Facilitate effective operation by enabling it to respond in an appropriate manner to significant business, operational, financial, compliance and other risks to achieve its objectives. This includes safeguarding of assets and ensuring that liabilities are identified and managed.
Ensure the quality of internal and external reporting, which in turn requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from both internal and external sources.
Ensure compliance with applicable laws and regulations and also with internal policies.”
Developing stringent internal controls can be challenging for small and medium sized businesses, due to the time and resources required to implement them and the perceived cost vs. benefit. If the business doesn’t have many staff it can be difficult to allocate tasks to multiple people at the required level, often there will be the limitation that management can override internal controls and there is the inherent risk of collusion between staff.
Multiple studies have demonstrated that smaller companies, particularly those that do not place any emphasis on internal controls, are more likely to experience fraud where an opportunistic individual perceives that they can successfully execute and conceal the fraud. Unfortunately, many businesses don’t realise the gaps in their processes until the fraud has already occurred.
Segregation of duties is a practice that reduces the risk of fraud, negligence or manipulation in a certain process. If a company wants to strengthen this process it has to break it into pieces, allocating stages to different members of staff or introducing reviews throughout the process. For example, transactions that require authorising, processing and reviewing should be performed by separate employees.
An initial review should be performed from the top down throughout the whole business, then kept under constant review to adapt to changes in the business and the wider environment.
An internal audit can be established internally or outsourced to a firm, such as UHY. We can assist and make recommendations to management as to where weaknesses lie in their internal control environment. Also, we will seek to find gaps in any controls and make recommendations on how to these can be strengthened.
The next steps
For more information, get in touch with Luke Thompson at firstname.lastname@example.org or your local UHY adviser.