The Benefits of Internal Audits for Small Businesses
“Internal audit” – the term conveys two instance responses. The first one is fear, whether anything has gone wrong and the second one is the prosperity since internal audit takes place usually in big firms.
What is the meaning of internal audit?
Institute of Internal Auditors has defined this term as “… an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”
In other words, internal auditing means making a comprehensive and in-depth examination of the business accounts, records, documents and processes. If small businesses don’t want to become the victim of fraudulent activities, focus on these following areas:
Revenue – Match the sales receipts with the bank deposit to make sure that what received by the business stayed in it.
Employees – Should keep the attendance data of the employees updated. Wages and attendance data should be at par. Also check for bonus or overtime pay.
Purchase invoices and orders – The total of purchase orders must match corresponding invoices for services and goods the business has purchased.
Bank accounts – Get bank statements for the last three months. Match the cancelled checks with debit accounts and deposit slips with the deposits. Also verify inaccurate or missing transactions.
Inventory – Maintain periodical checking of the inventory levels to ensure what is available matches with what should be available.
Assets – Review the list of assets and verify whether there is an account of all the assets. Businesses should also have proper reason in support of missing documents.
Benefits of Internal Audit
The benefits that internal audits bring to the company are plenty. Companies of all sizes are conducting regular internal audits with the help of professional auditing services. Among the range of issues addressed by the internal audits are prevention of fraud and redevelopment of company policies. The internal audits also look into proper employee control and implementation of government norms in the company. For small businesses, it is simply not affordable to pay fines to the government or bear fraud by employees. This is where these audits are the most useful.
Prevention of Fraud
Fraud by employees has been at the core of the downfall of many companies. Even the smaller businesses lose elephantine proportions of their funds to illicit theft by their employees. The most common forms of employee fraud include cutting down customer payments, tampering documents, stealing cash, and wrongful utilization of the company credit cards.
Owners of small businesses might sometimes be lead to believe that owing to the thin employee strength, they lack the resources needed to conduct an internal audit. However, with the help of suitable auditing services it is possible for the business to manage the theft of resources.
Recommendations on Policy Making
Besides the prevention of fraud, another area where the internal audit can prove vital is in the monitoring of company policies. For many companies this is the major purpose of conducting audits. The internal audits look into the productivity of the staff and general policies of the company. They can also make recommendations to the board of directors in case they find that a particular facet of the company policy is responsible for lowering the quality of one or more processes.
The operational internal audits are more focused on maximizing the efficiency of the business. Coming to the scope of these audits, the operational audits do not focus so much on the finances of the company as they do on the overall efficacy of the business. The sole purpose of hiring auditing services for operational audits is to eliminate from the business processes any inefficiency that might have crept in. The elimination of inefficient operations saves the company significant time and money.
Colin Smith & Co specializes in audit, accounting, taxation and business advisory services, across a wide range of markets and sectors for businesses both large and small.
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Category: Business
