This month we conclude our Article Series titled Risk Management, written by and reproduced with permission by CPA Australia.
Other risk areas
It is important to have controls in place to protect the business’s assets. The controls needed will vary depending on the business’s goods and funds, the type of industry it is in and its potential to suffer from loss or fraud.
The business’s key areas should be reviewed to ensure that policies and procedures are in place to manage risks in areas such as those listed below.
What are the procedures for shipping goods? Are delivery instructions recorded? How do you ensure that all sales are recorded? What are the procedures for handling cash, cheque and credit sales?
Are outstanding payments from customers reviewed on a regular basis? What procedures are in place to follow up on late payments? Are procedures in place to check early-payment discounts?
What procedures are in place to ensure purchases are in line with what is required? Are suppliers’ details checked on a regular basis to ensure the details (i.e. addresses or bank account numbers) are correct and not a staff member’s? What procedures are in place for checking goods received against goods ordered?
Are payments checked to ensure they are not duplicated or identical? What procedures are in place to ensure that payment is made on agreed terms? Can rapidly increasing purchases from one supplier be identified?
Does the business have controls in place to ensure that all invoices are appropriately approved before payment? Who is approved to make payments? Are the duties for banking and bank reconciliation separated?
One of the most important ways to protect the business against risks is to carry sufficient insurance. With insurance you can decide which risks you must insure against and which can be covered by the business or its owners.
Building and contents insurance
This insurance should cover the business’s building(s) as well as contents and stock against loss due to a number of circumstances.
Business interruption or loss of profit insurance
The business should be covered for interruption due to damage to property by fire or other insured perils. The cover should ensure that ongoing expenses are met and that anticipated net profit is maintained through a provision of cash flow.
Public liability insurance
Public liability insurance should cover the owner and business against the financial risk of being found liable to a third party for death or injury, loss or damage of property or economic loss resulting from the business’s or the owner’s negligence.
Key person insurance cover
This type of insurance should help cover the loss of a key member of staff.
Workers’ compensation insurance
In Australia, it is compulsory to maintain appropriate accident and sickness insurance for all employees and certain contractors you engage in your business.
Personal accident and illness insurance
This insurance is important for self-employed business operators who are not covered by workers’ compensation insurance.
Motor vehicle insurance
It is compulsory to insure all company or business vehicles for third party injury liability in Australia.
Business assets should be protected against burglary by this type of insurance.
Professional indemnity insurance
This type of insurance should protect the business from legal action taken for losses incurred as a result of the owner’s or employees’ advice.
Losses resulting from misappropriation by employees who embezzle or steal should be covered by this insurance.
Machinery breakdown insurance
This insurance should cover the business for any losses incurred if plant and machinery break down.
Product liability insurance
This insurance provides cover for injury or damage caused by goods the business sells, supplies or delivers — even in the form of repair or service.
As the type and level of insurance cover required requires an assessment of the particular needs of the business, it is necessary to speak to an insurance specialist to ensure your are adequately protected.
This concludes this series of articles. We sincerely thank CPA Australia for allowing us to reproduce and share their work in this area.