Managing Financial Controls

Managing Financial Controls
Monday, January 14th, 2013 Scott Bossart

                What financial controls do you have in place for your organization?  Do you really know where your money is going and how it gets there?  One fear in any Business is finding out someone within the organization has been partaking in actions resulting in loss of funds for the organization.  Whether this be direct cash withdrawals and/or payments, or simply purchases of items and merchandise for personal use which would not generally be approved.  It all leads back to the business and financial processes which exist and to what level of controls are in place dictating those processes.  We hear of fiscal improprieties happening all the time in the news.  Public companies are required to function under some fiscal constraints and controls due to Laws and Regulations put forth by the SEC, SOX, IRS, and other government driven organization’s.  However, this is not to be considered full proof and private organizations are not bound by the same rules.  If you are a small business owner, you basically have to create fiscal process flow documents and formal financial controls yourself.  If you utilize an outside accounting organization to manage your finances, it still doesn’t mean there is not requirement to maintain a sound fiscal process that keeps you in the loop of what is actually happening with your finances.  This is not to say absolutely do not trust anyone nor is it to say give full trust and expectations to everyone.

                Granted the amount of trust you give any single, or group of, individual/s within your organization can depend on many factors and many situations.  Identifying the internal processes for financial transactions is a key first step.  By this I refer to building the steps for simple purchases such as office supplies…the initial request, approval, receiving, payment etc.  There is a process involved for any and all purchases which may be slightly different and dependent on the dollar amounts.  This same logic can then be applied to more complex purchases but may require some tweaking.  Usually financial software can help manage this, but only a documented process will guide to what level of software controls need to be and can be applied.  There are many things to consider when determining approval steps such as single line item values on a requisition as well as total requisition values.  On top of this you could also consider total account or Vendor payments, withdrawals, and/or activity.  On a basic level, the person approving any requisition for purchase should never be the one actually requesting the purchase.  For smaller organizations this becomes harder to establish.  Secondly, the person receiving should not be the person who approved.  The person who received often times is and can be the person who actually requested, but if that too can be separated it is better.  The level of approval/s should be established for different amounts on the requests.  It is certainly appropriate as the dollar values increases; the number of approvers also increases.  In some cases, there are even approval levels for total re-occurring dollars requested by an individual which require an extra review before being fully approved.  There has to be a mindset of; everyone must follow sound financial business processes…and this must apply to all levels in the organization.  All approvals must be in writing.

                The main key to full disclosure and knowledge is in reporting.  Your financial reporting should be at the least, on a monthly basis.  The level of detail each month can quickly be determined based on the amount of information required to gain understanding.  Periodically there should be reporting on each vendor to understand not only spending habits, but also cost trends.  This same logic should be applied to item categories which will provide the consistency of certain items being purchased.  Regardless of who is managing your finances, the level of categorization will determine the level of report ability.  This categorization for small businesses often only reaches what is IRS driven.  My accountant tells me I am anal as I often go further.  The level you go, will dictate to what level you can analyze your spending and income habits.  It will also reduce the risk of missing a spending trend which might otherwise raise a flag for further review.  The better you establish your financial record keeping, the clearer you can review the activity, and the more precise you can establish/monitor a budget.  There is a balance to what is value added vs. non-value added.  This can be tricky, but also can be developed over time.  While a desired category may be broad, the requirement for descriptive text can be more precise.  The information will be there to show a trend which may dictate a new or sub category in the future.

                Many Business owners state they have control over their finances.  They also often state folks know what they can purchase, how to purchase it, and what approvals are needed.  For the small business owner, the key to controlling the preverbal financial door is to have documented, educated, and auditable financial business processes.  You don’t know what you have until you consciously sit down, write it out, and connect the dots to see how things flow.  Once an objective person performs an audit and ask questions, often times things float to the surface which uncover activities that are seemingly benign in individual nature, but risky in financial controls.  Now is a good time to start investigating your fiscal processes.  You might be surprised at some of the gaps that are uncovered.  The audit must be Business driven, not personal.  It also must be objective and focused on closing gaps.  If you are the Business owner or high level manager, it may also include changes to how you function within the fiscal arena.  If you’re a family run organization, controls should not be a product of personal trust, but a requirement for business control and apply across the board.

The goal is to not get the organization turned upside down from some fiscal activity which was hidden or not known.  Some due diligence now can save a lot of aggravation and anguish later…and just might save the organization.

Stay Well

Scott B.


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