Small Business Internal Controls
Entrepreneurs and small owners often forget a very important part of operating a business, internal controls. In fact, poor internal controls and dishonest employees were listed as the reason for 30% of small commercial business failures. (Hrncir, 223) Even with this knowledge many small businesses do not have an understanding of the intent and effectiveness of internal controls. An internal controls system is the written and spoken set of rules and actions that the owner of a business sets up to make the day-to-day operations of their business run smooth. (Hrncir, 224) Most systems are designed to accomplish four basic tasks: 1.
Produce reliable accounting information.
Promote operational effectiveness.
Require adherence to company policies and procedures.
There are two types of internal controls which are equally important to a successful small business. Financial or accounting internal controls are intended to ensure the protection of company assets. Administrative controls are established to effectively control the operations transactions to promote operation efficiency. (Spencer, 1)
When a company is in its infancy stages documentation of policies and procedures are sometimes the last things to get established. It is important that internal controls are well documented and known by the responsible employees to be effective. The accounting and administrative controls that would be utilized for a small business that I would establish are: •
Utilize a digital dashboard to monitor transactions and the business. •
Establish segregation of duties.
Restrict system and physical access to assets.
Escalating approval levels.
Prerecorded data for repetitive transactions.
Three way match to payables and inventory receipts.
The use of a digital dashboard which is available on most small business software applications is an important tool for an owner of a small business. This...
Cited: Hrncir, Theresa. Hobbs, Edward. “Common Sense Accounting: The Logic and Reasons for Business Internal Controls Explained in Plain English.” Pg 223-228.
Spencer, Robert. “Internal Controls for Small Business Accounting.” K2 Enterprises. P 1-10.
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