The previous posts have covered issues relating to internal controls and should have helped you develop a comprehensive checklist.  The next critical step with establishing a strong internal controls framework is to develop relevant policies and procedures.  Preparing these policies and procedures formalises the internal controls but importantly details how they are to be applied, managed and monitored.

To distinguish between a policy and procedure is also important as this will assist you as each one is prepared.  A policy provides the broad framework about what it is trying to achieve, the intention and the objectives.  It needs to be clear, concise and unambiguous to make it easier to implement as well as being able to monitor its effectiveness.  A procedure provides the specific details and actions that need to occur to achieve the intention and objectives of the policy.  The procedure will often detail the steps and processes that need to be followed and often an explanation to ensure they are properly understood.

As an example, Robin Hood might have a policy that all bows and arrows are to be kept in perfect condition and ready for use.  The procedures list how that is to be done.

Therefore, as you prepare policies and procedures for your internal controls you need to be clear, concise and be specific about the steps that need to be taken.  If this is done well then the consequences of good internal controls is significant.  In summary, the following highlights some key benefits of strong  internal controls:

  • Allows your organisation to achieve its strategic objectives more efficiently.
  • Minimises mistakes and avoids delays as staff know what is expected of them.
  • It can provide greater levels of protection against fraud.
  • Protect staff as they have a safer working environment.
  • The assets of the organisation are better protected and maintained at a safe standard.
  • The financial transactions occur as intended and are accurately reflected in the financial reports. 

Whether you are a small business owner or on the Board of a not for profit you are in effect protecting the investment that has been made in the organisation.  As a small business owner this relates to financial consideration or your personal investment in the event you may want to sell the business.  For a not for profit organisation it relates to protecting the investment on behalf of the community or the cause supported by the organisation.

As such, take the time and make the effort to develop the policies and procedures for internal controls and ensure they are reviewed and updated on a regular basis.