How well are you managing the financial pieces of your new start up business?
Have you considered the procedures and practices that will protect you against theft, data loss, every day disasters, possible tax audits, etc. How well thought out are your current business management practices? Are you comfortable with the scope and accuracy of your bookkeeping and financial records?
Here are some of the areas that you will need to give thought to and be sure to implement adequate controls for:
CASH RECEIPTS - Do you as the owner, or someone other than the bookkeeper or accounting person, open the mail and tally all cash receipts before turning them over the bookkeeper for recording (creating a system of "checks and balances")? Do you stamp all checks with "FOR DEPOSIT ONLY" prior to turning them over for recording and depositing? Does anyone, other than the bookkeeper, maintain an independent daily audit of the cash receipts with the cash receipts journal and deposit slips? Are all deposits made and recorded daily? Are your cash sales controlled through a cash register or numbered cash receipt form?
CASH DISBURSEMENTS - Are all checks pre-numbered and accounted for? Are checks recorded when issued? Are your unused checks kept in a locked, secure area? Are voided checks marked "VOID" and retained for control purposed? If your firm utilizes a "signature" device, is it under the sole control of the owner or an officer of the firm? Do you, as owner, sign all the checks? If not, what are the controls or limits on the checks that you don't sign and is the bank knowledgeable of those controls and limits? When checks are presented to you for signature, do you require the supporting documentation to support the check request? Do you then mark that supporting documentation in order to prevent duplicate payment? Do you require that all bank statements be sent directly to your attention and do you review the statements, cancelled checks, and miscellaneous charges and transfer prior to handing them over to the bookkeeper? Do you require that the bank reconciliations be done in a timely manner EACH month? Does someone other than the person preparing them then review the reconciliations? Is it a requirement that all disbursements (other than petty cash) be made by check?
PETTY CASH - Are all requests and disbursements from the Petty Cash account supported by receipts and/or petty cash vouchers? Is there a limit to the amount of individual petty cash disbursements (e.g., anything over $25 must be presented for approval by owner and will be paid by check only)? How many people have control and access to the petty cash funds (limit this!)? Are the petty cash funds periodically audited by someone other than the person holding the funds?
FINANCIAL AND BOOKKEEPING RECORDS - Do you use a chart of accounts that contains enough detail to adequately allow you to manage your business and make informed decisions? Are you using a "double entry" bookkeeping system? Do you, as the owner, understand the reports produced by your accounting system (the mechanics and timing of the balance sheet, the profit and loss statement, and the cash flows statement)? Do you use budgets and compare your actual results to your projected results? (Consider this a quarterly job at least)? Are your accounting records current and "in balance". Is anyone, other than the bookkeeper/accounting person, trained to handle the accounting functions in case of sickness, vacation, or winning the lottery? Have you properly restricted access to the accounting records and the accounting system or software? Do you periodically take "backups" of your accounting software files off-site? Do you have a "fire proof" file cabinet for the storage of important accounting, insurance, and legal documents?
HIRING POLICIES AND STAFF - Are all employees hired by you, as the owner? Are their job references checked? Are the employees bonded? Do you maintain individual personnel records? Is access to the personnel records restricted? Are all wages, salaries, commissions, bonuses, etc., approved by you, as owner? Are all time records or punched time cards reviewed and approved? Do you have documentation and proper authorization for all payroll deductions? If you utilize time clocks, are the clocks located in a place where they can be observed by management? Do you, as owner, review the payroll cards, approve the overtime, sign and distribute the payroll checks? Do you control the unclaimed payroll checks?
ACCOUNTS PAYABLE - Do you require that vendor invoices be matched with purchase orders and that the correctness of quantities received, prices, and discounts be verified? Do you, as the owner, verify that the accounts payable schedule ties out to the general ledger account balance? Are any requests for expense reimbursements submitted in writing with receipts/supporting documentation? Are you periodically checking to ensure that all available discounts are being taken advantage of? When receiving items or materials, are they inspected as to accuracy of count and possibility of damage? Is a receiving report prepared or is the invoice marked that it as been matched to the product? Do you have controls in place to ensure that you can account for any materials or products received but not yet invoiced?
PROFITS OR REVENUE CONTROLS - Do you have pre-determined rules for credit approval? Are credit checks done regularly? As clients/customers are approved, are the credit records kept current? Are all sales order/vouchers verified for price, terms and credit limits? Are all forms pre-numbered for control purposes? Are all invoices recorded properly and promptly? Are the invoices verified periodically by someone independent of the process? Are all credit memos pre-numbered for control purposes? Are the credit memos verified periodically by someone independent of the process? Is the accounts receivable schedule balanced monthly to the general ledger account? Do you, as the owner, approve all adjustments and "write offs" to the customer and their accounts? Do you, as owner, review the statements for customers prior to mailing them monthly?
I hope that you managed to answer "YES" to the majority of these questions. If you didn't, perhaps now is a good time to review your polices and procedures for some potential "fine tuning".