Along with all of the other responsibilities you deal with, financial controls have also found their way into the spot light. Financial controls should be in place within every facet of your business, from the controls surrounding the receipt of payments to the controls for tracking inventory.
With the countless controls functioning throughout your company each day there are some basic controls that can be easily overlooked. Here are five best practices to implement to help ensure you have good financial controls.
Management often takes the time to create and approve policies and procedures; however, in many instances the information contained in these policies and procedures are not being followed by employees, this may be due to a lack of communication between management and the employees (i.e., poor training practices) or a blatant disregard for the current processes in place. It is imperative that all policies and procedures are written, periodically updated and shared with employees responsible for those particular job duties. Management should ensure that work is spot checked periodically to ensure policies and procedures are being followed. If you have not formally established written policies and procedures you should give this “high priority” on your list of things to do.
System and physical access controls are often overlooked by companies. Although, employees must have access to certain software programs, including your core processing/accounting system, the access rights they have and when they are allowed to access the information (i.e., after hours) should be controlled. In addition, physical access rights should be logged such as who has keys to the building, codes to the security system and combinations to other secure areas throughout the building. A review of access rights should be performed and documented for all employees on an annual basis. Access rights should also be updated upon the hire, departure, transfer or promotion of an employee to ensure that access rights are acceptable and commensurate with job duties.
Upon completion of account reconciliations by the reconciliation preparer, a manager should review the reconciliations for any unusual items. All unusual items should be researched by the person completing the reconciliation and an adequate description for the unusual item should be included on the reconciliation. This will allow the manager to take action or follow up with other departments to resolve these items. Managers should be questioning any item that doesn’t appear to be legitimate or seems like an odd transaction.
The movement of money electronically is becoming more prevalent in every business sector. Wire transfers and cash management programs, which include automated clearing house (ACH) transaction ability provide companies with the ability to pay invoices, payroll and transfer cash at the touch of a button. Along with the added convenience these processes provide, they also provide additional risks. Large sums of cash can be moved quickly and recouping those funds after the fact can be costly, especially if fraud is involved.
It is imperative that a formal electronic funds transfer policy is established, which includes electronic funds transfer approval limits for employees. Employee transfer limits should commensurate with their level within the company and large dollar transfers should be set up so they are approved by a member of executive management. All approvals should be appropriately documented. In many instances, your financial institution can help you with setting up the appropriate controls surrounding these functions.
In many companies there are stacks and stacks of records that could be discarded, some spanning back to the opening of the company. We are a paper society and have a hard time throwing away the past. Some companies are even paying fees for off-site storage facilities to house mounds of paper they may never need access to again.
In order to manage the paper jungle, the company should implement a record retention policy. The policy should be shared with employees, especially file room employees who may be responsible for the destruction of old information.
In today’s economic environment where accounting for every penny is important, you may also consider the cost benefit of purchasing a scanner to scan in items you deem critical to your business needs and housing electronic versions of the same paper documents for a fraction of the cost.
To receive a sample record retention policy please contact Kyle Wininger at Harding, Shymanski & Company. Kyle can be reached at kwininger@hsccpa.com or at (800) 880-7800.
Kyle Wininger and Christy Sayle are consultants at Harding, Shymanski & Company, P.S.C. - Certified Public Accountants and Consultants, an independent member of the RSM McGladrey Network. Harding, Shymanski & Company, P.S.C. provides accounting, tax and consulting services to clients from offices in Evansville, Indiana and Louisville, Kentucky and is one of the largest locally owned CPA firms in Indiana and Kentucky.
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