A Business-First Approach To The Practice Of Law

Internal and external controls over business finances

| May 26, 2021 | Business Law |

In smaller companies, one person may play several roles, so an accounting and human resources department of one is not unlikely. However, problems often crop up when combined offices allow one person too much access to assets with too little or no oversight.

According to Chron Small Business, every person in the company should have a system of checks and balances over the positions he or she is in to limit temptation and liability and improve responsibility and accountability. A business can also find balance from outside the company.

Internal controls

Policies and procedures are the bedrock of any company. Everyone should receive these, and they should sign an acknowledgement of receipt and understanding. If the receptionist knows, for example, that only the CEO can open the mail, he or she is less likely to allow the accountant to pick it up off the desk and shuffle through it.

If the company is too small to have a second person involved in the accounting, payroll and record-keeping processes, it should at least have a second person to review and sign off on checks, deposits, invoices and statements. An operations director who needs a backup signature from the accountant is less likely to create an invoice from a fake vendor and submit it.

External controls

Having an outside company perform regular audits is one way to make sure the books balance. Outsourcing may be another solution for small companies. Rather than hiring someone to perform the functions internally, it is possible to subscribe to systems and services for human resources, payroll, accounting, billing and other functions.

If fraud does occur in spite of these checks and balances, protecting the innocent and identifying those responsible for the activity may be less complicated.