Are Your Accounting Controls Failing in a Remote Work Environment?

Whether your accounting team is employed in-house or outsourced to a third party, the question of whether it will return to the office or continue to work remotely is likely at the top of your mind. Nationwide many companies have returned the office, at least as part of a hybrid work model, but those changes have been the source of stress at various levels. With some workers wanting to go back, others desiring to stay home, and management tasked with keeping everyone happy and productive, this topic is causing friction across the board. But increasing employee satisfaction is not the only factor being considered.

More serious issues like financial integrity and risk management are also in jeopardy. Just like the concerns that arose when employees began working from home suddenly at the start of the pandemic, this transition to a permanent remote work pattern has many experts analyzing the implications for financial controls.

To understand how these internal controls can become compromised with remote workers, let’s examine the most important accounting controls in your business right now and discuss how you can strengthen them amid a remote work environment: 

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Separation of Duties
With the hiring crunch being felt across many industries right now, finding highly qualified individuals for open roles has gotten even more challenging. The result is that many employees (especially business owners) are wearing more hats these days. While that may work for other areas of the business, giving too many financial responsibilities to any one person is dangerous.

To maintain a proper separation of duties accounting responsibilities should be divided among qualified employees. However, in smaller companies with less headcount, this can be especially difficult to achieve right now. In these cases, major areas of responsibility like reporting, handling cash, purchasing, and audit should be assigned to different personnel. This may necessitate outsourcing some of your accounting needs, but it is a crucial step in mitigating financial risk.

Alternatively, a peer review system can be utilized to provide a system of checks and balances – reducing the risk of error and opportunistic theft. Ask employees with similar skillsets and experience levels to check each other’s work, either periodically or randomly and analyze any discrepancies that are discovered.

Restricted Access
The adage says, “keep people out to keep value in” – this is the goal of access controls.

With employees working from home, physical access controls like locking the door to the supply closet or keeping the cash in a safe are not going to accomplish as much. Digital access controls have become far more important as remote work has shifted companies to utilize online accounting platforms and integrated apps to keep widely dispersed employees working together on the same information.

With an adequate separation of duties employees should be undertaking different accounting tasks, which means they do not all need access to the same information. Use permission levels, access logs, and usage history reports to keep employees out of the areas they do not need access to for their job functions. Ensure employees are using secure passwords that are updated frequently, not sharing logins, implementing two-step verification, maintaining anti-virus software, and working through VPNs when accessing or transmitting financial data. Invest in your cyber security as well to prevent information breaches due to external cyber-attacks.

Required Approvals
Requiring purchase order, customer refund, and expense reimbursement approvals by managers is an easy way to minimize the potential for fraudulent activity. With employees working further apart, and sometimes on shifted work schedules, there can be a temptation to overlook this internal control for the sake of efficiency. However, required approvals ensure that a single bad actor cannot easily commit fraud. Even when there is no fraudulent intent, required approvals can minimize waste by adding a quick check to ensure purchases are necessary, reasonable in cost, and correctly timed.  

Asset Audits
Cash and credit reconciliations, physical inventory audits, cash drawer counts, and financial report audits are all types of asset audits. Audits are the most widely used internal control system because all companies perform them regularly throughout the year, month, week, or perhaps even daily depending on the nature of the business a s apart of cash flow management.

Comparing what you should have with what you do have is a very basic accounting control that should not be overlooked as part of remote work. However, illness, employee turnover, early retirement, and difficulty hiring in a competitive hiring market have created gaps inside of companies of all sizes, requiring that other employees pick up the slack. As to-do lists get longer, bookkeepers and accountants may be tempted to deprioritize routine checks like asset audits in favor of focusing on more urgent needs.

Unfortunately, spreading out employees and giving them more freedom naturally opens the door to more opportunities for digital theft. Think about it, is an employee more likely to try to walk past the manager’s office to go steal a handful of cash from the safe or cut themselves a check electronically from the comfort of their couch at home alone?

Allowing employees to work remotely without the proper internal controls opens the door for fraudulent activity. As a result, regular audits are even more important these days. Performing reconciliations and report audits can help organizations to discover a problem before it becomes extremely costly.

Business Templates
Using standardized business documents has always been a best practice, but with team members working in different locations, it is even more crucial that everyone uses the same templates. If you have not already, create templates for estimates, invoices, POs, and expense reports to minimize errors and improve efficiency. House these documents on shared drives or platforms where everyone can access them to promote their adoption and continued usage. Over time as business needs and practices change update these documents to keep them relevant.

Data Backups & Security
Many companies forget that data backups are a form of accounting control. While this function is typically handled by an IT team, rather than your accounting team, ensuring it is being done to protect vital financial data is under the purview of the controller or CFO.

With employees working outside of the office alongside kids, pets, and others, the risk of damage to personal technology is higher. Have procedures and policies in place to ensure all employees are maintaining their devices (laptops, cell phones, and tablets) in a way that keeps them safe from data loss, whether that is due to cyber-attack, theft, or accidental damage. Your It team can advise on how best to manage this as well as ensure that servers are being maintained and cloud storage is working properly to protect this data once it is backed up.

Additionally, make sure employees know who to contact if they are having a problem accessing, saving, backing up, or sending financial information. With cyber-attacks on remote employees on the rise, encourage employees to report anything suspicious, like an email that looks like it could be coming from IT asking them to download anything or provide login credentials.
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Act Now!
Survey responses show us that 65% of workers want to work remotely on a full-time basis, while another 31% want to work remotely some of the time, meaning that remote work is not going anywhere anytime soon. The same can be said of remote bookkeeping, which is widely being accepted as the new normal in accounting for 2021 and beyond. When you are ready to hire an accountant to do your company’s accounting work in the cloud, reach out to us. We have a team of highly experienced accountants to meet your full-time, fractional, and interim accounting needs while maintaining tight internal control standards.

For detailed information on establishing and maintaining controls read our most popular guide: 8 Types of Internal Control Accounting System