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Accounting
Internal Control
The
accounting
internal control should accomplish these two things:
- Prevent or minimize embezzlements
- Ensure the reliability of the accounting records
We have all heard the stories of some elderly bookkeeper who had
been stealing from her employer for the last twelve years or so.
The total amount of the embezzlement is usually staggering.
Most people are shocked that this lovely person could have
done
this.
I don't mean to pick on elderly bookkeepers, but the facts
are that this is not unusual. The usual victims are small
businesses that lack internal controls.
Money has a way of
making the honest become dishonest. Money is useful and is
needed
and desired by everyone on the planet. The financial
transactions
of a business need to be safeguarded to stop theft.
Internal
transaction controls that should be implemented in a business:
- Transactions should conform to GAAP (generally
accepted accounting principles).
- Cash and other assets should be handled only as
allowed by management.
- Reconciliations of cash and bank accounts need
to be kept current.
- Internal
and/or external auditors need to audit the company's system and
transactions. This needs to occur on a regular basis and
needs to
include accounts payable and accounts receivable transactions.
In
addition, the following internal controls for personnel should be
implemented:
- There
should be a plan to have separation of duties for accounting personnel.
No one person should be allowed to handle cash and keep
records
for the cash.
- Accounting personnel should be required to take
their vacations and other personnel should do their jobs while they are
gone.
- Personnel that handle cash should be bonded.
It
is not easy to implement and maintain these practices. The
management needs to be diligent and committed to doing this.
Things
get busy and it's easy for the controls to go lax. A control
system should be in writing and an annual plan made up by
management to implement each item that needs to happen.
Basic
Accounting Information:
What is Accounting
Accounting
History
Basic
Accounting Principles
Accrual
Accounting
Accounting
Terms
Accounting
Formulas and Ratios
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