Trying to Maintain Internal Controls

Understanding how to maintain internal controls is essential for protecting your business from fraud, financial errors, and asset loss. According to a spokesperson from the Risk Unit of Marquette University of Milwaukee, Wisconsin, “Establishing effective internal controls can help a department operate more efficiently and effectively and provide a reasonable level of assurance that the processes and products for which it is responsible are adequately protected.”

How can you be certain that your company is protected via your own internal controls? Perhaps more important, are you aware whether your company even has internal controls?

What Are Internal Controls?

Internal controls are policies and procedures designed to safeguard assets, ensure accurate financial reporting, and promote operational efficiency. They provide reasonable assurance that business processes are functioning as intended and that risks are minimized.

Internal controls are categorized as “before” and “after,” more commonly referred to as preventive and detective controls.

Preventive Internal Controls

Preventive controls are proactive, aimed at discouraging errors and irregularities. According to Vanderbilt University, examples include the following:

• Segregation of Duties: Assigning responsibilities such as accounting, approvals, and recordkeeping to different employees or teams to reduce the risk of error or fraud.
• Approvals, Authorizations, and Verifications: A supervisor’s approval (manual or electronic) provides checks and balances by verifying that a transaction conforms to established policies and procedures.
• Security of Assets: Restricting access to assets such as equipment, inventory, securities, and cash. These controls can function as both preventive and detective measures.

Detective Internal Controls

While preventive controls are designed to discourage errors and irregularities, detective controls are designed to identify them after they have occurred. Examples include the following:

• Performance reviews
• Reconciliations
• Physical inventories
• Audits

Regular monitoring and review of these activities help ensure that discrepancies are identified and addressed promptly.

Practical Steps to Maintain Internal Controls

Consider putting the following practices in place at your company right now:

• Locking your office when you leave, even for a short time.
• Reviewing monthly comptroller’s statements.
• Requiring authorizations.
• Performing reconciliations on accounts.

No business owner wants to believe that the employees they sought, hired, trained and has confidence in are doing anything deceitful. But sometimes, unexpected things can happen, and proactive steps protect your business.

How a CPA Can Help Maintain Internal Controls

If you are unsure how to establish or maintain internal controls at your company, professional guidance can make a significant difference. A CPA can evaluate your existing procedures, identify weaknesses, and recommend improvements tailored to your business operations.

At Siepert & Co., LLP,  we have the background and experience to help protect your company’s funds and assets while strengthening your internal control environment.