Updated June 20, 2025
Kelcee Blue | Director of Strategic Finance
According to the Association of Certified Fraud Examiners, billions of dollars are lost to fraudulent activities worldwide, with companies losing an estimated 5% of their revenue each year. With numbers like that, it’s no surprise that founders and CEOs devote significant attention and resources to preventing fraud. But in many growing businesses, a more common threat is often overlooked: financial mismanagement.
Missed payments, duplicate expenses, outdated data, or overconsolidation of responsibilities can create inefficiencies and gradually erode your margins. These issues can be silent, but they build up quickly if left unchecked. For businesses looking to avoid these risks and reduce the chances of fraud, the best solution is to implement effective financial controls.
What is Financial Control in Business?
In business, the term “financial control” refers to any policy or practice that protects financial resources or maintains the accuracy of fiscal data. These processes often include tools or infrastructure that support budgeting, approval procedures, internal reporting, and real-time visibility into cash flow. Having financial controls in place offers a number of benefits, such as simplified performance tracking, early irregularity identification, and greater transparency for stakeholders and potential investors.
Most successful businesses, even small ones, use some form of financial control. Which controls you choose will depend on how your business operates, the strategies you use to manage resources, and what your goals are in terms of growth and long-term stability.
Common Financial Controls
1. Reconciliations
Reconciliation is the process of comparing internal records to external sources to verify accuracy. The primary purposes of this financial control are to maintain data integrity, detect errors, and prevent fraud. At a minimum, your business should regularly reconcile key financial accounts recorded in your accounting software (like QuickBooks, NetSuite, or Sage) with third-party sources such as bank statements or vendor invoices.
The most critical reconciliation is between your general ledger cash account and your bank account. This process confirms that every transaction in your books is backed by actual bank activity, adjusted for any timing differences like outstanding checks or deposits that are in transit. Other useful monthly reconciliations include:
- Credit Card Expenses: Match credit card statements to receipts and expense reports.
- Accounts Receivable: Reconcile outstanding customer invoices to keep collections on track.
- Accounts Payable: Cross-check outstanding bills with vendor statements to catch duplicates or missed payments.
Performing these reconciliations every month helps keep your financial data current and lays the groundwork for better reporting, forecasting, and decision-making.
2. Separation of Duties
Separation of duties is an internal measure that can reduce the risk of mistakes and fraud by making sure no single person has complete control over a transactional function. In practice, this means dividing responsibilities among different team members. For example:
- In accounts payable, one person enters the bill, another approves the payment, and a third initiates the transfer.
- In reconciliations, one person records transactions, another prepares the reconciliation, and a third reviews it against source documents (like bank statements or vendor invoices).
This division of duties introduces built-in accountability checkpoints, lowering the chances of accidental errors or intentional misuse of funds.
3. Expense Policies
Expense policies are documented guidelines that outline what employees can spend company money on, how they should spend it, and what documentation is required for a transaction to take place. When properly enforced, this internal control can prevent confusion, intentional misuse, and accidental misallocation of resources.
For example, if an employee is traveling for work, should they use a company card to expense meals, or will they receive a daily per diem? Are rideshares covered? What about client entertainment? Without a defined process, employees are left to guess. That’s why it’s essential to set policies, inform employees, and make sure everyone follows through. A structured expense management system for both credit card use and reimbursements is one of the easiest ways to enforce these types of rules, reduce non-business spending, and keep financial records clean and audit-ready.
4. Accounts Payable Policies
Accounts payable is one of the highest-risk areas for financial fraud, and even the smallest mistakes can come with a big cost. That’s why it’s vital to put reliable policies in place and enforce them consistently. That way, you know you’re paying the right vendor, the right amount, at the right time.
Establishing effective AP policies starts with a formal invoice approval process. Most people know that a payment should not be issued without documented review and approval. But approval is just one piece of an overall secure AP policy. If you leave any gaps, fraudsters will exploit them using tactics like fake vendor emails or altered bank details. To reduce the chance of this occurring, implement the following best practices:
- Verify Payment Instructions Verbally: Email alone is not enough. You’ll need to confirm payment instructions over the phone or in person, especially for new vendors or unusual payment requests.
- Store Vendor Payment Data Securely: Use secure AP platforms or payment management systems to store vendor details. Make sure to restrict editing access to authorized team members only.
- Customize Approval Procedures: Approval protocols should be designed around transaction size. For example, payments over $5000 might require a manager’s sign-off, while those over $10,000 could require director approval.
Building structure and oversight into your AP processes not only prevents fraud, it helps you scale. As your business grows, well-defined controls make it easier to maintain speed, accuracy, and oversight without adding unnecessary risk. They also reduce dependence on individual team members, create repeatable workflows, and foster greater confidence in your financial operations.
Other Financial Control Types
Financial controls don’t begin and end with the finance team. Broader operational measures, especially around data access and security, play an equally important role in keeping your financial information safe.
For example, businesses with strong safety protocols are less likely to deal with unauthorized access or misuse of sensitive information. This can involve using a variety of access control methods, such as prohibiting employees from sharing login credentials, using role-based permissions to limit who can access financial systems, or enabling multi-factor authentication and secure password policies.
In some industries, additional layers of control may be legally required. A healthcare provider, for instance, must comply with HIPAA, which mandates stricter controls over both patient and financial data. Similarly, SaaS companies aiming for SOC 2 compliance are expected to maintain strict protocols around system access, availability, and audit tracking to meet customer and regulatory expectations.
The exact controls that fit your business needs will depend on your industry, growth stage, and risk tolerance. But regular review of your systems, user access, and internal operations is key to keeping data secure and properly managed.
Can You Use Financial Controls to Scale Business Operations?
Implementing financial controls early on is a highly effective way to prepare your business for sustainable growth. However, creating and enforcing controls is a complex process; handled poorly, it can create delays and compliance risks that only grow as your business scales.
For many teams, trying to overhaul these systems while scaling leads to operational bottlenecks, missed payments, inconsistent reporting, or security vulnerabilities. To mitigate these risks, many growing companies turn to fractional CFO services.
A fractional CFO can take care of every facet of a system overhaul, including:
- Auditing current financial processes
- Recommending tools and approaches that fit your business model
- Designing protocols that create structure without adding friction
- Overseeing implementation and team training
From selecting the best software to creating approval chains and reconciliation schedules, a fractional CFO helps you establish strict financial discipline without slowing your momentum. With the right controls, you can get trustworthy financial data and faster reporting cycles with fewer errors or compliance issues.
Takeaway
Financial controls are systems, policies, or procedures that businesses use to protect financial resources and maintain accurate data. While they can look different depending on the size and structure of the company, certain foundational controls apply to nearly every business. Common types include:
- Reconciliations: Comparing internal records with external sources like bank statements to identify errors, verify accuracy, and prevent fraud.
- Separation of Duties: Dividing financial responsibilities among multiple people to reduce the risk of mistakes or unauthorized activity.
- Expense Policies: Setting clear rules on what employees can spend, how they report expenses, and what documentation is required.
- Accounts Payable Policies: Establishing approval workflows and security checks to make sure vendors are paid accurately and securely.
Other controls, such as role-based access, credential security, and compliance protocols, can also be critical to protecting your systems and data. When implemented correctly, financial controls can reduce the risk of fraud or resource mismanagement while also creating a framework for future growth. Fractional CFO services can support this growth by auditing existing processes, recommending industry-appropriate tools, and building financial frameworks that scale alongside your business.
Ready to grow? Contact Embarc Advisors to learn how to scale using Fractional CFO services.
