Picture a small textile workshop where the cashier also keeps the cash book, issues invoices, and handles the month-end reconciliation. When one person does all three jobs, a mistake or a deliberate irregularity can go unnoticed for months. This situation is very common in small businesses. But in companies that have moved to a computer system, the picture is starting to change. MIS, or management information system, is the software that stores and reports all of a company’s records. It does more than speed up accounting work; it also keeps a record of who did what and when.
Internal audit means checking whether things in a company are running correctly. Usually the business owner, the accounting manager, or an outside financial advisor handles this. With paper-based records, the job takes a long time. Going through invoice books one by one, sorting cash receipt slips, tracking down inventory count sheets — all of it is tiring and leaves plenty of room for error. When a computer program enters the picture, part of this changes.
In a good accounting or ERP (enterprise resource planning) program, each user gets a separate password and a defined set of permissions. The cashier gets access only to the cash receipts screen. Issuing invoices belongs to a different user. Month-end reconciliation is open only to the manager. This is called segregation of duties. The same separation can be written down on paper, but in practice nobody follows it. In the software, the system simply does not allow it; the cashier cannot open the invoice screen at all. This turns a manual audit step into an automatic one.
Another important record the program keeps is the log, or audit trail. Every entry, every deletion, every correction is recorded with the name of the user and the exact time. The program knows which user deleted which invoice at half past seven last evening. Seeing this in a hand-written ledger is nearly impossible. When an auditor looks at these records, a suspicious transaction is spotted much faster. An accounting manager can review all movements in a few hours before the month-end close. In the old way, the same job used to take days.
Automatic controls also reduce the audit workload. The program blocks certain errors at the point of entry. Entering the same invoice number twice is not possible. When stock quantity drops below zero, the system gives a warning. When the cash balance goes negative, the program stops the transaction. Each of these was once an error that an auditor had to find by hand. Now the software handles these checks automatically. The auditor can spend time on genuinely suspicious points instead of hunting for simple typing mistakes for hours.
Of course, none of this is effortless. How much the program helps depends entirely on whether it is set up correctly. If permission settings are not defined properly from the start, the system is useless. In some small companies, everyone uses the same password; in that case the audit trail means nothing at all. There is also the matter of data backup. The records in the program sit on the computer’s hard drive. If the drive fails or the system crashes, the entire audit trail is gone with it. Taking regular backups is therefore essential. Floppy disk or external drive backups remain the most common solution available at this point.
As an SME owner or accounting manager, three questions are worth asking right now. Does every user in the current program have a separate password? Have you checked which screens each person can open? Can the program show which records were deleted or changed last month? If the answer to any of these is no, the software is not yet ready to support internal audit. Buying a new program is not necessarily the answer; activating and correctly configuring these features in the existing software is usually enough. Doing so also brings down the cost of hiring an outside auditor by a meaningful amount.
This article was originally written in Turkish by Gökhan MERCANOĞLU on May 12, 2003 and has been automatically translated into English and other languages using machine translation.