Why Bookkeepers Strongly Recommend Using Internal Controls
One of the main reasons for relying on bookkeeping professionals to help you keep tabs on your accounts is to prevent mistakes or improprieties. Even in an environment where everyone means well, there is a risk that your books could get out of sorts to the point of an ethical or legal breach. How do you prevent something this bad from happening? Many bookkeeping services providers strongly encourage their clients to implement internal controls.
What Are Internal Controls?
A basic question about bookkeeping in any organization is who does what. For example, who writes the checks for every pay cycle? Likewise, who reconciles the books to ensure all the numbers for pay work out? Do you rely on software to do most of your accounting, and does a person re-check the numbers?
Internal controls are measures meant to prevent even an opening for mistakes or improprieties. An internal control is like the firewall that sits between the passenger and engine compartments of a car. It's there to prevent an engine fire from spreading to where it could harm someone.
Breaking Up Functions
The most basic internal control is making sure that no one party handles all of your bookkeeping tasks. For example, you don't want the person cutting checks to also reconcile the books. Otherwise, there might be no one around to catch a problem or mistake that person causes.
Many medium and large businesses work with multiple bookkeeping services firms for this reason. They might employ one company to deal with day-to-day needs and another to handle reconciliation. Ideally, this reduces the risks associated with anything that might go wrong.
Break up personal and business funds. Even if you run a sole proprietorship, this will make it easier to reconcile what are personal or business expenses. If you run an LLC, failing to properly segregate funds could endanger your liability limits.
Also, strange math on unsegregated funds can create a situation where the IRS can't differentiate business income. If the IRS audits your business, it may have to presume funds were business-related. That could lead to a bigger tax bill.
When possible, try to use automated systems. For example, automated payments to employees can reduce errors and keep your books tight. Similarly, automated expense management can make it harder for people to mess up reimbursements. Also, an automated system will streamline the process of reviewing your books, reconciling them, and preparing taxes. Reach out to a bookkeeping service.