When a person makes a mistake, some of the questions they tend to ask themselves are, “How did this happen?” and “What could I have done to prevent this?” In life, these reactive questions help us learn from our mistakes and prevent similar occurrences in the future. But when you’re running a business or nonprofit organization, it pays to be proactive. Rather than assessing the damage after it occurs, you need a system of checks and balances, or internal controls, in place to prevent the damage in the first place.
Internal controls are the policies and procedures you employ to detect or prevent loss or harm from things like fraud, human error, and technology failure. When you operate without these defenses in place, you’re at a heightened level of vulnerability to threats against your company’s assets and sensitive or proprietary information and the security of your company, customers, and employees.
While small businesses and nonprofits need to protect themselves against fraud, error, and other security risks, budget restraints can prevent adequate internal control structures in-house. But you can avoid incurring employee-related costs like social security and Medicare taxes and employee benefits by outsourcing your bookkeeping services. And CPA firms that regularly work with businesses in your industry or nonprofits in your sector are uniquely qualified to help you mitigate risks. By outsourcing your bookkeeping services to a qualified firm, you can strengthen your internal controls.
Detecting & Preventing Fraud
According to the ACFE 2022 Report to the Nations, 44% of occupational fraud cases occur in private companies, with a median loss of $120,000 per instance of fraud. For small businesses with fewer than 100 employees, the median loss increases to $150,000. And 9% of occupational fraud occurs in nonprofit organizations, with a median loss of $60,000.
When you outsource bookkeeping to a CPA firm that regularly works with businesses in your industry or nonprofits in your sector, they are uniquely qualified to help you detect and prevent fraud. Not only do CPAs know the warning signs of fraud, but they also help businesses and nonprofits ensure proper segregation of duties. Particularly for smaller organizations, it’s not uncommon for business owners or nonprofit leaders to “wear many hats.” But when budgetary restraints lead you to task the same person with approving expenses and signing checks, for example, you could leave your organization vulnerable to fraud. Anytime there is an authorization or approval process, a transaction gets recorded, or activity is reconciled, there needs to be a change of hands. As a third party, your CPA can offer another set of eyes and layer of defense to your bookkeeping and accounting functions.
Reducing the Margin of Error
Whether due to budget restraints or habits, small businesses and nonprofits are often more prone to use manual processes. But data entry errors can have catastrophic consequences. A single instance of transposed numbers could lead to misstated cash flow information, incorrect income or expense reporting, or non-compliance issues. Automation narrows the margin for error and can improve efficiency. CPA firms often employ the latest technology, software, and automated solutions. When you outsource your bookkeeping services, you benefit from their automated processes for data entry, bank account and general ledger reconciliation, matching invoices with purchase orders, and more.
Aligning Internal Controls with Changing Needs
Because your business or operating model and workforce likely have changed since the onset of the pandemic, your internal controls may need to evolve to meet new challenges in keeping your business protected. For example, if you have a remote or hybrid workforce, key responsibilities and expectations may have changed, which means your team may need additional resources to overcome obstacles and perform their job functions, including those related to internal controls. When you trust your books with a qualified CPA firm, they understand the importance of data security in a cloud-based environment and employ measures like encryption, authentication, and restricted access to safeguard your data.
Contact Smith, Sullivan & Brown
At SSB, we offer full-service bookkeeping and accounting services for small businesses and nonprofits. We also provide customized QuickBooks training and support for desktop and online users. We understand that timely and accurate financial information is key when making important business decisions, and we’re here to help organizations like yours ensure strong bookkeeping practices and internal controls. Contact us today to learn more.
Lucy Pacheco is a Nonprofit Tax Manager & Senior Accountant at SSB. She received her MS in Accounting with a concentration in Taxation from Kaplan University. Lucy began her career at a CPA firm and then transitioned into the corporate world. She has experience in numerous areas of taxation, including individual, corporate and nonprofit entities and budgeting, forecasting, financial statement preparation, QuickBooks consulting and analysis.