Deploying Control Measures for SME Quality Management: Optimizing Systems and Procedures

Discover effective strategies to enhance your SME's quality management systems and procedures. Learn how to deploy precise control measures for optimal efficiency and performance.

Elevate your business with proactive control measures to manage risks and ensure compliance. Our comprehensive guide outlines the importance of conducting thorough risk assessments, implementing effective control measures, and staying abreast of legal and regulatory requirements. Learn how to design and deploy robust systems, create clear policies, and foster a culture of ethical behavior within your organisation.

Watch this video to better understand the topic: How to deploy control measures

The Significance of Implementing Effective Control Measures

In the dynamic landscape of small and medium enterprises (SMEs), understanding how to deploy control measures is paramount. This comprehensive guide explores the importance for SMEs to master control measures, ensuring operational efficiency, risk mitigation, and sustainable growth. Discover essential strategies to monitor and regulate processes, finances, and resources effectively. By mastering control measures, SMEs can streamline operations, enhance productivity, and safeguard against potential threats. Equip your business with the knowledge and tools needed to navigate challenges and seize opportunities with confidence. Explore proven methodologies and best practices tailored to the unique needs of SMEs, empowering you to optimise performance and drive success in today's competitive market.

Implementing Effective Systems: Control Measures for SMEs

• Implementing effective control measures is crucial for businesses to manage risks, ensure compliance, and enhance overall performance. Firstly, businesses should conduct a thorough risk assessment to identify potential threats and vulnerabilities. This involves evaluating internal and external factors that could impact the organisation's objectives. Once risks are identified, businesses can design and deploy control measures to mitigate these risks. These measures may include establishing clear policies and procedures, implementing technology solutions, and providing training to employees. Regular monitoring and evaluation of these controls are essential to ensure their ongoing effectiveness and relevance.
• Secondly, businesses must consider the importance of compliance with legal and regulatory requirements. Understanding and adhering to industry standards and government regulations is critical for avoiding legal issues and maintaining a positive reputation. Implementing control measures to ensure compliance involves creating robust systems for record-keeping, conducting regular internal audits, and staying informed about changes in relevant laws. Businesses should also foster a culture of ethical behavior and accountability among employees to strengthen the overall control environment. By taking a proactive approach to deploy control measures, businesses can safeguard their operations, protect their assets, and build trust with stakeholders.

How to deploy control measures

Deploying Effective Controls: Entrepreneurship Lessons from Movies The Founder, War Dogs and Moneyball

• The Founder (McDonald's): The success of McDonald's can be attributed to the meticulous application of effective management and control measures by the McDonald brothers, Richard and Maurice, and later, Ray Kroc. The brothers revolutionised the fast-food industry by introducing a systematic and efficient approach to restaurant operations. Their focus on clear organisational structures, defined roles, and standardized processes allowed for streamlined decision-making and consistent quality across franchises. Ray Kroc, recognising the scalability potential, played a pivotal role in expanding the business through franchising. He implemented stringent controls, ensuring uniformity in menu items, service, and branding. Kroc's emphasis on maintaining control over supply chains, real estate, and marketing exemplified strategic planning and risk mitigation. Collectively, the McDonald brothers and Ray Kroc applied robust management principles and control measures, creating a globally recognised brand that continues to thrive.
• War Dogs (AEY): AEY deployed control measures primarily through meticulous attention to detail in their arms dealing operations. Efraim Diveroli, portrayed by Jonah Hill, implemented strict protocols for order fulfillment, shipment tracking, and compliance with legal regulations. The company maintained comprehensive records to ensure transparency and accountability. Additionally, AEY leveraged technology and communication systems to monitor and manage the supply chain effectively. Despite their entrepreneurial and often unconventional approach to business, the characters in the film understood the importance of maintaining control over the intricate aspects of their operations to mitigate risks and ensure the success of their endeavors in the international arms trade.
• Moneyball (Oakland A's): The Oakland Athletics demonstrated a groundbreaking application of business administration and control measures in the realm of professional baseball, as famously depicted in "Moneyball." Facing resource constraints compared to wealthier teams, Beane strategically implemented innovative management practices. He prioritised data-driven decision-making and statistical analysis (sabermetrics) to identify undervalued players, aligning the team's activities with the overarching objective of achieving competitive success within budget constraints. This demonstrated a keen understanding of risk mitigation and strategic planning, challenging conventional norms within the baseball industry. Beane's approach not only showcased the importance of robust internal controls in player evaluation but also reflected the continuous improvement ethos by adapting strategies based on performance metrics, fostering a culture of efficiency and innovation in the organisation. The Moneyball story exemplifies how a systematic and data-centric approach, akin to effective business administration and control, can revolutionise an industry.
• Explore further insights on How to implement systems and procedures derived from our case study movies: The Founder, War Dogs and Moneyball by clicking here.

CONTEXT

Management control, systems, and procedures hold managers accountable for an organisations performance. System and procedures ensure that entrepreneurs and business managers meet customers expectations and improve the brand of the business, both of which are critical to the growth of a healthy business. Management control, system, and procedure are all management functions that aid in the detection of errors and the implementation of corrective actions. This is done to reduce deviation from standards and ensure that the organisations stated goals are met in the desired manner. This skills programme provides a platform and tools for entrepreneurs and business managers to create business systems and procedures in minutes.

Description

Control measures are actions and/or activities that are taken to prevent, eliminate or reduce the occurrence of a hazard that you have identified.

Purpose

Be able to deploy quality management system in a granular fashion by breaking each process down into sub processes and educating staff on documentation, education, training tools, and metrics.

Rational

Deployment is best served in a granular fashion by breaking each process down into sub processes and educating staff on documentation, education, training tools, and metrics.

Key Lessons

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Control Measures Unveiled: Contrasting Strategies Across Industries

McDonald's: Precision in Process

McDonald's, the fast-food giant, deploys control measures with a meticulous focus on process precision. From standardized recipes to rigorous quality control in each franchise, the company ensures consistency in its products and services. The control measures are aimed at delivering a uniform customer experience, emphasising efficiency, and maintaining the brand's integrity across its vast network of outlets. It's a strategy rooted in operational excellence and customer satisfaction.

Moneyball: Data-Driven Decisions

In the realm of baseball, as portrayed in Moneyball, control measures take the form of data-driven decisions. The Oakland Athletics, led by Billy Beane and Peter Brand, utilize statistical analysis to make strategic player choices. This approach not only challenges conventional scouting methods but also allows for a more calculated and efficient allocation of resources. The control here is less about operational processes and more about leveraging information to gain a competitive edge in player recruitment and team performance.

War Dogs: Tactical Safeguards in Arms Dealing

In the high-stakes arms industry, control measures, as witnessed in War Dogs, are about navigating legal complexities and ensuring ethical conduct. AEY, the arms dealing enterprise, deploys stringent controls to manage inventory, transactions, and regulatory compliance. These measures serve as strategic safeguards in an inherently risky business, promoting transparency and maintaining integrity. The focus here is on avoiding legal pitfalls and building a trustworthy reputation in a sector where credibility is paramount.

Control Systems Blueprint: Optimising SME Procedures and Efficient Control Deployment

Internal controls can help your company run more efficiently and effectively. It also lowers the possibility of fraud or error within the system. You can lay the groundwork for your small business' internal control system by following our checklist of essential small business internal controls.

Purpose on Internal Controls

Each internal control procedure is designed to fulfil at least one of these eight criteria:

• Completeness – that all records and transactions are included in the reports of business.
• Accuracy – the right amounts are recorded in the correct accounts.
• Authorisation – the correct levels of authorisation are in place to cover such things as approval, payments, data entry and computer access.
• Validity - that the invoice is for work performed or products received and the business has incurred the liability properly.
• Existence – of assets and liabilities. Has a purchase been recorded for goods or services that have not yet been received? Do all assets on the books actually exist? Is there correct documentation to support the item?
• Handling errors – that errors in the system have been identified and processed.
• Segregation of duties – to ensure certain functions are kept separate. For example, the person taking cash receipts does not also do the banking.
• Presentation and disclosure – timely preparation of financial reports in conformity with generally accepted accounting principles.

Internal Control System

An internal control system is a crucial component of effective business management. It encompasses the policies, procedures, and practices implemented within an organisation to promote operational efficiency, mitigate risks, and ensure the reliability and accuracy of financial reporting.

The key objectives of an internal control system include:

1. Financial Reporting: Ensuring the accuracy and integrity of financial statements and reports through the implementation of appropriate accounting and record-keeping practices.
2. Compliance: Ensuring compliance with laws, regulations, and internal policies by establishing controls that monitor adherence to legal and regulatory requirements.
3. Asset Safeguarding: Protecting the organisation's assets, such as physical assets, intellectual property, and sensitive information, from unauthorized access, use, or loss.
4. Operational Efficiency: Promoting efficiency and effectiveness in business operations by implementing controls that optimise processes, minimise errors, and enhance productivity.
5. Risk Mitigation: Identifying and managing risks that could negatively impact the organisation's objectives, by implementing controls to prevent or detect potential risks.

Effective internal control systems typically involve a combination of preventive, detective, and corrective controls. These controls may include segregation of duties, authorisation and approval processes, regular monitoring and reporting, and internal audits.

By establishing and maintaining a robust internal control system, businesses can enhance transparency, mitigate risks, and promote the overall integrity and success of their operations.

Control Measures

Control measures in business management refer to the actions taken to monitor, assess, and regulate various aspects of business operations.

• Financial Controls: Implementing budgeting, cost control, and financial reporting systems to track and manage expenses, revenues, and overall financial performance.
• Internal Controls: Establishing policies and procedures to safeguard assets, prevent fraud, and ensure compliance with laws and regulations.
• Quality Controls: Conducting regular inspections, tests, and audits to maintain and enhance product or service quality, ensuring customer satisfaction.
• Inventory Controls: Implementing inventory management systems to track stock levels, minimise stockouts and overstocking, and optimise inventory turnover.
• Operational Controls: Setting performance targets, monitoring key performance indicators (KPIs), and implementing processes to improve efficiency and productivity.
• Risk Management: Identifying potential risks, assessing their impact and likelihood, and implementing strategies to mitigate and manage risks effectively.
• Human Resource Controls: Implementing HR policies, procedures, and performance management systems to ensure effective workforce planning, recruitment, training, and development.
• Information Technology Controls: Establishing IT security measures, data backup protocols, and access controls to protect sensitive information and ensure reliable IT systems.

Internal Controls Checklist

An internal control checklist is intended to provide an organisation with a tool for assessing the state of its internal control system. Control breakdowns can be identified by comparing the checklist to actual systems on a regular basis.

• Properly Segregate Duties - Segregation of duties (SoD) is both a direct deterrent to fraud and a mechanism for detecting errors along the way. There is no hard and fast rule for separating job roles. You only need to remember the acronym ARC when designing internal controls (authorisation, recording, and custody). These three responsibilities are incompatible and should not be assigned to a single person.
• Internal controls are critical for all businesses, regardless of size, nature, or type. The most difficult challenge you faced was developing a solid internal control system for a small business with three administrative employees who handle multiple job postings.
• Ensure Owner Oversight - The lack of a workforce to handle jobs that should be separated is the most difficult challenge in a small business environment. Due to the lack of a business need for so many administrative employees, the cost of adhering to proper SoD sometimes outweighs the benefits. If it is impossible or uneconomical to separate incompatible duties, owner participation and oversight can be used as a compensatory measure. Participation in daily operations provides an additional layer of protection in the event that some employees exploit a flaw in the internal control system.
• Records keeping - Documents are used as proof of transactions. Certain characteristics must be present in business source documents in order for them to be reliable and contribute to good internal controls. They must bear the signature of the person who processed and approved the document, as well as special notes or stamps such as Paid, Approved, Denied, or Closed to indicate the document's status within the workflow. To maintain the integrity of source documents, consider prenumbering them so that employees are not tempted to falsify documents for personal gain. Accounting documentation is essential because it allows your employees to keep track of everything. However, with small business accounting software, you can transition to paperless transactions.
• Delegation of Authority - Proper authorisation ensures that all business transactions are valid and legitimate. Only the small business owner should be able to authorize any type of transaction as a good internal control practice. Even the most trusted employees should not have the same level of authority as the small business owner because, as explained in the fraud triangle, putting too much trust can lead to fraud. The business owner, on the other hand, may delegate certain authorisation roles to managers and carefully consider which tasks to delegate. Managers, for example, can approve expense reimbursements of less than R500 or sales contracts of less than R5,000.
• Labour relations - Labor relations refers to the process by which employers and employees, management, and unions collaborate to make decisions in Businesses. The decisions made concern wages, working conditions, working hours, workplace safety, security, and grievances. To promote sound labour relation between management and employees, and amongst the employees themselves. To promote consistency in decisions taken on labour relations matters.
• Create Standard Operating Procedures - Even in a small business, a standard operating procedure must be established (SOP). A standard operating procedure (SOP) is a set of steps for routine transactions, and a transaction is routine if it must be performed several times per week. Recording customer payments, accepting customer orders, ordering goods from suppliers, and paying employee salaries are some examples. SOPs are a type of internal control because they streamline routine processes in order to prevent errors and mistakes. Because forensic accountants and auditors are external parties who are not aware of all business policies, they begin with SOPs to understand how the business operates.
• Be Strict in Cash Transactions - In a small business, cash receipts, disbursements, and deposits must be prioritised. Controls must be in place to ensure that receipts are issued to cash-paying customers and that different employees collect, record, and deposit the cash. If this SoD is not possible, you, as a business owner, must become involved. Another business practice is to establish a cash transaction threshold. Cash transactions over R10,000, for example, must be approved by the owner, whereas cash transactions under R500 can be charged to petty cash.
• Evaluate Logical Security - Logical security is also known as application access controls. They are login credentials for business information systems such as accounting software, expense tracking software, invoicing software, and many others. Specific apps and software must be accessible to the appropriate level of management. It does not imply that everyone, regardless of position or role, must have access to every app used in the business
• Control Physical Security - Physical security is also an internal control. If your company has an office or a physical store, it refers to the methods you use to secure business assets. Installing closed caption TV (CCTV) cameras, erecting fencing around the perimeter, and restricting access to specific areas are all examples of physical security. You can restrict employee access by providing access badges or key fobs. If there is no business need for high-tech security mechanisms, padlocks and standard door locks are still viable options. The best physical security in critical areas, such as cash vaults or offices where trade secrets are kept, is to limit access to one employee and the business owner. If you have extra funds, hire security guards from agencies to guard your business premises after hours.
• Confidential information - When handling confidential information in your business, whether it's about customers or employees, you have a responsibility to protect it. Failure to ensure that data is properly protected and in accordance with the law can result in lawsuits, as well as reputational damage and business loss.
• Confidential information - When handling confidential information in your business, whether it's about customers or employees, you have a responsibility to protect it. Failure to ensure that data is properly protected and in accordance with the law can result in lawsuits, as well as reputational damage and business loss.
• Evaluate Business Continuity - Some small businesses use sophisticated technology and equipment to provide one-of-a-kind products and services to customers. A business continuity or recovery plan is required for good internal control in the event of unforeseen events or disasters. This plan must detail the steps that the company must take to continue performing its critical tasks. In contrast, business continuity may include unexpected resignations, replacements, termination, or death of key business personnel. With a key position vacant, the company must devise a strategy to keep operations running even when key personnel are not present. There must also be sufficient documentation so that the person taking over the position can continue all ongoing departmental operations.

Define Roles, Responsibility and Authority

To ensure a successful management and controls, each employee must understand who is responsible for the various elements of the management system. Create an organisational chart and job descriptions to meet the requirements for clearly defining roles, responsibilities, and authorities, as well as communicating those responsibilities and authorities throughout your organisation.

You should create and distribute to all employees a list of key personnel, including job descriptions and responsibilities, as well as an organisation chart of key employees as they relate to your management system. This should effectively define, document, and communicate the management system's organisational structure. Please keep in mind that this is only a suggestion; other methods of meeting the requirement for organisational structure may be used.

You should create and distribute to all employees a list of key personnel, including job descriptions and responsibilities, as well as an organisation chart of key employees as they relate to your management system. This should effectively define, document, and communicate the management system's organisational structure. Please keep in mind that this is only a suggestion; other methods of meeting the requirement for organisational structure may be used.

Behind the Curtain: McDonald's Control Measures Unveiled

Enter the world of McDonald's, where control measures aren't just rules but strategic maneuvers. The founders understood that maintaining consistency is the key to global success. They deployed a meticulous system, ensuring that every aspect of the McDonald's experience adhered to a standardized protocol. From the preparation of the iconic Big Mac to the ambiance of each restaurant, control measures were the architects of a seamless and recognizable brand identity.

McDonald's control measures weren't just about maintaining a stringent corporate image; they were the guardians of quality, efficiency, and customer satisfaction. The impact was profound — a customer in Tokyo could expect the same taste and experience as one in New York. This standardized approach facilitated McDonald's expansion into diverse markets, transcending cultural differences. Control became the linchpin, turning a local burger joint into a global phenomenon.

How did they do it? McDonald's deployed control measures with military precision. From standardized operating procedures for franchisees to stringent quality control in the supply chain, every cog in the McDonald's machine had a role to play. Real-time monitoring, regular audits, and continuous training ensured that deviations were rare. Control wasn't about stifling creativity; it was the scaffolding supporting a global enterprise, allowing for consistency without sacrificing innovation.

McDonald's wasn't rigid; it was adaptive. The control measures were designed to provide a framework for excellence, not a straitjacket. In the face of changing consumer preferences and market dynamics, the control system evolved. The impact was resilience — McDonald's weathered storms, adapted menus, and embraced new technologies, all while upholding the core principles of the brand. It's a testament to the strategic brilliance of control measures done right.

Types of Internal Controls

Different types of controls are used to achieve various goals. We examine the types of controls used in each of the definition's four elements.

Controls to Safeguard Assets

These controls are designed to safeguard physical and non-physical assets while minimising losses from both internal and external events. Cash, stock, and equipment are examples of physical assets, while debtors, intellectual property, and customer lists are examples of non-physical assets. Control techniques used to safeguard assets include:

• Physical security, such as locking premises, personal offices, filing cabinets and safes, etc.
• Using security cameras.
• Restricting access to areas and databases.
• Assigning and changing computer passwords, access codes and safe combinations regularly.
• Avoiding giving one employee total control over a key process.
• Making sure accounts payable are supported by properly raised (original) invoices.
• Making sure there is an independent check on processes and procedures.
• Having firewalls and protective devices on computer systems.
• Having clear guidelines on personal use of assets.
• Ensuring proper management supervision.

Controls to Ensure Financial Information is Accurate and Reliable

Internal controls aid in the collection of accurate data for management and financial reports. Because many decisions are based on the information in these reports, accuracy is critical. Users, including regulators, assume the following when financial reports are prepared and presented:

• All assets and liabilities are real.
• The records are complete and cover the entire story.
• Included are all liabilities, rights, and obligations.
• All entries have been assigned to the appropriate accounts.
• All pertinent information has been revealed.

A company's financial survival is dependent on reliable and timely reporting of both good and bad news.

Many small businesses may question the need for internal controls or believe that they are only useful in larger businesses; however, many controls can be tailored to fit the needs of small businesses. Even a sole proprietor can reconcile their bank statement and chequebook on a regular basis, as well as compare budgets to actuals. Personal observation and routine checks can detect errors before they cause problems elsewhere in the business. Keep in mind that every dollar you lose or steal is a dollar less in your pocket.

Types of controls used to ensure accurate and reliable financial information include

• Assigning responsibility for who can create or alter financial records.
• Numbering documents, such as cheques, sequentially to avoid duplication.
• Regular reconciliation of accounts - Reconciliation is an accounting process that ensures the amount spent matches the amount shown leaving an account at the end of a fiscal period. Individuals and businesses conduct reconciliation on a regular basis to look for errors or fraudulent activity.
• Automated controls, such as valid date ranges or dollar value limits.
• Comparisons between budgeted and actual figures.
• Segregation of duties.
• Procedures for authorisation of payments - Payment authorisation is the process of verifying the amount to be paid on a payment method.
• Independent checks - Independent checks on performance, which are carried out by employees who did not do the work being checked, help ensure the reliability of accounting
• Validation checks - Validation is an automatic check to ensure that data entered is sensible and feasible. Validation cannot ensure data is accurate.
• Exception reports - An exception report is a document that details instances where actual performance differed significantly from expectations, usually in a negative direction. The purpose of the report is to direct management's attention to only those areas that require immediate action.
• Approved authority levels - The duly designated authority to make an approval decision.

Controls to Ensure Compliance with Financial and Operational requirements

Businesses have numerous compliance obligations that must be met. Controls used to ensure compliance include the following:

• Individuals, such as a safety officer or a fire warden, are given responsibility for ensuring that specific requirements are met.
• Physical safeguards to prevent accidents.
• Handling customer complaints in a fair and timely manner.
• Employee feedback procedures.
• Thoroughly documented procedures.
• Conducting routine audits.

Controls to Assist in Achieving Businesses Objectives

Decision-making becomes extremely difficult in the absence of accurate financial information, and the business suffers as a result. Internal controls help to ensure that financial information is accurate and timely so that managers and owners can take the appropriate action to meet the objectives and goals of the business. Other internal controls ensure that the company meets its objectives. Human resource controls include the following examples:

• Conducting reference checks on new employees to ensure they have the necessary qualifications.
• Ensuring that proper staff training has been provided.
• Appropriate staff supervision.
• When the nature of the job necessitates it, police and bankruptcy checks can be conducted.

Strategic Control Systems and Procedures: Oakland Athletics (A's) Lessons for Every Manager

In the riveting tale of Moneyball, the Oakland Athletics (A's) emerge as pioneers in deploying strategic control measures. Faced with budget constraints that would make any team quiver, General Manager Billy Beane and Assistant GM Peter Brand unleashed a data-driven revolution. The A's embraced advanced statistical analysis to meticulously measure player performance, shattering traditional scouting norms. This audacious move was more than a tactical adjustment; it was a control masterpiece that redefined the game.

The deployment of control measures wasn't merely a strategic choice; it was a game-changer for the A's. By meticulously analysing player data, they identified undervalued talent, creating a team that defied conventional wisdom. The impact was seismic—the A's not only competed but thrived in the face of financial giants. This control-driven approach disrupted the status quo, proving that strategic control isn't just about managing; it's about conquering.

What can managers learn from the A's control playbook? Embrace data as your ally. Implementing control measures involves a deep dive into relevant metrics, enabling informed decision-making. The A's understood the power of numbers, and so should every manager navigating challenges. Remember, strategic control isn't about rigid constraints; it's about using data to shape a dynamic strategy. As the A's demonstrated, when control measures are wielded with precision, victory is within reach, even against the odds.

SMEs Deploying Effective Controls

Many businesses use the "Committee of Sponsoring Businesses (COSO)" framework to establish good small business internal controls. A good internal control system, according to the COSO framework, has five components, which are easily remembered using the acronym CRIME:

• Control activities - These are manual and automated tools that aid in the prevention or detection of misstatements caused by fraud or error. The controls listed above are examples of control activities. However, each department may have its own set of control activities, such as accounting controls for the accounting department or production controls for the production department.
• Risk assessment - This entails assessing the risks posed by internal and external factors influencing the business. These risks may be related to operations, such as the risk of employee fraud or product returns due to defective production, or to economic and political risks that the business cannot control, such as rising interest rates, new legislation, and higher tax rates.
• Information and communication - An effective information and communication system is also required for the business. It entails communicating information to employees in order to assist them in carrying out their duties. To ensure smooth operation, the company should communicate to its employees the importance of adhering to controls.
• Monitoring - This refers to ongoing evaluations of existing controls and their implementation. Monitoring controls assist your business in identifying ways to improve if there are unexpected changes. Furthermore, it allows you to identify employees who are not following control procedures.
• Control environment - It is the set of standards upon which internal controls are based. The control environment is the business owner's and management's attitude toward internal controls, or the tone at the top. The control environment in your business is a result of your philosophy and operating style. In other words, it reflects your moral values. As a result, business owners who purposefully misstate tax returns may encourage employees to commit fraud for their own benefit.

Create Organisational Charts

organisation charts are used to depict a company's overall hierarchy as well as the roles, responsibilities, and authorities, including job titles and reporting lines, that operate within the quality management system. To ensure that quality management system requirements are integrated into your business processes, the organisation chart should include the roles and responsibilities that are required to comply with quality management system requirements.

All employees should be encouraged to understand their own and others' roles in implementing and maintaining business and quality management processes. All clearly defined accountabilities, responsibilities, and authorities must be documented and communicated throughout your organisation. Top management is in charge of reviewing, maintaining, and communicating your company's organisational chart.

Job Descriptions

Your organisation should create a job description for each identified job title in order to provide a narrative of what the role entails and to identify all associated tasks. Top management is responsible for assigning relevant roles and responsibilities (e.g., the tasks assigned to each role) as well as the authorities (e.g. permissions and interfaces allocated within each role).

The assignment of relevant roles, responsibilities, and authorities that affect conformity across your organisation includes the roles of top management, Management Representatives, Line Managers, Departmental Managers, Supervisors, Process Owners, and Process Users, among others.

• Conformance of the management policies
• Delivery of process output results;
• Reporting of the performance and improvement opportunities;
• Promoting customer focus;
• Maintaining the integrity of the QMS when changes occur.

A plan to show that relevant roles, responsibilities, and authorities are communicated and understood should be in place. This plan should include, as necessary, your organisation chart, resource allocation spreadsheets, role profiles, accountability statements, job descriptions, training matrices, and reviews of your employees' abilities, competence, and performance. The following standards ought to be included in job descriptions:

• Title of the job;
• Where the role sits within the team, department and wider business;
• Who the role reports to, and other key interactions;
• Key areas of responsibility and the deliverables expected;
• Short, medium and long-term objectives;
• Scope for progression and promotion;
• Required education and training;
• Soft skills and personality traits necessary to excel;
• Location and travel requirements;
• Remuneration range and benefits available;
• Convey our organisation’s culture and identity.

Each employee's quality accountability and responsibilities are essential components of their job descriptions.

SME Best Practices: Implementing Effective Control Measures

1. Assess and Identify Risks: Conduct a comprehensive risk assessment to identify potential risks and vulnerabilities within the business processes, financial reporting, and compliance requirements.
2. Establish Internal Control Objectives: Define clear objectives for the internal control system based on the identified risks and organisational goals, such as financial accuracy, compliance, and asset protection.
3. Design Control Activities: Determine and design specific control activities that will help achieve the established objectives. This may include segregation of duties, authorisation processes, documentation requirements, and regular monitoring procedures.
4. Implement Control Procedures: Put the designed control activities into action by implementing the required procedures, policies, and practices across the organisation. Clearly communicate the expectations and responsibilities to all employees.
5. Educate and Train Employees: Provide training and education to employees about the importance of internal controls, their roles and responsibilities, and the specific control procedures they need to follow.
6. Monitor and Evaluate: Continuously monitor and evaluate the effectiveness of the internal control system. This may include regular inspections, internal audits, and performance reviews to ensure compliance and identify any weaknesses or areas for improvement.
7. Adapt and Improve: Based on the monitoring and evaluation results, make necessary adjustments and improvements to the internal control system. Stay updated with changes in laws, regulations, and business processes to ensure the controls remain relevant and effective.

By following these steps, businesses can establish and implement an effective internal control system that helps safeguard assets, ensure compliance, enhance operational efficiency, and mitigate risks.

The types of controls you require will vary depending on the various flows of goods and funds within your business. Some areas of the business are more vulnerable to loss or fraud and require tighter controls. Examine each aspect of your business to see if you have controls in place. The checklists below will assist you in determining which controls you should have in place.

Financial Controls

It is critical for a small business owner to have a strong set of controls in place, especially as the business grows and it becomes more difficult to stay in touch with what is going on at the ground level. Effective financial controls and reporting allow the owner to manage the business without becoming bogged down in the details. Consider the following:

• Is there a chart of accounts?
• Is it detailed enough to provide adequate management information and compliance, or is it excessively long and complex?
• Do you use a double entry bookkeeping system?
• Who reviews and approves journal entries and credits?
• Is the owner aware of the format and content of the financial statements?
• Does the owner create budgets and cash forecasts?
• Are they compared to actual outcomes?
• Are significant discrepancies investigated?
• Do comparative financial statements exist?
• Do the books and records remain current and balanced?
• Who is in charge of generating financial data?
• Are reasonable deadlines set?
• Are employees cross-trained in accounting functions?
• Are storage facilities secure against fire or other physical threats?
• Is access to accounting records restricted when necessary?
• Is insurance coverage reviewed on a regular basis?
• Do you have any records retention schedule used?

Fixed Assets

Physical assets are easily misplaced and lost if not kept secure. Assets can be taken from within the business by employees, from external visitors to the business, or from a passerby on the street. When configuring your environment, consider all possibilities.

• Laptop computers and data projectors are common targets for theft, so keep them locked to a desk.
• If your office entrance is near the street or a stairwell, keep handbags and petty cash securely locked at all times.
• When an asset is purchased, it should be recorded on an asset register with all pertinent information. (This also helps with accounting.)
• Assign a staff member to be in charge of any expensive items, make sure the staff knows where the asset is, and lock it away when not in use.
• Create an asset register. It is critical that you keep a proper asset register and that you regularly compare your physical assets to this register, investigating any missing items. Make sure this is done on a regular basis, not just on June 30.
• Make certain that the same person is not in charge of ordering, recording, and paying for purchases.
• If you own a retail store with a high shrinkage rate, make sure your staff discount is high enough to ensure that your goods are purchased rather than simply taken.

Revenue

Accurately estimating stock and revenue requires accurate sales figures. You also want timely and dependable feedback on sales trends so that you can react quickly to changing circumstances. For example, you may need to purchase additional inventory or discount out-of-date inventory. Make certain that you have written procedures in place for cash, check, and credit sales. Never ship goods without an invoice. Make certain that your staff understands how to handle returns and customer complaints.

• Examine sales figures from their respective sources, such as invoices.
• If salespeople are paid on commission, make sure their sales figures are correct and that commissions are not paid until funds are received.
• Check the sales register against the takings and credit card receipts.
• Ensure that goods are shipped COD or with a tax invoice, and obtain proof of delivery.
• Is there a credit approval policy in place?
• Are credit files kept up to date?
• Are credit checks performed on a regular basis?
• Are sales orders approved for the following: - price? - conditions and terms? - attribution? - Account balance restrictions?
• All sales orders are recorded on pre-numbered forms, and all numbers are accounted for.
• How are sales invoices and shipping documents compared?
• Are sales invoices promptly recorded?
• Are credit memos assigned a number, accounted for, and approved?
• Does the owner review monthly statements for outstanding balances? Is it the owner or a responsible employee other than the bookkeeper who sends them?
• Is the accounts receivable subsidiary ledger monthly balanced to control account?
• Is a monthly ageing schedule of customer accounts prepared?
• Are write-offs and other adjustments to customer accounts (including cash back) authorized, reported on, and reviewed?
• Are stocktakes performed on a regular basis, and are the results reconciled to accounting information?

Debtors

Debtors is a critical business asset. Delays or failure to collect past-due accounts can cause cash flow problems and profit erosion.

• Make certain that your credit and collection policies are in writing.
• Perform credit checks on new customers.
• Age accounts on a regular basis and have an independent review of the report.
• Ensure that credit purchases are recorded as soon as they occur.
• Separate the accounts receivable and cash receipting functions.
• Cross-check transactions such as non-cash credits and bad debt write-offs.
• Have a well-documented and stringent policy for following up on past-due accounts.
• Conduct a regular review of credit balances.
• Billing should be subject to numerical or batch-processing controls.
• Ensure that early payment discounts and penalties on overdue accounts are cross-checked.
• Ensure that account mailings are not tampered with.
• Maintain a regular trial balance of individual accounts receivable.
• Reconcile trial balances with control accounts in the general ledger.

Cash Receipts

Employees frequently commit fraud in the area of cash receipts. This is due to the ready and available nature of cash, as well as the difficulty of matching cash with a specific transaction. The following points must be considered.

• Does the owner or a responsible employee other than the bookkeeper or the person in charge of accounts receivable: - open the mail and pre-list all cash receipts before handing them over to the bookkeeper? – Before handing over checks to the bookkeeper, do you stamp them with the restrictive endorsement 'for deposit only'? – How does the daily pre-listing of cash receipts compare to the cash receipts journal and the duplicate deposit slip?
• Are cash receipts deposited in their entirety on a daily basis?
• Are cash receipts posted on time?
• Do cash registers or pre-numbered cash receipt forms control cash sales?
• Does your cash register have restricted access?

Purchases

Purchasing controls are necessary to protect the physical assets of the business (e.g., stock) and to ensure that goods properly purchased and received are properly paid and accounted for. Remember that controls should alert you to errors and sloppy work practices, as well as outright fraud.

• Are supplier invoices: – matched with applicable purchasing orders? – matched with applicable receiving reports? – reviewed for correctness?
• Are all available discounts taken?
• Is there written evidence that invoices have been processed properly before payment (e.g. stamped or approved)?
• Are there procedures which provide that direct shipments to customers, if any, are properly billed to them?
• Does the owner verify that the trial balance of accounts payable agrees with the general ledger control account?
• Are expense reimbursement requests: – submitted properly? – adequately supported? – approved before payment?

Receiving Goods

Receiving is another critical component of the purchasing function, and a lack of controls can result in significant financial loss. Stock is another area where fraud and error are common. Would you know if you got what you paid for and whether it was in good condition?

• Are all materials received inspected for condition and independently counted, measured, or weighed? Are they also compared to any packing slips or purchase orders?
• Are receiving reports used and prepared in a timely manner?
• Is it necessary to pre-number receiving reports and account for the sequence of all numbers? - Prompt distribution of copies to those in charge of purchasing and accounts payable? - Controlled in such a way that liability for materials received but not yet invoiced can be determined?
• Do you have a clear policy and set of procedures in place for handling customer returns?

Creditors

Many small businesses have discovered that mistakes in purchasing and accounts payable can be extremely costly. This is an area that requires close scrutiny, and there should be numerous internal controls in place within the payment systems. Make sure you have a clear and simple list of written procedures for purchases and accounts payable so that all employees understand the processes they are expected to follow. When reviewing payments, consider the following important but simple controls:

• All purchasing and accounts payable procedures should be documented.
• Make sure payments are made on original invoices only, not copies or faxes, or they may be paid twice.
• After payment is received, stamp or perforate the original invoice to prevent it from being reused.
• Create an exception report to alert you to payables exceeding a certain amount, and, where possible, set authorisation levels so that the owner is the only one who can sign or commit the firm to certain amounts (such as those exceeding $1000).
• Implement controls to detect duplicate orders and/or payments.
• Ensure that supplier refund cheques are handled by someone other than the person processing the invoices.
• Check invoices that only have a PO Box address.
• Examine invoices with company names that are only initials.
• Look up unfamiliar vendors in the phone book or on the internet at www.abr.gov.au.
• Ensure that the person who approves new vendors is not the same as the person in charge of the payment process.
• Monitor rapidly increasing purchases from a single vendor.
• Review vendor billings more than once per month.
• Compare vendor addresses to employee addresses.
• Keep an eye out for large billings that are broken down into multiple smaller invoices, each of which is for a small amount.
• Once a month, choose a type of vendor (for example, all tradespeople) and go over each line total and number of invoices for each vendor.
• If you rely heavily on one supplier, compare their prices.
• Look into invoices for services that aren't clearly defined.

Cash Disbursements

Once again, the issue is cash and the ease with which it can be obtained. Effective controls in this area will reduce the risk of misappropriation, and the following points should be considered.

• Except for petty cash, are all disbursements made by cheque?
• Are cheques pre-numbered and are all numbers recorded?
• Are all cheques recorded when they are issued?
• Are all unused cheques secure, with limited access? Is a mechanical cheque protector used to inscribe amounts as a security measure against tampering?
• Are canceled checks kept and mutilated?
• Is the owner's signature required on all checks? How many people have signed the check? Are the people who generate the majority of invoices also the people who sign the checks?
• Is the use of a signature plate solely under the control of the owner?
• Are supporting documents such as processed invoices, receiving reports, and purchase orders presented with the cheques and reviewed by the owner before the cheques are signed?
• Are cashier's checks prohibited?
• Is it possible for signed cheques to be mailed by someone other than the person who wrote the cheques?
• Is the owner receiving bank statements and cancelled checks directly? - are they reviewed by the owner before being given to the bookkeeper?
• Are bank reconciliations performed on a monthly basis for all accounts? - by someone other than the owner or the person authorized to sign cheques or use a signature plate?
• Is the owner reviewing bank reconciliations and approving cash account adjustments?
• Are all petty cash fund disbursements accompanied by approved vouchers?
• Is there a predetermined maximum dollar limit on individual petty cash disbursements?
• Are petty cash funds on an imprest basis and kept in a secure location? - sufficient in amount that the fund normally requires reimbursement at least monthly? - ruled by a single person? - counted on a regular basis by someone other than the custodian?
• Be wary of budget variances in payroll expenses and investigate any differences.
• Keep complete payroll records for vacation and sick leave, and use direct deposits for pay. Although not foolproof, this can reduce payroll fraud by eliminating paper pay stubs and the possibility of alteration, forgery, fraud and most theft.
• Ensure that the payroll can be processed by more than one person.
• Put checks in place to ensure that the rates, commissions, and allowances paid to each employee are consistent.
• Implement checks to ensure that the names on the payroll correspond to actual people who have been employed.

Cash and Bank Accounts

Businesses that primarily deal in cash are prone to fraud or loss because cash is easy to misappropriate, particularly in small businesses where controls are often weak. Common controls include:

• Never leave blank cheques or chequebooks lying around.
• Owners should go over their cheques, cheque register, cash register totals, and bank statements on a regular basis, but not at regular intervals (e.g. not every Monday morning).
• Maintain strict control over all cash, and balance tills daily or more frequently in businesses that handle a lot of cash (e.g., clubs, news agencies, or hotels).
• If employees are handing over to another employee, have them balance the cash at the end of each shift.
• Reconcile bank accounts on a regular basis.
• When possible, separate mail opening from deposit slip writing, and banking from bank statement reconciliation.
• Separate the approval process from the responsibility for cash disbursement and purchases.
• Ensure that the accountant does not notify employees before entering the premises to conduct an audit.

Payroll

Many payrolls, even small ones, are now automated, making it easier to commit fraud or error if internal controls are weak and procedures are not established and followed.

• If an electronic payroll is used, make sure supervisors change their passwords on a regular basis.
• Make certain that passwords are not given to other employees while the person is on vacation or sick.
• To avoid potential fraud, ensure that any payroll summaries are printed in the same typeface as the system's printer.
• Check bank account deposits to ensure that each pay is deposited into a separate bank account.
• If possible, separate the functions of payroll preparation, disbursement, and distribution.
• If at all possible, the payroll officer should not compute their own pay.

Questions to ask yourself about your staff

• Do you hire all of your employees?
• Are individual personnel files kept?
• Is access to personnel files restricted to you or a designated manager who is not involved in payroll or cash operations?
• Do you, as the owner, approve wages, salaries, commissions, and piece rates?
• Is proper authorisation for payroll deductions obtained?
• Is gross pay calculated using authorized rates, and do employees paid by the hour keep adequate time records? - piecework records for employees paid on a production basis? - Are piecework records and sales records reconciled? - Are commission records for salespeople reconciled with sales records?
• If employees punch time clocks, are the clocks placed in such a way that they can be observed by someone in authority, or are there security cameras nearby?
• Are hourly employees' time records approved by a supervisor?
• Would you be aware of any employee's absence?
• Is the payroll's clerical accuracy checked?
• Do you go over payroll registers?
• As the owner, do you approve, sign, and distribute payroll checks?
• Do you compare the cash requisition to the net payroll if employees are paid in cash?
• Do you keep track of unclaimed payroll checks?

Find out more about your employee - Employees are extremely important in a small business. They are your point of contact with customers, suppliers, and competitors. Take the time to hire the right person for the job and your management style, as the costs of hiring and training can be three months' wages. This is not a simple procedure. Unfortunately, some people do falsify their employment records in order to obtain a good job; it is more common than you might think.

• When hiring a new employee, always check their employment history, call previous employers, and don't rely solely on written references.
• Verify any claimed educational credentials that are critical to the job/operation.
• Conduct annual performance reviews with employees on a regular basis.
• Make certain that adequate training is provided.
• Clearly define roles and responsibilities.
• Maintain open lines of communication with employees: Employee resentment grows when the owner enjoys success without sharing it with his or her employees. Be aware of our employees' hopes and expectations.
• Don't misplace trust - in a small business, one person usually bears an excessive amount of financial responsibility. Examine your office staff.
• Is annual leave required to be taken on a regular basis?

Staff feedback - Finally, create a process for employees to report breaches in internal controls and suspicious behavior. Make sure your employees understand that your door is always open and that their concerns are welcomed rather than considered a nuisance. The majority of fraud is detected by employees tipping off auditors, owners, or accountants. You can promote this culture in your organisation by doing the following:

• Having a whistleblower procedure in place.
• If possible, protecting whistleblowers' identities.
• Keeping whistleblowers safe from retaliation.
• Investigating violations as soon as possible and taking firm disciplinary action as needed.
• Rewarding employees for reporting breaches in internal controls or outright fraud (as well as for innovative ideas), possibly with a gift voucher or something similar for every useful suggestion.

It is critical that employees believe it is their duty and responsibility to report such issues because their livelihood, as well as yours, is dependent on the financial integrity of the business.

The Art of Control: AEY's Control Measures in War Dogs

In the arms industry, control isn't just a strategy; it's a necessity. AEY, as depicted in War Dogs, understood this imperative and deployed meticulous control measures throughout their operations. Facing a high-stakes environment, Ephraim Diveroli and David Packouz implemented strict protocols to monitor inventory, transactions, and compliance with regulatory frameworks. This wasn't just about caution; it was a calculated move to mitigate risks and maintain a semblance of order in a chaotic industry.

The control measures implemented by AEY weren't just bureaucratic hurdles; they were strategic safeguards. These measures ensured accurate record-keeping, minimised the chances of regulatory violations, and contributed to a sense of transparency. In an industry where the consequences of missteps are severe, AEY's commitment to control had a profound impact. It instilled a sense of order in a world fraught with uncertainty, allowing them to navigate the risky terrain of arms dealing with a degree of precision and confidence.

Beyond mitigating risks, the impact of AEY's control measures extended to maintaining integrity in their business dealings. With a focus on transparency and accuracy, they not only complied with legal requirements but also built a reputation for reliability. In the arms industry, where trust is a scarce commodity, AEY's commitment to control measures became a distinguishing factor, setting them apart from less scrupulous competitors. It was a strategic move that paid dividends in an industry where credibility is often as valuable as the products being traded.

"Systems for Business Success: Implementing Control Measures

In essence, the key takeaway from the discussion on business administration and control measures revolves around the foundational principles and practices that businesses should integrate for sustained success. Firstly, effective management structures and strategic planning are emphasized as cornerstones for organisational coherence. Establishing clear roles, responsibilities, and communication channels is imperative, ensuring a streamlined decision-making process and fostering a collaborative working environment. Strategic planning, goal-setting, and performance measurement align business activities with overarching objectives, providing a roadmap for sustainable growth.

Secondly, the importance of stringent internal controls is highlighted to mitigate risks and safeguard assets. Comprehensive systems for financial reporting, accurate data management, and regular audits are recommended to prevent fraud and errors. Businesses are encouraged to stay attuned to changes in regulations and industry standards, ensuring ongoing compliance and adaptability to evolving business landscapes. Continuous improvement is underscored, urging businesses to regularly reassess and enhance their management and control systems to effectively respond to emerging risks and opportunities.

Finally, the discussion emphasises the proactive deployment of control measures. Businesses are advised to conduct thorough risk assessments, design effective control measures, and instill a culture of compliance within their operations. By empowering employees to take charge of monitoring and evaluation, organisations can independently safeguard their operations, protect assets, and build trust with stakeholders. The overarching message is a call to businesses to take ownership of their administrative and control processes, aligning them with strategic goals, and adapting them to the ever-changing business environment to optimise performance and enhance their online presence.

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