As a business owner, regardless of if, your business is profitable or not you have to have an internal control system for your business operations.
Internal control system is the system that guides the operations of any organization. Moreover, just like any other business system you need to audit your internal control system regularly.
In addition, whether you are an accountant or not there are some basic auditing skills you should know and practice consistently as a business owner in order to improve your business operations.
Here is a Guideline to help you Audit Your Internal Control System
- Segregation of Duties: One of the major means of control is the separation of responsibilities, which if combined, enables one individual to record and process a complete transaction. Even if you are a startup and cannot afford to have a team please ensure that each step in your processes are defined so that there are no loopholes.
- Assigning Responsibilities: Processes, procedures and security measures should be put in place to ensure that access to assets is limited to authorized personnel. For example, if you have a storage for your goods/products you should ensure that access to the store is limited to authorized personnel.
- Personnel: Procedures should be put in place to ensure that personnel have capabilities commensurate with their responsibilities. The qualifications, selection and training as well as the innate personal characteristics of the personnel involved are important features to be considered in auditing internal control systems.
- Lines of Reporting: Responsibilities should be allocated through a defined line of reporting for all aspects of the enterprise's operations, including the controls.
- Supervision: Any system of internal control should include a daily supervision of transactions through the ranks to ensure that changes are made as and when due.
- Arithmetical and Accounting: These are the controls within the accounting function which check to ensure that the transactions to be recorded and processed have been authorized, and they are all included, correctly recorded and accurately processed.
Importance of Auditing Internal Control Systems
- The increases revenue because it helps to identify and block all the various ways that revenue usually can disappear from organization.
- It helps to cut off unnecessary controls in an organization.
- It reduces operation costs.
- It is one of the major activities needed to ensure a business scales up.
- It gives an organization a competitive edge.
For an internal control system to survive and achieve its objective it must be audited and reviewed regularly.