Establishing Internal Controls

There are four basic things that you can do in implementing an internal system of controls:

While there is no foolproof system of accounting or internal control that will absolutely prevent employee dishonesty losses, an environment can be created where employee pilfering is discouraged.

The first step is to review every area where potential dishonesty problems could arise, including:

The next step would entail setting the mechanisms in place to remove the temptations that could make an otherwise honest employee dishonest.

In setting up an internal audit system, it's common procedurally for most companies to divide financial responsibilities and functions so that no one employee controls all aspects of a transaction. Hence, insurers and consultants recommend the following:

Dividing financial responsibilities and functions is not enough, though. Take an inventory of your merchandise at least annually and have an outside public accountant audit your cash and accounts annually.


Because an employee who never takes a vacation could be concealing acts of dishonesty, all employees, but especially the ones who have access to your business records, should be required to take a vacation annually.