Financial controls can be applied anywhere in a business or externally where financial results for that business may be impacted.
Here are a few examples of financial controls:
1. Account Reconiliations
Account reconciliations are performed to substantiate the completeness and accuracy of the balance sheet during reporting cycles. Account reconciliations are a detective control because they are performed after transactions have been recorded. This control activity identifies breakdowns in business processes, such as inaccurate or inappropriate transactions that may have been booked during the period. As a result of findings from this control, the accountant will investigate to identify a remediation and make a correcting entry as needed.
2. Segregation of Duties
.Segregation of duties are preventative controls that limit the power of single individual or group from preparing, submitting, and approving an activity. In the example of account reconciliations, a segregation of duties control would prevent the preparer of an account reconciliation from approving the same reconciliation. This action can limit an oversight in the reconciliation or even potentially fraudulent activity.
3. Internal Audits
Internal audits are often detective assessments that are performed routinely throughout the year to test the design and effectiveness of existing controls within an organization. These assessments will determine if a control is operating as designed and whether that design effectively mitigates the risk it’s intended to mitigate. As a result of these assessments, an auditor may request changes or add control procedures to drive greater effectiveness.
Financial controls may include strict qualification requirements for personnel involved in the accounting department and other areas of the business responsible for its financial management. Periodic training also ensures that staff maintain proper credentials and knowledge of the latest practices and applications within their areas of expertise.
In the area of analysis, regular and periodic review, reconciliation, and analysis of financial reports—like bank statements, the general ledger, and income statements—provide insurance against irregularities and help to identify discrepancies.
Receivable management controls can help a business identify exposure to high levels of risk as it concerns the extension of credit to current and future customers.
Similarly, thoroughly reviewing expenditures and vendor payments can help prevent breakdowns and extravagant and fraudulent spending practices.
Finally, concerning financial data, having a centralized and accessible storage application that is clean and secure helps to ensure the integrity and reliability of information concerning the company’s finances. All other functions dependent on the data will operate at a higher level of accuracy and efficiency.
