How to Implement Effective Internal Controls to Prevent Revenue Leakage

Awareness of Effective Internal Controls to Prevent Revenue Leakage among Small Businesses and Steps to Implement Internal Controls:

Small business dealers dealing in unorganized markets has always faced the problem of revenue leakage due to lack of availability of Man Power Resources as well as too much dependence and trust on existing employees. With the increasing competition in existing markets Businessman has now became aware of accountability and really wants to know their current postion in the market and where their business actually stands. This has given rise to Implementation of Effective Internal Controls at every possible point where there is a possibility of Revenue Leakage. This has provided an opportunity to all the Chartered accountants to assist the small Businesses in implementing effective Internal Control mechanism so that the businessmen could focus on their exisiting business rather than dealing with the Revenue Leakage issues.

Steps to recognize Revenue Leakage:

Step 1: Evaluate your Existing position :

Most of Businesses in unorganized market are unaware of where their business is really going. Trades are made every day without any sound knowledge of their current business position, where the businessmen would think that their turnover is increasing but in fact their profits are decreasing. In order to set up effective Internal Controls, you need to evaluate your current position of Business which might be a time consuming process but is necessary to enable implementation of Internal Controls. Evaluating your current position would mean evaluating everything that would affect your current business position per se. Be it outstanding receivables from customers, outstanding payable to suppliers, Intermediary Agents recruited on Commission basis, existing Sales and Purchases and so on.

Step 2: Identify The Source and Destination of Revenue

This is a very simple yet a challenging task. Identifying the source of Revenue might won’t be a problem as such. But the real problem lies where the revenue is actually utilized and ultimately where it gets disappeared.

Step 3: Identify the Revenue Leakage with help of Step 2

By identifying the source and destination of revenue, there is a need to make an in-depth examination of where the revenue leakage actually takes place. It may possibly be theft, unnecessary expenditures or negligence on part of employees where the revenue might not be accounted for.

Step 4: Implementation of Effective Internal Control:

Once the Source of Revenue leakage has been identified all that is required is implementation of effective internal Controls within such revenue leaking department. What could be possible Internal Control may differ from business to business but the ultimate goal of such Internal Control should be keeping track of such Revenue leakage and how it has been reduced or stopped.

Step 5 : Monitor the Internal Control System from time to time.

Simply implementing the Internal Controls is not enough. It is required to monitor from time to time by third party who is impartial to the existing system. Defects, if any, in the existing system could be rectified and the controls should be re-implemented to enable smooth functioning of business.

Content is merely for sharing knowledge. For any queries or suggestions, Author can be reached at [email protected] or 9920868483.