Is your business burning money with accounting control incontinence?
Are you guilty of bypassing accounting controls with the full intention of catching up later with the back up or information accounting needs to process a transaction? Has that catch up ever snowballed into an avalanche of past due payables, unbilled customer invoices, months of unreconciled credit card statements, or simply an overwhelming administrative burden? If so, your business has control incontinence and the product of lacking effective controls is time wasted, resources re-allocated, and essentially money burned.
Control incontinence is when a business operates in a haphazard approach and generally operates reactively, not proactively. Effective controls are put in place for a multitude of reasons. The first and foremost goal for implementing controls is to deter theft and fraud. When a business bypasses the controls put into place they not only create extra work but also open their operations up for fraud opportunity. This blog discusses the importance of controls and some that can be easily implemented for small business.
Controls are essential as they help an accounting department run smoother and the threat of fraud, over-payments, errors, and occurrence of full blown out administrative fires greatly reduces. When controls are in place it assists the entire business running more efficiently. An accounts payable accountant who has all necessary back up to route an invoice for payment processing spends less time hunting for approvals, back up, and asking other departments for essential information. When your company is proactive in processing transactions it limits the reactionary management that tends to halt operations and waste resources. A payroll clerk that doesn’t spend his or her Mondays hounding management and front line employees for approvals and time cards can spend their time on more productive measures such as sending overtime reports to management, looking for discrepancies in time punches, and routing payroll days before the deadline processing time.
Controls = Proactive Procedures = Efficiency = Reduced Fraud Risk
For small business with limited personnel and resources, management might think implementing controls would be counter- productive and a waste of time. However a business should operate with a growth mindset and implement the controls they do have the capacity for with the conviction they will out-grow their current operations. A small business with no controls greatly increases their risk for fraud and opens opportunities for theft. As the business grows larger, the opportunities increases, and the fraud risk surges. Some examples of controls that small business can easily implement are:
1. Separate reconciliations from personnel entering transactions and processing payables.
2. Schedule one day a week to do check runs – don’t make payments ad hoc
3. Set deadlines for time cards, time approvals, and expense reimbursements
4. Treat corporate credit cards as a benefit and require all card holders to submit receipts for all purchases same day.
5. Don’t do online bill pay for routine utility, internet, or phone expenses – route all payables through the normal check run
6. Limit ACH payments
7. Steer vendors away from requiring credit card payments, try not to send credit card information over the phone or email
8. Don’t hand write checks. Order voucher sized checks and print directly from accounting software.
9. Set thresholds for purchases that require prior purchase order approval
10. Don’t let management and ownership override controls in place
For Fraud to occur the opportunity and access to company resources must be available. The less opportunity an employee, vendor or representative has; the lower the fraud risk.
If accounting, management, and ownership are routinely scavenging for information on payables, expenses, and discrepancies in the work flow then it’s a sure sign your business has control incontinence. It is important that management and ownership support and follow the effective controls that have been established. Take the initiative to be proactive, it will save you time, money, and resources. As your business grows and you have taken the ingenuity to implement cost saving controls, the growing pains will be much less uncomfortable and the fraud risk greatly reduced.
If your business has control incontinence, don’t keep burning through money, reach out to Blue Collar Advising for help in implementing controls that help your business work smarter, not harder!
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