Internal Controls for Businesses and Non-profits, Part 1

Businesses and non-profit organizations face challenges every day that threaten their business longevity and effectiveness. These threats can take a variety of forms, including competition in the industry, rising costs of goods, changes in economic conditions, and human resource challenges. While all of these challenges pose a significant threat to businesses and non-profits, the greatest challenge for many of today’s businesses takes the form of fraud.

Fraud occurs more than you think, and it often goes unnoticed until it’s too late. Fraud can come in a variety of forms, including check fraud, credit card fraud, and employee theft (the most common types including check tampering and billing schemes). Stealing inventory, claiming undue overtime, setting up payments to fictitious vendors, skimming cash, and embellishing an expense account are all fraudulent activities that can occur within a company or organization. These activities threaten the stability of the business and can result in significant financial loss. In fact, according to the Association of Fraud Examiners (ACFE), the typical business loses an average of 7% of revenues due to employee theft alone. For smaller businesses and organizations, the percentage rises to 38% with a median loss of $200,000.

In order to protect your assets, you need to have strong internal controls in place, and your employees need to be aware of your organization’s policies and procedures. Failure to communicate your security procedures and policies with your employees only serves to put your business or organization at risk. It does no good to have strong internal controls if your employees aren’t using them.

Consider the reasons you may want to create strong internal controls:

  • Internal controls can solve current business problems and help prevent fraud from occurring.
  • Businesses with strong internal controls in place have the potential to go public.
  • If you are working with a Sarbanes-Oxley (SOX) compliant customer, you may be required to show proof of strong internal controls.
  • Strong internal controls improve financial reporting accuracy and ensure assurance that your financial statements are correct.
  • Future investors, bankers, and accountants will want to see how you are protecting your financial assets.

Strong internal controls are essential no matter how small or large your company or organization. Just as you wouldn’t leave money lying out in the open for anyone to take, you shouldn’t leave your financial information open for all to see. Creating procedures and policies detailing employee responsibilities and tasks is a step in the right direction when it comes to safeguarding your assets. If you could use some help establishing internal controls in your business or non-profit organization, give us a call today. We offer a variety of client accounting services to help you with all of your financial reporting and management needs.

Stay tuned to our blog for Part 2 of our internal controls article series to learn how you can start implementing internal controls and discover top methods for strengthening your overall business and non-profit security.