A business must set up a variety of internal controls to minimize error and protect itself from fraud or theft. One form of internal controls is through establishing controls for the transaction process in the operations of a business. Another form of controls is asset controls.
Asset controls seeks to institute methods and procedures to control the assets of the business. Since there are a variety of assets a business may hold, a variety of controls are applied to each asset category.
Specific Asset Controls
It is advisable to have the standard established that all cash receipts be deposited daily in full. The employee who does the actual depositing should be different from the one who prepares the deposit. Checks should be pre-numbered and unused checks kept under lock and key by the treasury officer.
A check protector can be used to imprint the amounts on checks so they cannot be changed. Records should be constantly compared. Bank reconciliations should be made monthly by an employee who did not do any handling of the cash or the recording of its transactions.
The supervision, authority to buy and sell investments and the accounting records are all responsibilities of different employees. The employees who handle securities are bonded. It is a common practice in most companies that the approval of the board of directors is required for most investments.
All adjustments to accounts receivables for bad debt write-offs, credits for sales returns and allowances must be approved by the credit manager. Credits for returns must be substantiated by receiving reports.
Typically, inventories are kept under lock and key. At least once a year, inventories are counted, weighed or measured to verify their amounts with those on the reports. Any differences are thoroughly investigated.
Plant and Equipment
Big purchases or disposals of plant and equipments must be approved by the board of directors. Small items must be approved by the department managers. Detailed lists of plant assets are kept and maintained. An inventory of plant assets may be taken from time to time.