Internal Controls for Inventory, Equipment and Assets
January 10, 2022
There are many important procedures to consider when setting up internal controls for your new business. Learn more about how detailed recording and periodic checks and balances can help you avoid discrepancies.
This is usually done with the aid of accounting software. You also have to protect the assets with physical controls. This is usually starts with a warehouse, building or parking lot with locked gates or doors. Only employees with a business need should be able to open the gates and doors. There also needs to have periodic “checks” done to ensure that all items in the accounting system are still on Company property. This is usually a process where an employee (one without daily inventory/equipment responsibilities) gets a list of what items/equipment should be on hand, goes to where the product/equipment should be and performs a count to makes sure it’s still there. That employee would investigate any discrepancies and inform management of any issues that arise. In addition, any assets that are going to be used by an employee should be signed out and signed back in by that employee. As with all internal controls, management needs to stress the importance of the procedures and not circumvent the procedures themselves.
Let’s talk about internal controls for cash receipts. The most important procedure to have in place with cash receipts is the immediate documenting of any cash or checks received. All checks should be marked “for deposit only” as soon as they are received and deposited, with any cash received, into the Company’s bank accounts daily or as soon as possible. It is substantially harder for cash to go missing if an initial list of receipts is compared to amounts recorded in the accounting system. Monthly bank reconciliations should be done for all the Company’s bank accounts as soon as the monthly bank statement is received. This reconciliation needs to be done by an employee that is not receiving cash/checks in their normal course of responsibilities. In case of cash drawer/tills, only one employee should be responsible for the cash drawer at any one time. The employee that is responsible for the cash drawer or managing accounts receivable should not be able to issue refunds to a customer. A reconciliation of any cash drawer should be done the earlier of the end of the day or when another employee is taking over that cash drawer. Limited individuals should have access to the Company’s bank accounts, cash or have signing authority. Even with a limited number of employees, segregation of duties can be achieved through checks and balances by management.