Similar to the checks and balances in government, business offices are required to implement a system of checks and balances called internal controls. As explained by David Ingram in “What are the Seven Internal Controls Procedures of Accounting?” internal controls are “policies and procedures put in place to ensure the continued reliability of accounting systems.”1 Specifically, businesses are required to follow a definite system for maintaining accuracy and financial accountability. During an audit, your business is checked for compliance with the seven defined areas of internal controls.
The primary areas of internal controls that apply to chiropractic offices are separation of duties, documentation, trial balances, reconciliation, and approval authority. First, separation of duties requires that you as the owner of your chiropractic office monitor who is given what responsibilities. For example, your secretary has the responsibility to handle patient information with their payments, but she would not have the responsibility to reconcile those payments in your accounting software. When efficiently managed, separation of duties guarantees that payments are accurately entered, avoiding cases of double entry or fraudulent misrepresentation. The separation of duties helps prevent losing value through fraud and provides more checks to confirm accuracy.
Next, proper documentation is required of every business. Often companies are told that the bank statements offer enough documentation and storing receipts is no longer necessary. But, in the event of an audit, the bank statement only verifies that the transaction happened; it cannot be used as proof for what the transaction purchased and/or sold. If a transaction is classified as a business expense, and therefore tax deductible, the bank statement is not proof that the transaction was indeed a business expense. There are multiple applications that work with your accounting software to store and attach receipts electronically, thus eliminating multiple folders of paper receipts.
In addition, trial balances and reconciliation are most accurately completed using bookkeeping software. The best way to ensure accuracy inside the software is for the primary user, set as the advisor, to be certified in that particular software. Anybody can reconcile data, but will they classify transaction into the right accounts? Most often they will not. Proper training and certification will give you a peace of mind knowing that your data and trial balances reflect true financial information. If managed properly, these two controls—trial balances and reconciliation—can make tax preparation much easier and save you money.
Finally, approval authority will maintain accountability and often is the last check for accuracy. Because you know your practice inside and out, you frequently will catch little errors that most employees, bookkeepers, and even accountants might miss. You also will be able to verify that all assets are accurately accounted for and possible fraud detected. Following the proper system outlined by internal controls confirms that you as the owner will be the approver and the last, but most important, check for accuracy and safeguard against fraudulent behavior.
Internal controls will ultimately check and balance various areas of your office to verify that you are indeed running an accurate and reliable establishment. You no longer have to fear being blindsided during an audit because you know and follow the rules of internal controls, and you can be absolutely certain that all reasonable measures have been taken to manage your office with compliance.