Designing Efficient Procedures For Your Organization

Praha - Karlův most v ranní mlze  [The Prag - Charles Bridge in the morning mist]

 Internal controls are one of those things in accounting and finance that are almost guaranteed to cause an immediate loss of attention when presented to small business owners. Bare with me though, as I have a good reason why you should pay attention to them other than the commonly cited prevention of fraud.

When it comes to internal control procedures there are actually benefits outside of preventing and detecting fraud. Controls are often viewed as a source of additional work and overhead. But just like any other process or procedure controls can and should be designed to actually improve the efficiency of your business and the effectiveness of its operations. As any good entrepreneur knows, one key to developing a successful and scalable business is being able to identify a repeatable process for delivering the goods or services of the business in an efficient manner. Similarly a well designed internal control process can yield cost and time savings in the organization. 

One example is the tried and true triple match of a Purchase Order, Receiving Report and Vendor Invoice prior to issuing payment to a vendor. At first this might appear less efficient in that three separate forms must be accumulated and handled before rendering payment to a vendor rather than just paying upon presentation of the invoice from the vendor (ignoring for the moment that almost all modern accounting systems build in an automated function to handle this). But the reality is that most businesses that rely on nothing more than the vendor invoice end up wasting significant amounts of time searching back through records and emails for where they originally ordered the invoiced items. Depending on the volume of transactions time may be spent trying to determine whether the good or services were received. Many small business owners will argue that because they are so invested in the daily operations of their business they can do this on the fly. Experience has shown me that this never works and either the owner spends inordinate amounts of time chasing down vendors and missed payments or doesn't spend enough time on it and ends up making duplicate payments or payments for goods and services not received. The triple match system alleviates all these issues by creating a structured and efficient workflow where the person processing the transaction doesn't have to track in their head the details of every outstanding vendor transaction. Instead they can let the flow of source documents drive the transactions and next steps in the process avoiding not only error but wasted time.

 

For tips on improving efficiency and reducing risk, signup for the Controlzkit newsletter here.

 

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by Alex Vuchnich, CPA, CFE - Alex Vuchnich is the developer of Controlzkit an internal controls anaylsis tool and shares his perspective on how audit and accounting theory, technology and professional ethics interrelate to create forward thinking profitable firms.

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