According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO)'s Internal Control - Integrated Framework, "internal control is a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance."
The best thing that a small business owner can do is to set a good "tone at the top" by demonstrating ethical behavior, communicating the code of conduct to others within the organization, communicating your commitment to integrity, and ensuring that your organization designs and implements internal controls.
One of the key elements of internal control is separation of duties to ensure that so that no one person is responsible for authorizing transactions, recording, and having custody of assets. Small businesses may find it challenging to implement segregation of duties because there are often just a few people who wear many hats.
COSO recommends the following to mitigate the risks of inadequate segregation of duties at a smaller entity:
Review Reports of Detailed Transactions—regularly review detailed systems reports of transactions in a timely manner
Review Selected Transactions—select transactions and review supporting documents.
Periodically Observe Assets—periodically conduct counts of physical inventory, equipment, and other assets and compare the results of the count with the accounting records.
Check Reconciliations—periodically review reconciliations of account balances such as cash, accounts payable, and accounts receivable, or independently reconcile the accounts.
By taking the time to put internal controls into place, your organization will be in a better position to have it under control.
Should your organization need advice on internal controls or fraud risk assessment, Janaya Washington, CPA can help. Book a 30-minute consultation to discuss the services offered at: