The Bookkeeping Corner

Internal Controls for Small Business

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Establishing an internal control system does not have to be difficult or high-tech.  Depending on the business, it can be as simple as looking at your bank statement and cancelled checks each month to review all the transactions that come in and go out of your bank account.

What is an internal control system?

An internal control system is a system of accounting procedures designed to prevent fraud and minimize the potential for errors.  It helps to safeguard a business’s assets, which is often Cash, against misuse, theft or loss.

When should you implement an internal control system?

It depends on the size of your organization.  If you are a one-person shop, handling all your bookkeeping tasks, then it would not be a high priority. However, you should always pay attention to your bank and/or credit card statements as a matter of practice.  If you have individuals working in your business, who have access to your finances, it is time to evaluate your internal controls and establish an internal control system. 

While it may be easier and cost effective to have one person handle multiple tasks, as a business owner you should still be aware of what is going on within your organization.  Here are a few examples, which will help you to determine when you need to establish an internal control system:

• If you have one person who prepares invoices and receives payment from your customers.
• If you have one person who receives bills and writes checks to your vendors.
• If you have a signature stamp that you gave to someone else to use in your absence

Internal Controls are an integral part of a business’s accounting procedures.  Without it, you are increasing the risk of being subject to potential fraud and loss of one of your most valuable resource - cash.