What controls do you have in place?
Who or what are we trying to control? Your wife? Your husband? Your children? Your most trusted longest-term employee? Many times we get so caught up in the day-to-day aspects of business, we forget we need to protect it. One of the most common comments accountants hear when a problem is uncovered, is "But they were with me for so long!" or "They could never do that, I trusted them completely!"
Good internal controls do not have to be hard to implement but they do have to be done and reviewed. Many businesses hire a bookkeeper to do most of their accounting functions, enter bills, make deposits, and pay bills. However, having one person do all of this is not wise.
What does good internal controls mean? Business dictionary.com defines it as:
"Systematic measures (such as reviews, checks and balances, methods and procedures) instituted by an organization to:
• Conduct its business in an orderly and efficient manner
• Safeguard its assets and resources
• Deter and detect errors, fraud, and theft
• Ensure accuracy and completeness of its accounting data
• Produce reliable and timely financial and management information
• Ensure adherence to its policies and plans."
Have your eyes glazed over yet? Most people start to get that far away look when I start getting excited about internal controls. But, they are systems and procedures everyone in business, and particularly the jewelry business, should implement and use.
First, you need to analyze your business whether retail, wholesale or manufacturing. You probably already have some good controls in place. Here are some questions to ask yourself to see if you have all the bases covered:
• Does the same person enter bills, write and sign checks?
• Does that person reconcile the bank monthly statement?
• Who approves each bill prior to payment?
• Who makes bank deposits?
In general, different people should do the functions described above. Perhaps not all of them, but as an owner you have the ability to oversee and designate different people to do different accounting functions.
Here are some examples of how to make sure you are safeguarding your assets:
• If you have one person entering the bills, and writing the checks, make sure that someone else is signing each check and that they specifically look at who is being paid.
• If the payee is a name that is not recognized, question it and investigate.
• When signing checks, have each check attached to the bill being paid so that you can verify the expense and make sure it is approved.
• Prior to any bills being given to the bookkeeper, they should be approved.
• If it is a purchase from a vendor, the buyer or person that ordered the item should confirm the merchandise has been received at the price and quantity ordered.
• When approving invoices for purchases, the invoice received should be reconciled with what was actually in the package - either check the packing slip and attach that verified slip to the invoice, or check the invoice itself to the contents.
• If it is another type of expense, such as rent, electricity, or your phone bill, review it to make sure you are being charged appropriately and any unusual spikes in the amount billed are investigated.
Here are some other pointers and red flags to keep in the back of your mind:
• Many times fraud is committed by someone that is the most trusted and has the most access to the assets.
• Be wary of an employee that never takes a vacation. One day off does not count. All employees should be given at least a one-week vacation, where all the days are taken off consecutively.
If you are not in the same location as where the accounting function is being performed, you can still monitor what is being done. For instance, most banks today have online banking. It only takes a few moments to log in each day and review all checks that were presented for payment to ensure that you know who the payee is.
Remember, you work hard to make money; you should work just as hard to protect and safeguard that investment.
