Financial Control Systems: Tips & Best Practices

Any financial professional, whether they’re a data entry specialist or a Chief Financial Officer, knows the importance of having systems in place to protect their company's fiscal resources. By using financial control systems, you can protect your business' money, enabling a solid bottom line and business success. 

Let's dive into what financial controls entail and why they are so important for every organization to have.

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What Are Financial Controls?

Financial controls are the systems an organization has in place to protect its financial resources. These financial control systems often entail strict policies and protocols that allow you to identify and avoid possible threats, such as fraud, financial strain, and wasted resources. Financial controls lead to better financial management, with improved financial accuracy, forecasting, and budgeting. 

By having a close pulse of what is happening with your company's finances, you have a better gauge on what is working and what needs improvement, leading to healthier business growth. Likewise, financial controls put accountability on employees and help pinpoint serious financial errors or missteps. 

What Are the Required Processes of Financial Controls?

When implementing financial control techniques, financial business leaders need to follow these processes:

1. Look at Your Data

Your financial data paints a pretty clear picture of what is going on with your financial resources. Take a deep dive into your financial reports, balance sheets, income statements, cash flow statements, budget reports, and other documents to identify any patterns, inconsistencies, or red flags that you need to address. 

2. Create a Timeline

Create a schedule of when to update financial databases. You want to ensure all documentation is updated and current for truly accurate reporting. Even better if you can implement automated data tracking and input systems to regularly input data and flag anomalies.  

3. Predict Possible Outcomes

When creating a financial control system, you need to be mindful of the possible outcomes of your policies and systems. How will these procedures impact your operations? How can you make them as streamlined as possible?

By leveraging finance automation, the best finance teams are transforming how they manage compliance and streamline processes. Finance automation tools offer a drag-and-drop interface that maps out all your processes, eliminating key man dependencies. 

These tools connect seamlessly to all your data sources, enhancing accuracy and efficiency across tasks like reconciliation, regulatory reporting, expense management, and more—making compliance easier than ever.

What Are the Benefits of Financial Controls?

Financial controls are an essential part of your organization's financial success. Here are several reasons why having these failsafe systems in place is so beneficial:

1. Detecting Fraud

So often, you hear horror stories of businesses that lose thousands, if not millions, of dollars to fraudulent practices — whether they be internal embezzlement or falling victim to scams. 

By keeping a close pulse on your financial resources, you can quickly detect fraud and stop it in its tracks. Likewise, you might be able to pinpoint the perpetrator and recoup any lost resources. 

2. Reducing Errors

Tracking your financial data can help you detect any ongoing errors and find ways to mitigate or reduce them. For instance, you might have financial controls that help you keep track of expenses to ensure you do not accidentally go over budget. 

Other common errors you might find include overestimated revenue, poor cash flow management, incorrect data inputting, and mismanagement of tax liabilities. 

3. Better Resource Allocation

Having financial controls is a key part of operations management. These protocols and processes can help you streamline internal operations which can lead to more business growth. 

For example, if you notice you're wasting a lot of material in one area or are spending too much on a certain initiative, you can course correct. 

What Are Examples of Financial Controls?

Common examples of financial control systems include:

1. Separation of Duties

One way to avoid internal mishandling of funds is having a separation of duties, which means that more than one person has control of your company's financial resources. This is a common way companies implement checks and balances into their operations, with the age-old adage "trust but verify." 

2. Internal Auditing

Internal auditing is a common way organizations reduce financial risk from within. These audits ensure all financial records are complete, accurate, and up to date. 

3. Reconciliations

Reconciliations are when a financial professional, typically an accountant, reviews account balances, ensuring accuracy. This process involves cross checking information from bank statements, invoices, and receipts to ensure everything matches up and there are no inconsistencies. 

4. Access Control

Limiting sensitive financial information to authorized personnel can help a company protect its assets. By only granting access on an as-needed basis, you are limiting data breaches or misused funds. 

Rather than having to second guess your company’s financial controls, you can leverage a finance automation solution, which can automate reconciliations, provide audit trails with version history, and offer access controls. 

What Are the Types of Financial Controls?

The types of financial controls typically fall into these three categories:

1. Preventative Controls

Preventative controls are systems that prevent issues from happening before they occur. Think of them as risk prevention. These are policies or processes that limit your financial resources to fraud, misuse, or errors. 

These include the segregation of duties and access controls. Another type of preventative control is requiring approvals from authorized authority figures before making a purchase. 

2. Detective Controls

Of course, some issues might still slip past even the most diligent organizations. This is where detective controls come in. They ensure arising problems don't snowball into even bigger issues. 

Detective controls identify errors or fraud, allowing you to implement corrective actions to recoup lost resources or prevent a similar situation from occurring again. Reconciliations and internal audits fall into this category of financial control systems. 

3. Corrective Controls

Once you detect a financial problem, corrective controls come into play. This is when you take action to fix an issue and course correct to avoid it in the future. Corrective controls might include revising existing policies and implementing new ones. They may even be as simple as fixing incorrect data sets or retraining staff. 

How to Implement Financial Controls

Typically, financial departments implement financial controls by following these steps:

1. Assess Your Risk Level

Look at your current financial situation, doing a full internal audit to identify any red flags that present themselves. These might include data inconsistencies, missing receipts, overspending/lack of budgeting, or anything else that might negatively impact your company's financial situation. 

2. Look at Your Current Financial Controls

Your company might very well already have some systems in place, whether they be preventative, detective, or corrective. Take note of what you're already doing and whether it is working for your company. 

Decide which areas could be more robust and require a greater level of attention and oversight. You may find that you need tools for more streamlined processes and automation within your financial control process. 

Finance automation software saves you time, money, and mistakes. You can speed up your manual processes by 85x and decrease errors by 90%. 

3. Develop a Game Plan

Have your financial team sit down and devise a financial control system that makes sense for your specific situation and industry. The checks and balances your company has might differ from another, it all depends on your unique operations. 

Create a painstakingly clear framework for your system to avoid any misunderstandings or gray areas. 

4. Implement Systems and Training

Get your entire team on board by training them on the importance of financial control systems. Involve all applicable employees into these training sessions, gathering their input and ideas on how to make the process run smoother. 

Make sure they understand the "why" behind all this effort and how it is central to the health of the organization. 

What Is in a Financial Controls Checklist?

A financial controls checklist can help your team keep track of everything involved in your process. This checklist typically includes the following:

1. Implement Preventative Controls

These include segregation of duties, access controls, and transaction authorization. Your preventative controls should also include thorough employee training and awareness of possible financial risks and fraud. 

Your preventative controls should be at the top of your list, as they reduce the number of detective controls and corrective controls necessary. By having solid systems in place, you can reduce your financial risk and have smoother operations. 

2. Implement Detective Controls

Unfortunately, there are always going to be a few bad apples, which requires detective measures. Scammers are always going to target businesses and find new ways to commit fraud. 

The key is to catch them early to reduce the damage they can cause and potentially recoup any losses. These detective controls include regular audits, implement automatic monitoring tools, conducting financial reviews, and keeping your finances up to date.

3. Implement Corrective Controls

Once your detective controls are in place, it's time to move onto corrective controls. These will involve reporting incidents, correcting mistakes, retraining employees, undergoing disciplinary actions, and thinking of ways to improve your preventative controls. 

What Are Financial Control Best Practices?

The most effective financial control systems follow these best practices:

1. Communicate expectations to staff: Make your processes known to all staff, whether this includes who is allowed to authorize purchases, login into sensitive data bases, or access important reports.

2. Regularly update processes and policies: Your financial controls should be ever evolving and based on your company's experiences. If something isn't working, promptly fix it and make it known company-wide.

3. Limit shared information: There is no need for a junior staff member to have access to account numbers. Keep all of your company's sensitive data available to only those who need it to carry out their role. 

What Are Financial Control Solutions?

Financial control solutions are tools that make your financial control process easier and more effective. These often include automated software or platforms that can input, track, and analyze key financial data for you. 

By automating more of your financial processes, you can limit the number of human errors while giving your team the bandwidth they need to do deep analysis rather than inputting data and maintaining spreadsheets. 

When looking for a financial control solution, be sure it has an intuitive interface with drag-and-drop functionality. With a low-code tool, there’s no need for IT once it’s implemented and staff can create their own workflows inside the solution easily. 

Overall, implementing finance automation into your financial control systems enhances internal control and transparency, enabling stakeholders and management to monitor processes effectively. 

This standardization of business processes not only promotes compliance but also significantly improves accuracy and reduces errors, ultimately fostering a more reliable financial environment for organizations.

Closing Thoughts

Financial control systems exist to protect businesses and ensure a smooth flow of operations. With the aid of automation software, stakeholders and employees can rest assured knowing that their processes are running as intended, with minimal errors and without delays. Plus, teams have more time to focus on providing greater insights for improved decision-making.