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The Concept of Internal Control

3/8/2019

 
Internal control is a very special phrase in the accounting profession. Tactically, it’s the set of processes that help a company produce accurate data throughout the organization, follow reporting requirements and laws, and maintain consistency and accuracy in its operations. Strategically, it’s an entirely new way of thinking and doing business.
 
Internal control helps to reduce organizational risk. A blunt way of putting it is internal control is what you put in place to avoid mistakes, intentional or accidental, and to control accuracy and quality. It impacts every aspect of an organization.
Many small businesses minimize or ignore the risks. But this outlook does not keep you safe. Rather, you just don’t see the danger coming until it is too late. How can you protect your business?

Become familiar with the concept because it can help you reduce risks you might not realize you have. Here are some practical examples of good ideas that support internal control:

  • When data is private and secure, provide access only to employees who need to know the data and restrict access of others.  
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  • Have someone check that your bank balance matches the reconciled amount in your books, and that someone should be different from the person who does the reconciliation.  This is an example of what’s called segregation of duties. 
  • Lock up paper checks and use the missing check number report to make sure none of the stock could be used for nefarious purposes.
  • Have employees sign in and out equipment that they take home.  This is part of asset management.
  • Write and enforce a hardware and software use policy that includes items like employees should make sure their anti-virus software is active at all times, they should not bring in disks or CDs, and they should not download games or other unauthorized programs.  This protects from computer viruses and helps to avoid catastrophic network failures.
 
There are literally hundreds of internal control procedures that should be implemented in small businesses as they grow into larger businesses. 
 
Internal control is typically a big part of an audit or an attest function in accounting; it determines how many additional procedures an auditor needs to do in order to provide assurances about the reliability of the financial reports.  But it’s also just good plain common business sense to implement as many internal control processes as are cost-effective for your business to protect it at the level of risk you’re comfortable with. 
 
If you’d like to discuss the idea of internal control further, please feel free to contact us at any time.  
This is general information and should not be acted upon without first determining its application to your specific situation. Please contact us, your CPA or tax advisor for additional details.
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    Author

    Successfully meeting the challenges inherent to new and smaller businesses provides me with a special type of satisfaction. 

    Supporting businesses that have the potential to become amazing – from both the perspective of owners and team members as well as their clients – is what I enjoy. 

    I hope to use this blog to provide information specific to businesses that are growing from small beginnings into exceptional companies.

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  • Home
  • Why Us?
    • Reviews
    • Open Positions
  • Client Services
  • Resources
    • Save on QBO Subscriptions!
    • Tax Refund Status
    • Gusto Year End Checklist
    • Videos >
      • Business Taxes >
        • 2019 Business Tax Highlights
        • 7 Ways Small Business Can Save On Tax
        • Taxes for S-Corp Owners
        • The IRS Loves Businesses
      • Personal Taxes >
        • 2019 Tax Highlights
        • Five Yearly Tax Essentials
        • 4 Common Tax Surprises
        • Retirement Can Be Taxing
        • Advance Child Tax Credit Reconciliation - 2022
        • Make the Most of Your Donations
        • Five Great Tax Secrets
        • Renting Your Property Tax Free
        • Ideas to Audit-Proof Your Tax Return
      • The Tax Cuts & Jobs Act >
        • The Tax Cuts & Jobs Act: What You Need to Do Now
        • The Tax Cuts & Jobs Act: Are Itemized Deductions A Thing of the Past?
        • The Tax Cuts & Jobs Act: The New Child Care Tax Credit
      • Tax Topics >
        • Tax Season is Coming!
        • The New World of Deductions: What Everyone Needs to Know
        • Proving Your Deductions
        • How to Fix a Mistake on Your Tax Return
        • How Long Should I Save It?
        • Tax Credit vs Tax Deduction
        • Understanding Effective Tax Rate
        • Understanding Marginal Tax Rate
      • Life Events >
        • Life Events: A New Birth
        • Life Events: Marriage
        • Life Events: Divorce
    • Articles >
      • Accounting & Bookkeeping >
        • How to Get the Most Out of Your Accounting Fees
        • The 10 Biggest Money Leaks in Your Accounting System
      • Business Factors >
        • IRS Rules for Classifying Workers
        • Checklist for a Healthy Cash Flow
        • 12 Ways to Improve Your Business Profits
        • 10 Step Annual Business Check-Up
      • Tax Topics >
        • Tax Guide for Self-Employeds
        • 15 Things Every Tax Payer Should Know
        • Disaster Casualty Losses
        • Travel & Entertainment Deductions
        • Tax Guide - A Deduction Checklist
        • What You Should Know About Tax Audits
    • Newsletters >
      • Newsletters - Monthly Editions >
        • Newsletter - Monthly Edition
      • Newsletters - Quarterly Editions >
        • Newsletter - 2019 Fall/Winter
        • Newsletter - 2019 Spring/Summer
    • How To's >
      • How To - Dext
      • How To - BILL
  • Blog
  • Appointments
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