Does your organization house sensitive data? The answer is most likely yes, especially if your business has a payroll or handles any sort of financial information. If so, it’s essential to have strong internal controls in place to ensure sensitive information remains secure. Internal controls are processes or documentation that organizations put in place to promote transparency, prevent fraud and confirm operations are compliant.
Is your business confident in its internal controls? Establishing proper controls may seem like a large undertaking, but there are a few basic practices your organization can easily adopt to minimize risk and defend against fraud.
Document policies and procedures.
All major policies around internal controls should be documented and accessible to employees. Having documented protocols helps employees understand their responsibilities within the workplace and the role they have in maintaining compliance. Employees should be trained regularly on proper procedures and know where key documents are located so that they can reference them as needed. It’s also crucial to inform employees of any changes to internal controls so that they know what’s expected of them, can stay current and can limit potential mistakes.
Divide up important duties.
One employee shouldn’t have ownership of all compliance, financial or audit-related matters. Business tasks that deal with sensitive data should be split up accordingly to create a checks and balances system. This way, an individual doesn’t have access to all critical information and processes regarding internal controls. It’s recommended that duties related to authorizing transactions, recording transactions and reconciling are completed by different people whenever possible.
Establish anti-fraud controls.
Anti-fraud controls are a specific set of internal controls that focus on defending against fraudulent activity. Workplace fraud can be detrimental to businesses due to monetary loss, so having anti-fraud controls in place is imperative for quicker detection and overall prevention. Here’s a list of common anti-fraud controls to implement at your business (if you haven’t already):
- External audit of financial statements
- Code of conduct
- Internal audit department
- Management certification of financial statements
- External audit of internal controls over financial reporting
- Fraud reporting hotline
- Management review
- Fraud training for employees
- Proactive data monitoring/analysis
Set a tone of accountability at the top.
Promoting internal controls at your organization should take a top-down approach. When leaders are invested in compliance and set the tone of doing the right thing, other team members follow suit. An organization’s culture can be an effective internal control in itself, especially if it’s built around employee empowerment, safety and transparency. When employees feel empowered to speak up by leadership, they can act as a first line of defense against wrongful and fraudulent behavior.
Your employees want to do the right thing. By equipping them with the training, tools and resources they need to feel confident in their roles, you can ensure you’re doing your part to keep your business running smoothly and securely.
With internal controls, there isn’t a one-size-fits-all strategy. Depending on your business type, industry, size and structure, the controls you’ll need to run compliant operations will differ. The practices outlined in this article are an excellent place to start and will help you set a foundation of accountability and security at your business.
At Creative Planning, we offer fraud and forensic accounting services designed to help clients optimize their internal controls and mitigate risk. Our certified fraud examiners have partnered with a variety of businesses on their unique compliance needs and would be happy to assist with yours. Reach out today to learn more about our fraud and forensic service offerings.