Taking a systematic look at your operations and finances — sometimes called an internal audit — is often the best way to improve your company’s efficiency and effectiveness. Though small companies rarely have an internal audit division, business managers can perform many of the same types of reviews as their larger counterparts, and reap many of the same benefits. Here’s how to get started.
- Make a plan. The beginning of a new year or the start of a new business cycle is often an ideal time to plan your internal audit. You’ll want to brainstorm with managers and staff about your business’s greatest risks, and consider operational areas where you’ll gain the greatest “bang for the buck.” In other words, don’t approach the review haphazardly. Perhaps inventory is a significant line item on your balance sheet. Ask how you might decrease holding times by doing a better job of forecasting demand. Consider controls over inventory. Are they functioning as intended? Once you’ve made a list of your priorities — in terms of both risk and efficiency — develop audit procedures to address those areas.
- Perform the audit. Audit procedures don’t need to be overly complicated, especially if your business has only a few major operational cycles. Let’s say, for example, that you purchase goods at wholesale and resell them. You’ll want to make sure that purchase orders are processed correctly, goods are inspected when received, invoices are properly entered into your accounting system, and vendors are paid in a timely manner. Each of these areas can be audited by selecting a few transactions and following them through the process, looking for proper authorization, accurate accounting, and timely payments. Focus on a different cycle or a different aspect of the same cycle every few months.
- Review the results. Your internal audit might identify controls that aren’t functioning as intended or areas where controls need to be added or strengthened. For example, is inventory protected from intentional and unintentional errors? Or you might discover inefficiencies that can be corrected without much additional effort. When your review is complete, take time to analyze the results and make appropriate changes. Then restart the process.
If you’d like more suggestions for auditing your company’s operations and finances, give us a call.