For small- to medium-sized business owners, internal control often comes second to generating sales and revenue. Responsibility for bookkeeping is usually delegated to the office manager or an admin assistant. For many businesses, this works perfectly well. However, as the 2018 Global Fraud Study by the Association of Certified Fraud Examiners shows, this isn’t always the case. The study found that businesses with fewer than 100 employees are more vulnerable to occupational fraud. And with the average median loss for small businesses coming in at $104,000, clearly there’s a lot at stake. If you are one of those business owners that has neglected internal control, then the time to change is now. In this post, we look at how an intranet solution can support internal control in your business.
Why Internal Control Is Important
Internal control isn’t just about protecting the business from fraud and theft. It’s also about getting things done more efficiently and effectively.
A system of internal control helps you more easily identify potential risks and minimize opportunities for fraud and error. It also allows you to more readily promote best practices within your business. And it means you can take swift corrective action when issues arise.
Recommendations To Improve Internal Control
So, what steps can you take to improve internal control in your business? Here we run through five types of internal control. One thing for sure is that a company intranet can support a system of internal control. Let’s find out just how.
5 Types Of Internal Control
1. Separation Of Accounting Duties
This is the single most important internal control measure you can take. Small businesses typically rely on just one staff member to manage all aspects of the accounting process. However, having one person responsible for approving invoices, making payments, handling cash, and reconciling bank statements leaves you vulnerable. Ideally, no one employee should have sole control over two or more of these responsibilities. And you should have different staff members authorizing transactions to those responsible for recordkeeping.
An intranet can assist in this process. Create a dedicated space on the intranet for all accounting policies and procedures, including roles and responsibilities. Each of your employees should know exactly what’s expected of them. And the intranet provides a central reference point staff can go to when they have a query.
In addition, you can streamline the approvals process with an online, automated workflow in your intranet. With drag and drop fields and easily implemented rules and actions, the intranet’s integrated forms builder is simple to use. The intranet will even automatically route the form to the correct team member for action.
What’s more, email notifications and submission reports mean you keep central oversight of where things are at. And because the technology is based in the cloud, you also have 24/7 access. You can approve transactions while out of the office at a conference or even on your train commute into work.
Finding enough staff to perform different duties can be a challenge in small businesses. At best, there’s only a handful of employees within the finance team. It may be necessary, therefore, to outsource some or all of the process. An intranet can help here too. It’s possible to create an intranet portal for the secure sharing of information and data with a third party contractor. Not only is communication easier, so too is data transference. And the good news is the portal’s advanced encryption, and security features keep your data safe and secure from cybercrime.
2. Restrict User Access Rights To Information Systems
Even in those companies with several accounting employees, often staff have more access to information systems than they need. It may be the default setting, or it reflects a lack of understanding. Either way, the end result is the same. Unchecked access rights may be exposing your business to additional risks.
All employees’ access rights need to be regularly reviewed. Try and keep access to the minimum required to get the job done. Additional access rights should only be granted if there is a legitimate business need.
An intranet comes with several in-built features that make a difference in this context. It’s possible to restrict access to sensitive information with role-based rights to the site, pages, and files. Furthermore, you can securely share data within the intranet and across users.
3. Policies, Procedures, And Documentation
In small businesses, it’s not uncommon for accounting policies to be unwritten. They may have been in place for so long that everyone just knows what to do, right? Well, that may be true, but it doesn’t make them failsafe.
On the other hand, written policies and procedures mean that processes can be consistently applied and expectations are clear. They also provide a framework for continuity and uniformity and ensure you are establishing best practice operating procedures. Every business is different; however, here are some common processes that will benefit from a written procedure:
Sales and accounts receivable
- Cash management and banking
- Purchases and accounts payable
- Financial reporting and statements.
Furthermore, when it comes to effective accounting procedures, it’s essential to have supporting documentation. Without this, it’s difficult to demonstrate that procedures are being correctly followed. Responding to customer or supplier queries will also be much simpler. And it will be easier to demonstrate compliance to external auditors.
Set up a shared workspace on the intranet. This can act as the central repository and source of truth for all accounting processes. Staff members can have confidence that the intranet has the very latest version of that crucial policy. In addition, you can share industry best practices in the dedicated workspace.
4. Focus On Open Communication
Good communication is at the heart of every great team, and finance is no exception. For example, an employee may perceive a new process as being threatening or even as a sign of distrust. However, within a culture of open communication, you can make it clear the new process for authorizing transactions is about business improvement.
An intranet is a great asset to internal communications. From news feeds through to blogs, forums, and instant messages, there is a range of channels to choose from. And the good news is that these channels are available 24/7 on the intranet. This makes the intranet the perfect vehicle for communicating with the remote workers or contractors often favored by small businesses.
So, whether it’s sharing insights on the new accounting system, keeping updated on industry events, or exploring what’s happening within the business, an intranet ticks all the boxes.
Open communication has another important advantage. The 2018 Global Fraud Report found that the most common initial detection method is tips. In fact, 40 percent of occupational fraud was first detected by a tip-off. And employees provided over half of those tips.
Good open internal communication channels will ensure staff feel comfortable raising concerns. Why not use the intranet to publicize a formal whistleblowing policy? And you may want to set up a space on the intranet where staff can share any issues with you. To be effective, this must be done in complete confidence and without fear of retaliation.
5. Ensure Staff Are Adequately Trained
Your finance team should be properly trained and authorized to perform their duties. Onboarding is, of course, important but so too is continuous professional development. New technology and business processes as well as changing laws and regulations make training an ongoing requirement.
And if you are a small team with limited resources, then the intranet can help take recruits through key processes. Use how-to videos, for example, to demonstrate the cash management process. Have FAQs to answer those common questions. Develop a podcast for explaining financial reporting that staff can listen to on their daily commute. The possibilities really are endless. And the good news is all you need is a smartphone and a cloud intranet.
Furthermore, an intranet onboarding checklist gives management more oversight. You can immediately see where staff are at in the onboarding process. And you can use the intranet’s in-built quizzes tool to test their knowledge at the end of each module.
The same principles apply to ongoing training and development. In fact, the intranet has a range of tools you can use to support training. Take your pick from the following, which appeal to a broad range of learning styles:
- Explainer videos
- Mentoring and work shadowing arrangements
- Gaming and simulations
- Communities of practice
- Standard operating procedures
Internal Control Checklist
The bottom line is that compared to bigger companies, small businesses suffer disproportionately large losses from internal fraud. The internal controls we have identified here will help to protect your business. And they will also ensure that honest mistakes and errors are kept to a minimum.
So, what are the key steps you need to take? Here’s a handy checklist that summarizes what’s required.
1. Separate accounting duties so no one person has sole responsibility. Try to ensure different employees are responsible for the following:
- Authorizing transactions
- Recording transactions
- Maintaining custody of related assets
- Reconciling accounts.
2. Restrict access to financial systems so team members can only access what they need to perform their duties.
3. Have written policies and procedures in place to ensure consistency and uniformity. Furthermore, employees will have a better understanding of their roles and responsibilities as well as their contribution to the bigger picture.
4. Focus on open and honest communication. Your approach sets the tone and expectations for the whole team.
5. Provide adequate staff training. This starts with effective onboarding but also means ongoing professional development, so staff keep their knowledge current.
Interested in finding out more? Get in touch with the expert team here at MyHub. Our super-easy to set up and manage intranet software can support internal control within your company. Not only will you be protecting your business from internal fraud, you will also enjoy a host of other benefits. From improved employee engagement through to smoother collaboration and more effective knowledge management, an intranet offers much. Find out more with our free demo or 14-day no-obligation trial.