Before discussing why internal controls are important, particularly to small businesses, it’s best to establish what we are talking about? Control points are methods or procedures which a business adopts to safeguard assets, ensure financial information is both accurate and reliable, ensure that the relevant financial and operational obligations are being met and to ensure that at the end of the day the business’s objectives are being met.
Internal controls make the organization and its people accountable for the success or failure of the business. If the business has a poor culture towards internal controls then there is every likelihood that controls are either poor or non existent. HIH and One Tel are examples of the impact that poor culture towards internal controls can have … and they paid the ultimate price.
Internal controls are the procedures that explain the how, why, what, where and when of any set of actions and they should be documented.
The controls not only assist in meeting the business’s objectives but also provide an invaluable training source for new staff and ensure that when experience staff retire or leave their knowledge does not go with them. What appears obvious to someone who has done the same things a thousand times for many years may be very unclear to someone who has never done it before, or has no one to guide them.
How are your business’s internal controls? What quality checks are in place? Do you have documented procedures and forms which underpin the systems of your business?