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Implement these three levels of controls to reduce errors in your company's creditor balances

by , 22 July 2013
Errors in creditor balances can lead to overpayments and underpayments. This makes you liable for interest and penalties. Don't let your business suffer unnecessarily. Put these three creditor controls in place today and save your business's cash flows.

'You don't need to increase your staff complement or change your accounting system to increase the controls in areas where your business is vulnerable to risk, says the Practical Accountancy Loose Leaf.

In many cases, increased management awareness and supervision are useful preventative measures. Increased authorisation requirements also go a long way to improve controls, adds the Loose Leaf.

These controls mean that as management, you'll have to increase your effort in these areas. But the benefits should outweigh the inconvenience!

Reduce errors in creditor balances using these three controls

#1: Controls at management level

At this level, you must ensure that transactions aren't executed without your prior approval. Once recording has taken place in the financial records (for example, the general ledger and creditor's ledger), you also need to be sure the information you approved has been accurately captured.

Review the creditors listing and age analysis to keep track of the movements on creditors and ensure your staff follows up on overdue accounts.

#2: Controls at staff level

At this level, don't allow your staff to approve and authorise transactions. They should sign documents to show they take responsibility for the information, or to acknowledge they've performed the tasks necessary for that function. This'll also help you identify who was responsible, if you have any queries.

Adequate stationery controls can also assist in reducing risks. Supplier application forms and creditor change forms create an opportunity to add fictitious creditors to the system. Distribute these only when necessary, rather than making them freely available to your staff.

#3: Controls at system level

These controls will depend on the accounting system that your company uses. But there are some basic concepts that can be applied to most systems.

The easiest ones relate to the use of passwords, which you can use at various levels. You can use certain passwords that segregate the duties of staff.

For example, your financial manager's password will grant her greater access and give her different duties to the password of your bookkeeping clerk.

Create controls that don't allow staff to change passwords. Depending on the functionality of your systems, it's also very beneficial to use reports and log-in trails offered by different systems. That way, you'll be able to see right away if someone who wasn't authorised to access a particular system, did so.

Remember, the more levels of controls you have in your business, the more assurance you've got that your creditors are safe from the risks mentioned above. Implementing these controls will help you reduce errors in creditor balances.

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