Internal Controls: A Vital Component to Success

Contrary to popular belief, internal controls aren't just for large, multi-billion-dollar corporations. They are crucial to every business in protecting assets and minimizing objective risks. Ultimately, it comes down to accountability.

Whether you're a large or small business, it's vital to have someone in place to audit records, monitor efficiency, ensure that proper regulations are in place, and so much more. Whether your company's internal controls are preventative, detective, manual, or automatic, it's vital to protecting your business from suffering the consequences of mistakes or fraud.

The Role of Internal Controls in Your Company

1. Segregation of Duties - One person should never be in charge of authorization, custody, record keeping, and reconciliation. Segregation of duties ensures that there is someone else involved who can catch mistakes. This also serves as a method of accountability since the chances of more than one person colluding to commit fraud are slim. For small companies, this may seem like a tall order. However, Lamont Accounting serves as an excellent resource when segregating duties.  

2. Account Reconciliation - At the end of an accounting period, it's important to do an account reconciliation to confirm that all of the information recorded is accurate. This requires your accountant to verify the balance listed is complete and accurate for each account. If there is a discrepancy, it's important to identify the error as soon as possible. Some reasons there may be reconciliation differences include timing, missing transactions, mistakes, or even fraudulent charges. It's important to identify the cause as soon as possible so measures can be taken to correct employee processes and prevent future mistakes.

3. Error Reduction - In theory, internal controls should prevent mistakes more than it should correct mistakes. By better defining protocols and procedures, internal controls can help employees complete their jobs more accurately. Errors can be reduced by implementing proper training programs for your employees including orientation and ongoing training programs. It's much more efficient to take the time to develop thorough processes than to use valuable resources correcting mistakes.

4. Fraud Prevention and Detection Did you know that internal controls are usually how fraud is detected? By maintaining strict internal controls, you can not only catch fraud, but you can also prevent it. Some methods of prevention include:

  • Segregation of duties
  • Restrict use of company credit cards
  • Protecting petty cash
  • Protecting checks
  • Monthly bank account reconciliation

The preventative measures listed above are just a few policies that can be put in place to prevent fraudulent activity.

5. Establishment of Company Policies The goal of internal controls as they formulate and communicate company protocols and procedures is to create a cohesive team that can accomplish their tasks as expected by the company. These protocols prevent errors, increase efficiency, and leave fewer opportunities for fraudulent activity.

  Why Lamont Accounting Services

As you can see, internal controls are absolutely crucial to the well-being of your company. At Lamont Accounting Services, we can serve as internal controls for your company , helping you gain control of your future and leaving less room for errors.

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