Something all qualified accountants probably take for granted is their accounts payable process. We are taught pretty much from day 1 of Uni how it should work and what checks and balances are needed. It is then reaffirmed each semester all the way through to graduation then through the CA program.
If you are running a small business does your process have the following?
- Segregation of duties?
- The person doing the accounting (ledger entries) should never have access to making payments in the bank account.
- Why? – this gives them access to make a payment, then hide it. If these two tasks are done by different people, these two people essentially get to check each other’s work. Leading to less mistakes and fraud.
- Approvals (from managers, directors etc)
- There should be someone who approves invoices. The reason for this is, whoever has signed the engagement letter on the amount that the invoice should be needs to confirm the service has been completed & the payment amount is as expected.
- Without this approval stage, you could essentially pay invoices that are overstated or on work not yet completed.
…Correction on example used in the video. I think I say Westpac, I believe it was ING. (lets just say Major Bank to be safe).
Also – if you are a single director running your own firm, obviously this might not be relevant to you. This is if you have staff involved or outsource the process.