The Essential Financial Controls All Businesses Should Implement

As in most situations, it’s best to not have one person in control of everything. Segregating duties means that no single employee has total control over a financial transaction – like processing invoices or approving expense claims. This improves the accuracy of financial data and minimises the risk of fraud.

Tasks that should be segregated include booking journals and making payments.

When setting up a workflow, the more junior employee should book the journal or set up the payment and the more experienced team member authorise or book the transaction.

While these processes should involve a minimum of at least two individuals, companies should plan for when staff are on annual leave with alternate workflows so time-sensitive transactions can still go ahead.

Reconciliations aren’t a once-off – they should be done regularly. This process of matching accounting to source data keeps financial information up to date and can pin-point errors or anomalies that can undermine the integrity of financial records. 

Reconciling accounts weekly will make it easier to fix errors, helping to stay on top of banking, payroll records, and fixed asset registers. Retail businesses with a physical shop front should reconcile cash takings against transaction records, while those operating online should remember to reconcile digital transactions.

Financial controls include setting up who is responsible for what. Limits on who can authorise or approve transactions above a certain amount can keep tighter reins on spending, helping companies to stay  on budget and make sure any spending policies are consistently applied throughout the business.

These authorisations and approvals should apply to employee expenses as well as supplier invoices.

An effective way to do this is to insist on raising purchase orders for invoices over a specific amount.

Tools like ApprovalMax can streamline these transactions by creating automated approval workflows related to managing purchase orders or employee expenses. By automating these, actions can progress easily without having to manually chase or nudge the person who’s turn it is next.

While you can set up an authorisation process for transactions above a set amount, it’s still important to track and monitor company spend across all budgets so that expenses are within planned limits.

If you don’t check budgets before giving approval to pay bills and invoices, it can cause working capital issues.

This makes it  harder to pay suppliers on time and increases the likelihood of needing short-term funding, which isn’t ideal in the current high-interest rate environment.

Certain tools simplify, or even automate, this process. Where possible, seek out cloud-based options that compare company budgets to live accounting data, inspect and document variances.

New legislation, like Making Tax Digital (MTD), and an increase in fraudulent activity make it more critical than ever for businesses to establish compliance checks in their finance departments.

Thankfully, there are ways to make sure your business is compliant across a number of areas. Businesses should implement anti-money laundering (AML) and Know Your Customer (KYC) procedures to check  suppliers are legitimate and manage any associated risks.

These usually include obtaining original documentation, such as  company registration details and, where relevant, VAT numbers. It’s worthwhile also finding information on company directors to see if they’ve recently managed companies which have gone insolvent.

If offering customers payment terms, run credit checks during the onboarding process and regularly monitor them for adverse financial events, such as County Court Judgements (CCJs).

Maintaining details of who has created and approved transactions keeps finance team members accountable and makes it easier to interrogate large and unusual transactions during an audit.

The good news is many modern ledger software vendors automatically maintain an audit trail, including ApprovalMax. This can be run as a filtered report, listing initial transactions and any changes will be date

stamped with specific user details, and is particularly useful at month-end when financial controllers may need to fix entries that weren’t input correctly.

Third-party add-ons, such as ApprovalMax, can provide audit trails for processes not covered by ledger software, including accounts payable and accounts receivable workflows, purchase order management, payments, invoicing, and quotations.