When To Conduct An Internal Audit In Your Business
Accounting audits is a valuable tool for any size of business. In other to keep your business healthy, you should consider conducting an internal audit at the following period.
BEFORE SEEKING AN INVESTMENT
If you ask investors for funds, they will want to do a full review of your financial statements. How embarrassing would it be to discover that your account is inaccurate? They might even think you are hiding something.
Before you speak to any investors, prepare your formal financial statements that you can presented on demand. Before presentation, do a thorough check on both your prepared statements and all the data used to prepare them.
IF YOU NOTICE A MISTAKE IN YOUR BOOKS OF ACCOUNTS
At the end of every month, it's often common that an account has just a less more or a little more money than expected. Don't make the mistake of just writing off the inconsistency. Math is science, so your figures should always add up exactly. It could be as simple as going back through your journals and discover that two numbers were swapped or maybe there's a weakness in one of your procedures that is causing your employees to make mistakes.
Even if the difference seems small, you want to make sure it isn't a sign of a larger problem that could cost you a lot of money over time.
WHEN KEY EMPLOYEES LEAVE
When key employees issue resignation notice, try to do an audit of the areas they were involved in before their last day of work so you won't be in a situation where you don't understand something or some amount of money and the only person who can explain things is gone.
To make things easier, encourage at least two weeks resignation notice from all employees, and don't develop a reputation of walking them out when they give notice. Except when their employment was terminated for misconduct, you want departing employees to get involved in the transition and leave on good terms so they will give their full effort through their last day.
IF CASH FLOWS OR PROFIT ARE DECLINING
Market conditions are always to be blamed for declines in Profit or cash flow, but market conditions are not usually the real issue. Sometimes, your company may not be paying enough attention to account receivables or cost controls.
To explain business decline, you have to audit operational areas such as production, stock and inventory as well as areas of finance such as billing and collections. Even if the outside cause for the decline has already been identified, you can always seek for new ways to improve internally to help your business weather the downturn.
ON A REGULAR SCHEDULE
While problems with your business may signal the need to audit your books, it's safer to have regular audits that can detect potential issues before they transform into major problems. Making sure your financial situation of your business is healthy is just as important as regularly checking the quality of your products and customer service levels if you want to make profit.
Audits can be done daily on cash and key inventory, monthly on account reconciliations or yearly on full annual review of all your books and records. Hiring bookkeeping services from outside can help you keep track of and review your records throughout the year. Even if your accounting is done in-house, it's won't be a bad idea to have an extra set of eyes looking over everything.
Great article. Keep up the excellent work.