Structured Biiz

10 effective INTERNAL Financial Controls

10 Simple but effective Internal Financial Controls that every small or big business should have in place in order to ensure correct Internal Financial Reporting

Conduct background check of all employees at the time of recruitment. Employees are the heart and soul of any organization. Running a proper background check on each of them is a must to ensure that the business is free of internal bugs.

Since cash is the area where majority of frauds and embezzlements take place, a monthly cash flow statement should be prepared and reviewed.

Similarly, monthly bank statements of the business should be reviewed and the same should be maintained with proper narrations.

Require vendors to submit detailed invoices of all payables and outstanding expenses. This is required to be done so that no unauthorised expense makes its way in the financial operations of the business.

Have a mandate for all employees to keep personal and business finances separate. No personal expenses should be incurred on the company’s credit card. Similarly, no business related obligations / payments should be made from personal’s accounts of the employees.

Set up a robust inventory control system in place. In an organization involved in trading of goods, it needs to be ensured that the stock is not misplaced / mishandled. Thus, monthly inventory checks to be made in order to ensure no errors / frauds take place.

Review payroll before every cycle. Before the salary pay-outs get effected, the same should be monitored for any deviations or unauthorised modifications.

Catalyst type controls should be in place. These controls act as a deterrent from any mishaps. Such controls could be security cameras, use of biometric driven access cards within office premises, etc.

Delegation of financial duties to multiple employees. This should be done to ensure that a high level of collusion is required in order to give effect to a fraud.

Lastly, have Surprise checks. The value of the element of surprise should never be undermined. It can reveal high order inconsistencies and give leads for several investigations

Have a full fledged whistle-blower policy. This should be present only to ensure that the person pointing out the inconsistency can do so without the fear of any judgement.