Read Articles: Surprise! Accounting is the Hot New Major  Do You Need Accounting Software For Your Small ...  How to Choose the Right Accounting Software for...  After the latest and accurate help in relation ...  Asset and liability basics  7 Things to Consider Before Buying Small Busine...  Accounting Methods – Cash and Accrual  Non-Profit Organizations - What Are They?  Press ReleaseUCLA Alumni Association Retains th...  How to Stop Waste, Fraud and Abuse  Internal Control: A Preventive Maintenance Pr...  What Software Do You Need For Your Small Business  Explode Your Consulting Income  Understanding Depreciation: It May Be More Sim...  3 Essential Tools for Starting and Maintaining ...  Outside The Box  HOW TO STAY FOCUSSED AND BUILD YOUR BUSINESS  mmaterial Values in Business Management  Top 7 Strategies for Writing Accounting Procedures  Taxing Overseas Firms for SOX Compliance  9 things you must do to maximize your chances o...  Starting An Online Business From Home  Why Online Presence Is Essential For Small Busi...  Bottleneck-oriented Business Management  An introduction to point of sale software  10 Amazing Ways To Jump Start Your Sales  Company/Employee Handbook as Organisational Imp...  Resume Writing and Preparation is Free Online   Here is the latest and accurate assistanc...  Is Your Business Profitable?  Small Business 101: Deadly Ignorance  How to Start an Investment Club - Business Model  Resume Outline - Add Structure & Flow to Your R...  Issuing Warrants to Investors  Can You Play the Drums?  Policies and Procedures Used as Management Key  How Nov. 15, 2004 Deadline for Sarbanes Oxley 4...  The Fun Of Starting A New Business  Managing Your Home Based Online Business – 2  Do you think that your workload is hampering yo... Index Pages: 1 - 2

Internal Control: A Preventive Maintenance Program  by: John Day You read about this in every newspaper in every town in the entire country: Some bookkeeper, trusted by the owner of a small business, embezzles thousands of dollars. If the theft doesn’t put owner out of business, it certainly causes a major headache. The reason we hear of these cases so often is that, in a small business, there may only be the owner and a bookkeeper. The owner doesn’t like doing the books, doesn’t understand them, and relies on this one person to take care of things. The bookkeeper, who is usually having personal financial difficulties, takes a small amount of money intending to pay it back. No one seems to notice, so more is taken. Over a period of time, it starts to mount up to a lot of money. This is where the concept of “internal control” comes in. Essentially, every business should have, at some level, an internal control system in place to protect against losses, both intentional and unintentional. This is because “internal control” systems will: 1) protect cash and other assets; 2) promote efficiency in processing transactions; and, 3) ensure reliability of financial records. An internal control system consists primarily of policies and procedures designed to provide reasonable assurance that these three objectives will be achieved. The size and complexity of the business will determine the extent of the internal control system. Regardless of size, one of the most important aspects of an internal control system is the concept of separation of duties. Separating duties makes it more difficult for theft and errors to go undetected. It is highly unusual for two employees to “collude” in an effort to steal from the company. I worked as an internal auditor for a newspaper chain for three years. My job was to walk in to the newspaper offices unannounced and go directly to the cash boxes, count them, and verify receipts. One of my most important audit steps was to make sure the internal control procedures were in place and working properly. Here are a few suggestions for internal control procedures regarding handling of cash: - Allow only specific designated individuals to handle cash. - Give responsibility for bookkeeping to an individual who does not handle cash. - Use numbered receipts to document all payments. - Make all bank deposits promptly. - The person who prepares the bank reconciliation should be different than the one handling cash. - If possible, the person who makes the bank deposit should be different than the one who handles the cash and the one who prepares the bank reconciliation. - Make deposits intact with no amounts withdrawn to pay expenses. - Keep cash and checkbook in a locked drawer or cash register. - Since tills will never be 100orrect all the time, establish a tolerance level for overages and shortages to determine the point at which corrective measures will be triggered. - Make all disbursements by check, except minimal amounts paid from petty cash. - Make certain every payment is related to a paper document, such as a voucher, to ensure that a paper trail exists for all disbursements. - Conduct random surprise counts of petty cash and cash drawers. - Count inventory and other assets frequently and compare with company books. An internal control system set up early as a preventative measure is more efficient than establishing a corrective system in reaction to a loss. If it so happens, that there is just you and the bookkeeper in your small business, you need to learn how to do some of the bookkeeping tasks so you can spot check the bookkeeper’s work. That, in itself, is an excellent preventative measure. About the author: John W. Day, MBA is the author of two courses in accounting basics: Real Life Accounting for Non-Accountants (20-hr online) and The HEART of Accounting (4-hr PDF). Visit his website at http://www.reallifeaccounting.comto download for FREE his 3 e-books pertaining to small business accounting and his monthly newsletter on accounting issues.

More Resources

11/20/2008 05:36 PM

Tip of the Week: Monitoring the Health of Your Computer (New York Times)

A little preventive maintenance on the computer can help stop lurking system problems like low disk space or damaged drivers from becoming real headaches.

11/20/2008 09:27 AM

Taking the offensive against flu bug (Clayton Tribune)

Nurse Therese Hunter takes the temperature of South Rabun Elementary School first-grader David McCall on Friday. No confirmed cases of flu have hit the school system so far, but staff members are doing what they can to promote preventive maintenance.

11/19/2008 12:46 AM

Couple sues Muskogee Community Hospital (Muskogee Phoenix)

3225-Mainenance Electrician Must be able to perform general repairs, preventive maintenance, new construction, and design electrical projects. Have ...

11/18/2008 07:21 PM

GS2i lance son premier Service + (ITRnews)

En charge depuis 2005 de la distribution exclusive pour la France de la gamme d'antivirus G DATA auprès des entreprises, GS2i lance son premier Service + : un contrat permettant d'externaliser la gestion des antivirus. Le pack comprend une maintenance préventive avec l'installation par GS2i des mises à jour logiciel vers les nouvelles versions, la surveillance des serveurs antivirus, la prise ...

11/20/2008 09:10 AM

Advanced Technology Services, Inc. Named to the Inc. 5,000 and the Global Outsourcing 100 (ThomasNet)

Company recognized for growth and commitment to making factories run better Peoria, IL (November 17, 2008) - Advanced Technology Services, Inc., (ATS), the industry leader in managed production equipment maintenance, industrial parts repair and innovative IT solutions has received two honors for its innovative business. Inc. Magazine has recognized ATS as one of America's 5,000 Fastest-Growing ...

11/20/2008 12:16 AM

Scholarships created as Bacone, MRMC team up (Muskogee Phoenix)

3226-Oiler Needed Duit Construction, a heavy highway construction company, needs someone with basic skills in performing preventive mainte ... >MORE 3249-Billing Clerk Immediate position available for Billing Clerk for busy medical clinic Mon-Fri. Benefits include 401K, Profit Sharing, P ...

11/21/2008 03:28 AM

Kaiser Permanente gets perfect four-star rating on HMO score card (Los Angeles Times)

California officials hope consumers will use the survey's results to shop for health coverage. Kaiser Permanente got a perfect four stars for medical care on an annual HMO score card that California officials hope consumers will use to shop for health coverage.

11/20/2008 05:22 AM

World Bank US$20 Million Grant for Haiti Hurricane Recovery (Kansas City InfoZine)

The World Bank Board of Directors approved a US$20 million grant for the Republic of Haiti to finance the reconstruction and emergency maintenance of key infrastructure destroyed or damaged by the series of hurricanes and tropical storms that struck the country in August and September 2008.

11/18/2008 01:02 AM

On TV: 11-18 (Muskogee Phoenix)

Maps, Menus, Store hours, Coupons, and more... Details regarding currently available pos ... >MORE 3205-Maintenance Electrician Must be able to perform general repairs, preventive maintenance, new construction, and design electrical projects. Have ...

11/21/2008 02:44 AM

Kaiser earns top grade in HMO survey (Daily Breeze)

Cigna rates `poor' in patient satisfaction while Centinela Valley IPA scores `poor' in health care.