Financial Controls

Financial Controls

Financial Controls Jonathan Poland

Financial controls are the policies, procedures, and processes that an organization puts in place to manage and protect its financial resources. These controls help to ensure that financial transactions are accurate and authorized, and that financial reporting is reliable and consistent.

There are several types of financial controls that organizations can implement. These may include:

  1. Internal controls: These are controls that are implemented within an organization to ensure the accuracy and reliability of financial transactions and reporting. Internal controls can include segregation of duties, periodic reconciliation of accounts, and the use of checklists and procedures to ensure that all financial transactions are properly documented and authorized.
  2. External controls: These are controls that are implemented by external parties, such as auditors or regulatory agencies, to ensure the accuracy and reliability of an organization’s financial statements and reporting. External controls can include audits, reviews, and inspections.
  3. Risk management controls: These are controls that are designed to identify and mitigate financial risks that an organization may face. This may include the use of insurance, diversification of investments, and the implementation of contingency plans.

Effective financial controls are essential for ensuring the integrity and reliability of an organization’s financial information and for protecting its financial resources. By implementing appropriate controls, organizations can improve financial management, reduce the risk of fraud and errors, and enhance the confidence of stakeholders in the organization’s financial reporting. The following are some examples of financial controls.

Accounting Standards
Adopting an accounting standard with knowledgeable staff who are accountable and responsible for its implementation.

Financial Statements
Executive leadership such as the CEO and CFO are accountable to deliver timely and accurate financial statements such as income statements, cash flow statements, balance sheets and statement of changes in equity.

Operating Metrics
Executive leadership such as the CEO, CFO and COO are accountable for delivering timely and accurate operating metrics such as profit margins.

Policies are in place in areas such as general ledger, chart of accounts, recognition of revenue, reconciliations, invoicing, payment processing, inventory and asset management. Knowledgeable accounting staff managed by the executive team are responsible for implementing policy.

Segregation of Duties
A clear segregation of duties exists between areas such as sales and revenue recognition.

Reconciliations such as bank statements to general ledger.

Clear responsibilities such as a person who is responsible for sending account statements to customers each month.

Approvals processes such as CFO approval of major sales deals looking at factors such as gross margins.

Disbursement Policies
Validation of disbursements such as checking that each payroll payment is to a bona fide employee.

Audit Trail
Audit trails are created and retained for events such as approvals, financial transactions and updates to financial documents.

Information Security
Access to financial software and documentation is restricted to authorized personnel.

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