The Most Important Financial Controls to Have in Place

One of the biggest accounting challenges faced by small businesses is caused by the fact that these organizations are small. When you’re running a big corporation with a large accounting department, it’s relatively easy to follow accounting best practices regarding separation of duties. But when very few people are involved with processing transactions, the business owner or a member of senior management needs to get involved with key aspects of the accounting process. This includes ensuring that a broad range of financial controls are in place.

Here are the financial controls that I believe are most important for small businesses to have:

• Cash Management – Bank reconciliations should be prepared on a monthly basis by someone other than the person who handles the banking, and then reviewed and approved by senior management. Companies that are victims of embezzlement schemes typically do not do monthly bank reconciliations at all, or do not have these documents properly reviewed.



For money coming in to the company, deposits should be made daily. For money going out, checks should be signed by owners or senior managers; the use of signature stamps should be eliminated or greatly minimized.

• Purchasing – Purchase Orders should be issued for all purchases. In addition, all new accounts with vendors or suppliers should be approved by the owner or a member of senior management. The person approving this account formation should also be responsible for informing the vendor that your company requires Purchases Orders for all orders, and providing the vendor with a list of personnel who are authorized to pick up purchases from Will Call.

• Inventory – When shipments arrive, the person who signs for the delivery should also note this receipt in the Receiving Log. While this is a very low-tech, “old school” tool, it is an excellent way to force the warehouse personnel to turn in the receiving paperwork. Of course, incoming shipments should only be accepted when they come with the proper paperwork. Similarly, outbound shipments should only be processed when they are accompanied by a delivery ticket or delivery receipt (which will become the customer’s receiving documentation).



Periodically completing a physical inventory is extremely important. Whether you do this once a month or once a year, you need to reconcile the physical inventory counts back to the balance in the account ledger to see if the variance is higher than what you’d expect with normal inventory shrinkage.

• Accounts Payable – When the accounts payable clerk goes to process an invoice for payment, he or she should match up the invoice with the purchase order and receiving document. Item descriptions, number, quantity and price should all be compared. The accounts payable clerk should indicate somewhere on the invoice that they have performed these steps and that they have approved the invoice for payment. Many organizations use a rubber stamp that has a spot for the person to initial to ensure this step takes place. If the invoice is for a service that does not create a receiving document, the invoice should be given to the department head responsible for ordering the service and they should indicate their approval on the invoice as well.



Once the checks have been printed, a list of all checks with the payees and amounts, along with the stack of approved invoices, should be given to the check signer. The check signer should be either the company owner or a member of senior management who is not involved with the rest of the accounts payable process.

• Payroll – Every time you hire a new employee you should have a profile sheet that shows who the person is, their rate of pay, assigned department, etc. Then someone other than the payroll clerk – preferably the owner or a member of senior management – should be the one to get the employee set up in the payroll system. 

When the payroll is being processed, the owner or a member of senior management should review an input sheet or edit report to ensure accuracy. Take your time with this step, because it’s a lot harder to fix the payroll after you push the “accept” or “send” button than before!

These are the most important financial controls for small businesses to have in place. If you take care of every item on this list, you should be in pretty good shape.

Want to bring in an outside expert to review your financial controls and recommend areas for improvement? Give me a call. As a part-time CFO, this is one of the many services that I provide.

SHARE