Query failed: connection to 10.3.1.98:3312 failed (errno=111, msg=Connection refused). 3 Questions to Evaluate the Internal Controls in Your Business and Investing
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3 Questions to Evaluate the Internal Controls in Your Business and Investing

Here are 3 questions to help you evaluate your internal control system.

Question #1: Who opens the bank statement? The monthly bank statement for your business and investments is a great tool to reduce the opportunity for embezzlement.

Think about this scenario:

Your bookkeeper receives the bank statement, opens it and does the reconciliation on time, each and every month. While it is fantastic that the bank account is reconciled timely each month, think about the opportunity for embezzlement in this scenario.

If you never see the bank statement, you never have the chance to see things that may strike you as odd. Maybe the bank balance is much lower than you expect, or maybe you see cancelled checks that you didn't authorize, or maybe the big A/R collection that came in that month isn't listed in the deposits made.

While you may not catch all errors by receiving and opening your bank statements, you do reduce the ability for someone else to hide these types of errors - whether the errors are intentional or not.

Question #2: Do you sign all your checks personally? Many business owners and investors do sign all of their checks. This is a great way to reduce the opportunity for embezzlement, but there are still some steps that often get missed when the owner is signing the checks.

First, when signing checks, insist on seeing the back up, such as the invoice being paid. This little step has a huge impact because with no back up, it is possible for the person preparing the checks to write checks for the wrong amount, and to write checks to a fictitious company (that they own) that sounds like a company you may use.

Second, even if you sign the checks, you'll still want to receive and open your bank statement to make sure all of the cancelled checks have your signature and are made payable to companies you approved.

Question #3: Do your employees take regular vacations? This may seem like an odd question, but it can be an indicator of fraudulent activity. We may think that the employee who loves their job so much and never wants to take a vacation is an ideal employee. While that may be the case, it may also be the case that the employee doesn't want to take a vacation and have someone else uncover what they are doing.

How Do Your Internal Controls Rate? If you were surprised by some of the questions and answers here, there is good news. It is possible for small businesses and investors, even those with just 1 employee, to create an effective system of internal controls without spending a fortune on it (even though it may protect a fortune).

Often times, just tweaking a few tasks can greatly improve an internal control system.

Tom Wheelwright

Many business owners and investors do sign all of their checks. This is a great way to reduce the opportunity for embezzlement, but there are still some steps that often get missed when the owner is signing the checks. http://WWW.ProVisionWealth.com

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