Your Internal Controls – Keep Your Firm in the “Green”
Mar 01, 2010
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It's tax season, so I want to spend some time discussing how you can keep your firm humming, as it is easy to get distracted by the everyday fires you need to put out while seizing promising business opportunities. If you are a small or medium-sized company that is privately held, you are not subjected to the oft-draconian regulations under the Sarbanes Oxley Act. But whether you are based in the United States or are a subsidiary of a non-US firm, here are some suggestions to keep in mind--and to keep that company traffic light green as your company, hopefully, will find more success in this nascent green economy.-
Mandatory vacation policy for all employees. You should require that all employees take at least one business week of vacation per year. View this as an opportunity to cross-train your staff and furthering their professional development, while guaranteeing that critical functions do not stall while one or more of your team is on leave. While someone on staff is away, someone else can oversee his or her functions, allowing your internal auditing to continue seamlessly.
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Segregate duties. At the same time, there should be a dichotomy in employees' tasks so that no one employee (or group) has an opportunity to commit--and then hide--any fraud or mistakes in the normal course of their everyday duties. Payroll is one example: the person preparing the paychecks should not be the one distributing them.
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Update your policies and procedures regularly. One example is travel and expense reimbursements, which can change quickly as IRS regulations change--such as de minimus thresholds and mileage allowances. Keeping all policies up to date and documented can allow for periodic auditing of employee reimbursements less cumbersome for your accounting department.
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Company credit cards. I have mixed feelings about company credit cards. They are certainly more convenient for employees, but unless you have a rigorous expense tracking system, they can invite problems. Employees tend to be more conscious when they are spending their money first and have to wait for a reimbursement check. One suggestion to allay employees' concerns is to reimburse employees' annual fees for credit cards frequent-flier or similar reward programs. True, employees will not be happy about having only 20-30 days to pay off their balances to avoid paying interest, but this also helps prevent them from falling behind in expense reports while allowing your firm to keep its books up to date.
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To the owner or CEO--take control! You, the one running your show, should open all bank statements and review them before sending them to your accounting department for reconciliation. If you are overwhelmed or constantly on the road, consider having one of your trusted staff perform this duty. Make sure you search for anything unusual, such as unfamiliar vendors, and ask your support staff pointed questions. You are imparting to your employees that you are monitoring their work--hopefully in a way that is engaging and not accusatory.
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Take advantage of your bank's Positive Pay services. Positive Pay is a relatively simple fraud detection tool that your bank should offer its customers. Under this system, a firm is required to send a list of check numbers each day checks are written. When these checks are presented for payment at a financial institution, they are compared against the list of transmitted checks. When a check appears that does not match the file of check numbers, it is flagged, and an electronic or faxed image is sent to you, the client. You then must instruct the bank to either pay the check or return it to you.
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Insist on proper documentation. When you are signing checks, always review and then enclose copies of invoices and purchase orders, allowing for easy review and authorization of the expense.
Clearly I left out some pointers: performing background checks of prospective employees, restricting access to checks, and having the appropriate software platform supporting the needs of your business. I have had clients and colleagues in the past suggest other tips, such as having checks mailed to a PO box or home instead of the office, closing dormant accounts, and eliminating stamps or signature machines in the office.
Having worked for online business and securities research firms in the past, paired with my experience working with smaller companies and start-ups, I have heard too many stories about companies running into problems because of lax oversight. I do not offer these tips to cause mistrust or paranoia; rather, view these as an opportunity to build up rapport and credibility with your staff.
What have been your most effective tactics for ensuring smooth internal control procedures? I welcome your feedback.
