Maintaining an organized audit trail file is critical.
Audit trails are important for all companies to have. Without the use of an audit trail business owners may find themselves involved in devastating situations that harm the company including internal fraud, frequent and invasive audit investigations, rejections of funding and compliance infractions.
To avoid these repercussions it’s critical to maintain an audit trail by logging all financial transactions made by the company, creating an organized database, ensuring the database is being frequently and maintain the logs in a secure area.
The article below outlines the steps that companies should take to create an audit trail and ensure they are protected from harmful financial outcomes.
Log Financial Transactions
The most important thing that companies can do to create an audit trail is to log all of the company’s financial transactions. Meaning, companies should ensure that they have proof of any payments, invoices, documents, or transactions that have been made.
It is further recommended that once a transaction has been made (or an invoice created) that it is copied and placed in a secure area. This process can help avoid confusion if the original receipt becomes lost, damaged or stolen. Further, without accurate logs, companies may be unaware of how much money is being spent which can prove disappointing if company accounts are smaller than originally thought.
Create a Database or Trail File
To help ensure a seamless process, companies should create a singular database or trail file system to keep all of the paperwork secure. Oftentimes, companies use the help of a software system where all of the receipts can be uploaded, monitored and organized according to their preferences.
With the help of a database system companies will be able to organize their filings based on the type of expense that it is (for example office supplies, company pay-out, machinery, etc.) and further organized by the date.
Without a singular place for workers to go to upload, these files companies are risking a disorganized system where it can be difficult to find receipts and prove how much money has been spent.
Update Frequently
Once owners have established a way to help organize all of their documents it’s important that they have someone monitor the database by monitoring it regularly. This process should be done frequently as a way to avoid accidentally missing any paperwork.
Further, having a person monitor the database can help to find any errors or miscalculations that could have an impact on the company’s accounts before an audit occurs.
Ensure Logs are Secure
Another tactic that company owners should use is to hold the logs in a secure location. This can easily be done by encrypting the files that the database has been uploaded to, or simply leaving one trusted employee with the password to access the files.
Further, owners should look to have a third-party company come to complete a yearly audit as a way to prevent accidental errors from occurring.
This is important as it can help to prevent internal fraud from impacting the company. Further, it can allow for a more organized system as a single person (or department) will know where to look for items.
Ultimately, it’s important that companies take the time to create an audit trail. Without the correct tactics in place, they are at risk of losing, damaging or misplacing important receipts that the IRS may be requesting to see. If you’re a business owner that needs help creating an audit trail, consider getting in touch with a member of our staff who can help you to establish one today.
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