If you're using financial information to make decisions and your information is inaccurate, you could end up making the wrong decisions. Financial checks are the procedures you use to make sure information is accurate. Financial checks will also help prevent and identify fraud.
When you complete a financial check of your business you should have the following checks in place:
- completeness: all records and transactions are added to the reports they should be
- accuracy: the right amounts are recorded in the correct places, i.e. in the right account
- authorisation: people have the right level of authority to do their work. e.g. to approve payments, do data entry or have computer access
- validity: e.g. an invoice proves the work has been done, or that you've received what you ordered
- existence: of assets and liabilities. Has a purchase been recorded for goods or services not yet delivered? Do all assets on the books exist? Is there documentation to prove they do?
- handling errors: procedures you use to identify and fix errors, e.g. a check shows the stock you hold does not equal stock bought, less stock already sold
- separation of duties: e.g. the person handling cash doesn't do the banking as well
- presentation and disclosure: timely preparation to allow the appropriate people, e.g. an accountant, the time to check thoroughly
Do your own financial check
Owners of well-managed businesses would answer 'yes' to most of the following questions.
- Is a chart of accounts used?
- Is it detailed enough to give adequate management information?
- Is a double entry bookkeeping system used?
- Someone approves journal entries?
- Do you use budgets and cash projections which are compared to actual results and investigated if there are major discrepancies
- Do you understand the form and contents of the financial statements?
- Are comparative financial statements produced?
- Are the books and records kept up-to-date and balanced?
- Who is responsible for producing financial information?
- Are reasonable due dates imposed?
- Are annual vacations required?
- Are storage facilities safe from fire, etc.?
- Is access to accounting records restricted when appropriate?
- Is insurance coverage regularly reviewed?
- Is there a records retention schedule used?
- Is there a policy for credit approval?
- Are credit files kept current?
- Are credit checks done regularly?
- Are sales orders approved for price, terms, credit and account balance
- Are all sales orders recorded on pre-numbered forms and are all numbers accounted for?
- Do you review the monthly statements for outstanding balances?
- Is accounts receivable subsidiary ledger balanced monthly to control account?
- Is an aging schedule of customers' accounts prepared monthly?
- Do you authorise write-offs and other adjustments to customer accounts?
- Do you or a responsible employee other than the bookkeeper or person who maintains accounts receivable:
- stamp all checks with restrictive endorsement "for deposit only" before turning them over to the bookkeeper?
- compare daily pre-listing of cash receipts with the cash receipts journal and the duplicate deposit slip?
- Are cash receipts deposited intact on a daily basis?
- Are cash receipts posted promptly to appropriate journals?
- Are cash sales controlled by cash registers or pre-numbered cash receipts forms?
Cash used (disbursements)
- Are all disbursements except for petty cash made by cheque?
- Are cheques pre-numbered and all numbers accounted for?
- Are all cheques recorded when issued?
- Are all unused cheques safeguarded, with access limited?
- Is a mechanical cheque protector used to inscribe amounts as a precaution against alteration?
- Are voided cheques retained and mutilated?
- Do you sign or view all cheques?
- If a signature plate in used, do you have sole control?
- Are supporting documents, processed invoices, receiving reports, purchase orders, presented with the cheques and reviewed by you before she signs the cheques?
- Are supporting documents for cheques properly cancelled to avoid duplicate payment?
- Are cheques payable to cash prohibited?
- Are signed cheques mailed by someone other than the person who writes the cheques?
- Are bank statements and cancelled cheques received directly by you and reviewed by you before they are given to the bookkeeper?
Bank reconciliation statements
Are bank reconciliations prepared:
- monthly for all accounts? by someone other than the person authorized to sign cheques or use a signature plate if they are other than the owner?
- Are bank reconciliations reviewed and adjustments of the cash accounts approved by you?
- Are all disbursements from petty cash funds supported by approved vouchers?
- Is there a predetermined maximum dollar limit on the amounts of individual petty cash disbursements?
- Are petty cash funds on an imprest basis (the total amount is set e.g. $100, you can only spend what you have and it’s only topped up with what’s spent) and kept in a safe place? reasonable in amount so that the fund ordinarily requires reimbursement at least monthly? controlled by one person? periodically counted by someone other than the custodian?
- Are vendor invoices matched with applicable purchase orders and receiving reports?
- Are all available discounts taken?
- Are all available discounts taken?
- Is there written evidence that invoices have been properly processed before payment, e.g. stamped?
- Are there procedures which provide that direct shipments to customers, if any, are properly billed to them?
- Do you verify that the trial balance of accounts payable agrees with the general ledger control account?
- Are expense reimbursement requests submitted properly and approved before payment?
- Are all materials inspected for condition and independently counted, measured, or weighed when received?
- Are receiving reports used and prepared promptly?
- Are receiving reports subjected to the following:
- copies promptly provided to those who perform the purchasing and accounts payable function?
- controlled so that liability may be determined for materials received but not yet invoiced?
- Are all employees hired by you? Are you satisfied all employees are competent and honest, and job references are checked?
- Are employees bonded (an insurance agreement guaranteeing repayment for financial loss)?
- Are individual personnel files maintained?
- Is access to personnel files limited to you or a designee who is independent of the payroll or cash functions?
- Are wages, salaries, commission and piece rates approved by you?
- Is proper authorisation obtained for payroll deductions? adequate time records for employees paid by the hour? piecework records for employees whose wages are based on ‘per piece’ production? are piecework records reconciled with sales records? are salesmen's commission records reconciled with sales records?
- If employees punch time clocks, are the clocks located so they may be watched by someone in authority?
- Are time records for hourly employees approved by a foreman or supervisor?
- Would you be aware of the absence of any employee?
- Is the clerical accuracy of the payroll checked?
- Are payroll registers reviewed by the owner?
- Do you approve, sign, and distribute payroll cheques?
- If employees are paid in cash, do you compare the cash requisition to the net payroll?
- Do you maintain control over unclaimed payroll checks?
- Are staff cross-trained in accounting functions?