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Chapter 13 of the Business finance basics section in the 'Achieving financial success' series

Chapter 13 of the Business finance basics section in the 'Achieving financial success' series
Chapter 13: Financial controls

By David Jenkins*

Financial management is not only about understanding the financial information in your business and using this information to improve business operations, but also about implementing the right policies and procedures to ensure that the financial information you are using is accurate and that you can protect your investment in the business.

For complete financial management of your business, you need to consider implementing good financial controls.

A financial control is a procedure implemented to detect and/or prevent errors, theft or fraud, or policy non-compliance in a financial transaction process.

Financial control procedures can be implemented either by an individual or as part of an automated process within a financial system.

Each financial control procedure is designed to fulfil at least one of the following eight criteria:

All records and transactions are included in the reports of the business.

The right amounts are recorded in the correct accounts.

Approved authorisation levels are in place to cover such things as approval, payments, data entry and computer access.

The invoice is for work performed or products received, and the business has incurred the liability properly.

All assets and liabilities recorded in the books actually exist. Has a purchase been recorded for goods or services that have not yet been received? Is there correct documentation to support the item?

Handling errors
Procedures ensure that errors in the system have been identified and corrected.

Segregation of duties
Certain functions are separated. For example, the person taking cash receipts does not also do the banking.

Presentation and disclosure
There is timely preparation of reports for compliance and/or review.

Benefits of financial controls

Financial control procedures ensure that all financial information is recorded and accurate.

Some of the benefits of implementing financial controls are:

• Regular reporting will provide accurate financial information that can be used by those responsible for the operations of the business. (For example, sales numbers can be provided to sales representatives to monitor targets and budgets.)

• The business can make informed decisions on budgets and spending.

• Controls provide documentary proof for compliance requirements (such as GST calculations).

• Business standards are set and every person within the business is informed of these standards through reporting.

If you are using inaccurate financial information for decision-making, you could be making the wrong decisions.

Good financial control procedures will:

align objectives of the business
ensure reporting procedures and the activities carried out by the business are in line with the business’s objectives

safeguard assets
ensure the business’s physical and monetary assets are protected from fraud, theft and errors

prevent and detect fraud and error
ensure the systems quickly identify errors and fraud if and when they occur

encourage good management
allow the manager to receive timely and relevant information on performance against targets, as well as key figures that can indicate variances from target

act against undesirable performance
authorise a formal method of dealing with fraud, dishonesty or incompetence when detected

reduce exposure to risks
minimise the chance of unexpected events

ensure proper financial reporting.
maintain accurate and complete reports, and minimise time lost correcting errors and ensuring resources are correctly and efficiently allocated.

Good financial controls will protect your investment in your business and ensure the business runs more efficiently, resources aren’t lost and there are fewer unpleasant surprises.

Financial controls checklist

To manage the risk of a financial transaction processing failure, manual and/or automated control procedures should be implemented at key stages of the process.

Some of the questions that can be asked are:

• How well are the financial aspects of the business managed?

• Are the business operations protecting the organisation against disasters, internal theft and unfavourable external audits?

• How comprehensive are management practices?

• Are the financial records truly accurate?

This checklist will help you review your business’s financial controls. A business with good financial management practices would answer “yes” to most of the following questions:

Reviewing this checklist and taking appropriate action will ensure you have good financial controls in place for your business.

For all the questions in the checklist that have not been answered with “yes”, review those that are applicable to your organisation. Then make an action plan that includes who will be responsible for implementing each policy and procedure, and gives a due date for completion.


This is the final part and concludes this series.


David Jenkins is the New Zealand-based manager of the global professional accounting body, CPA Australia. You can contact him directly here »

You can read the Introduction to this series here »  The related Glossary is an important resource. And readers are encouraged to read this page first »

Chapter 1 is about Understanding financial statements and you can read it here »
Chapter 2 is about Assessing your busines's financial health and you can read it here »
Chapter 3 is about the Importance of Budgeting and you can read it here »
Chapter 4 is about Maintaining Profitability and you can read it here »
Chapter 5 is about Improving Cashflow and you can read it here »
Chapter 6 is about Managing Cashflow and you can read it here »
Chapter 7 is about Debt, equity or internal funds? and you can read it here »
Chapter 8 is about Transactional banking and you can read it here »
Chapter 9 is about Importing and exporting finance and you can read it here »
Chapter 10 is about Applying for a loan and you can read it here »
Chapter 11 is about Refinancing your debt and you can read it here »
Chapter 12 is about Managing you banking relationships and you can read it here »

The full Guide is available in the .pdf attachment, or here »

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