The word audit brings up visions of taxes, the IRS, and lots of business records being looked over with a fine tooth comb. An audit doesn’t have to be a scary process, but rather, a detailed look at your business practices, financials, and opportunity to improve. The frequency of audits of your business depends on your business type and model, but should be done at least once a year. Many businesses do them on a quarterly or twice-yearly basis as well.
Auditing income –This act can help a business understand how money comes in from various sources, as well as examine if there are better practices or strategies to employ that can increase the profits. Looking at income streams and how they are collected can determine if the right amount of money is being charged, collected, and allocated correctly to the appropriate departments and accounts. Examining invoices can determine if payments are being made to you, are on time, and if not, are the late fees being charged. In addition, if contracts are involved with income, audits can help determine if all terms and conditions are being followed.
Auditing expenses –Auditing expenses, can improve business practices, indicate unnecessary expenses that could be avoided, fees or taxes that may have been overpaid, or finding areas where additional savings could be identified. Analyzing expenses can help determine that payments were made on time, saving you late fees, as well as help review terms and conditions of your contracts with vendors.
Auditing tax compliance & credits –In addition to expenses and income, an audit will look through taxes paid by your business, to determine that you are paying properly. There may be tax credits or opportunities for saving that you do not realize. Each state has their own set of tax rules so it’s important to make sure everything is paid on time and with your state’s regulations, as well as on the federal level.
Auditing inventory & cash reconciliation –Finally, an outside audit can help with inventory and cash reconciliation. This can especially be helpful for a business that has a lot of product inventory and needs an independent, third-party to make sure everything is in order. This includes verifying the recorded amounts of inventory that was sold, written off and on-hand. This ensures that products were sold properly, registered out of inventory and reconciled properly and that existing inventory numbers are correct.
Having an internal audit may cost the business in the short-term, but could bring savings and better business practices in the long-run. “A penny saved is a penny earned”