; 2) promote efficiency in | | | | shortages to determine the point at which |
| processing transactions; and, 3) ensure reliability of | | | | corrective measures will be triggered. |
| financial records. An internal control system | | | | - Make all disbursements by check, except |
| consists primarily of policies and procedures | | | | minimal amounts paid from petty cash. |
| designed to provide reasonable assurance that | | | | - Make certain every payment is related to a |
| these three objectives will be achieved. The size | | | | paper document, such as a voucher, to ensure |
| and complexity of the business will determine the | | | | that a paper trail exists for all disbursements. |
| extent of the internal control system. | | | | - Conduct random surprise counts of petty cash |
| Regardless of size, one of the most important | | | | and cash drawers. |
| aspects of an internal control system is the | | | | - Count inventory and other assets frequently |
| concept of separation of duties. Separating duties | | | | and compare with company books. |
| makes it more difficult for theft and errors to go | | | | An internal control system set up early as a |
| undetected. It is highly unusual for two employees | | | | preventative measure is more efficient than |
| to “collude” in an effort to steal from the | | | | establishing a corrective system in reaction to a |
| company. | | | | loss. If it so happens, that there is just you and |
| I worked as an internal auditor for a newspaper | | | | the bookkeeper in your small business, you need |
| chain for three years. My job was to walk in to | | | | to learn how to do some of the bookkeeping |
| the newspaper offices unannounced and go | | | | tasks so you can spot check the |
| directly to the cash boxes, count them, and | | | | bookkeeper’s work. That, in itself, is an |
| verify receipts. One of my most important audit | | | | excellent preventative measure. |
| steps was to make sure the internal control | | | | |