Internal Controls : A Solid Base for Growth – July 2014

This topic involves internal control.

Building and maintaining a strong internal control system is a crucial duty of the CFO function. Among other benefits, an effective internal control system helps to insure the integrity of the financial data used to make managerial decisions as well as presented to funding sources. In addition, effective internal controls help insure that assets, particularly cash assets, do not disappear from the company.

Organizations with fewer than 100 employees tend to have less effective controls than their larger competitors. As a result, formal controls are important for small businesses to prevent and detect instances of fraud that could prove costly, if left undetected.

Small businesses are often typified by great entrepreneurs with creative ideas and dynamic products. However, lack of financial discipline often impedes their ability to grow. Investing proactively in fraud protection measures is almost always less expensive than trying to recover losses suffered due to fraud.

Anti-fraud controls do not necessarily have to be expensive. An efficient means of fraud protection can often mean instituting a formal code of conduct, implementing management review processes, and providing anti-fraud training. The relatively small costs of doing so can significantly increase prevention and detection of fraud which ultimately costs the entrepreneur many times the costs of implementation.

Computers and smart phones are particularly susceptible to fraudulent activity. One particular risk is the compromise of data when smart phone users log onto unfamiliar networks Another is opening e-mails, that upon cursory inspection appear to originate from well-known banks, airlines, of brokerage houses. Often these originate with scam artists on phishing expeditions.

Among the benefits of an effective internal control system are the ability to insure the integrity of the financial data used to make managerial decisions; ensure that financial information presented to funding sources is accurate; and protect assets, particularly cash assets, so that they do not disappear from the company. Such efforts are among the primary duties. of a CFO.

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