Strong internal controls and proper segregation of duties are essential for organizations. Having the proper controls in place can ensure the integrity of financial reporting, maintain effective and efficient operations, help prevent and detect errors, irregularities, and theft, and maintain compliance with applicable laws and regulations.
However, limited resources can result in ineffective internal controls over key processes. Demands on organizational resources can take several forms:
- Small accounting department staff
- Profitability and operating declines that require staffing reductions
- Significant growth that creates demands due to understaffing
What can organizations do to ensure their internal controls are effective and sufficient in situations where resources are scarce? There are several steps organizations can implement to help improve their controls and segregation of duties:
- Develop a matrix that outlines all the key processes and controls. Identify personnel responsible for completing each of the processes.
- Review the matrix and identify processes where there is concern about segregation of duties. Based on this review, prioritize identified deficiencies and determine steps needed to improve the controls.
- Review the financial reporting process. Determine whether financial statements are prepared in a timely manner each month and are properly reviewed by the senior management team.
- Cross train personnel where possible. This can be very valuable to organizations; it provides backup and also acts as a review function.
- Focus on controls around key assets such as cash, investments, accounts receivable, and inventory. If the organization is small, owner/president review is very important.
- Thoroughly review controls around cash accounts. Having an independent person open and review the bank statements each month can be a strong control and deterrent. Also, having proper check signing controls such as dual signatures is important. Wires and ACH controls should be evaluated, and there should always be a call back provision to someone independent of the person who initiated the wire.
- Maximize technology to the fullest extent in order to be as efficient as possible. However, it is important not to become overly reliant on technology in lieu of having proper oversight and controls.
Constraints on resources should not prevent organizations from developing and maintaining good controls. Organizations always need to evaluate the cost benefit of certain controls as there may be instances where it doesn’t make sense due to added or high cost. Developing a sound internal control structure requires management to set the proper tone from the top to facilitate a good control environment, continually assess risks to the organization, and ensure that policies and procedures are communicated and monitored on a periodic basis.
Richard Snyder can be reached at Email or 215.441.4600.
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