PPB April 2018

Segregation Of Duties When we go to the movies, there’s a reason we pay one person for our ticket and a separate person takes our ticket. This is one of the most common examples of segregation of duties. This separates the access to the asset (cash or payment) and access to the record (the ticket). In large organizations, segregation of duties is easier because there are more employees to handle each aspect of the transaction or process. But, for a small business with fewer employees, it can be challenging, which is why segregation of duties is critical. Effective segregation of duties ensures that different people are responsible for authorizing and recording transactions, maintaining custody of related assets and reconciling account balances. Providing clear job descriptions and role responsibility documentation to teammembers will define the segregation of duties needed to protect your business. Although separation of duties on a full-time basis may not be practical for your business, consider job sharing. In job sharing, two or more employees are assigned to one area of the business on alternate weeks. This creates a “checks and balances” situation where the use of the same established processes can helpmonitor potential fraud. Policies And Procedures Many small-business owners think their business processes are simple and easy to understand. Remember, if you have been living and breathing this business for many years and you have a thorough understanding of the industry, your policies and procedures are probably uncomplicated to you. But as your business grows, so does your team. You may begin to hire new employees, sales professionals, customer service reps, etc., and those individuals might not have the knowledge and experience you have. Documenting effective policies and procedures can help you align your business objectives and establish best business practices for your team. Some common areas in which to define and document policies and processes include: • Sales and accounts receivable • Cash management • Purchasing and accounts payable • Payroll and human resources • Financial statement reporting Having detailed, step-by-step tasks documented for each of these areas clearly outlines the expectations and operational goals of your business. Your team can easily follow your processes, providing consistency within your organization and allowing tasks to be delegated to other teammembers. Documented policies and procedures will make it easier to train new employees and provide support if a key team member leaves your organization. Documentation Remember the movie ticket? There must be a ticket. Preparing and maintaining proper transactional documentation is a key component in developing an effective internal control process for your business. If proper documentation is not in place, it can be extremely difficult to determine how transactions were initiated, processed and completed in order to ensure proper procedures and controls are used. Not only will proper documentation assist in preventing and detecting fraud, it will allow you and your team to more effectively research and respond to questions and concerns from customers, suppliers, sales reps or accountants. Oversight And Review It is not what you expect, it is what you inspect. You are probably extremely busy growing your sales by meeting with current and potential customers, hiring sales professionals and buying out your competition. These activities take a lot of your time, but you also need to devote time to inspect the policies and procedures, documentation and segregation of duties you have put into place. This shows your team that you are committed and serious about implementing and reviewing these internal controls and sets the tone for your organization. This constant oversight and review is critical for a system of effective internal controls and an important aspect of fraud prevention. To help you identify potential fraud, review key reports and metrics, sales activities, purchase orders, bank statements, expense Effective segregationof duties ensures that different people are responsible for authorizing and recording transactions, maintaining custody of related assets and reconciling account balances. | APRIL 2018 | 67 THINK