The Financial Controls Checklist: Secure your Business, Financial Data, and Financial Communications

FinLync | June 8, 2022

Financial controls are an essential tool when it comes to protecting your business from financial loss and reputational damage. As such, the importance of financial control – also known as finance control – should not be underestimated. So what is financial control or finance control, and which processes should you look at when making sure you have the right financial controls in place?

Financial controls definition

Financial controls are the policies and procedures used to secure the business, its financial data, and financial communications – all while allowing processes to continue operating efficiently. As such, they are an essential part of risk management.

The objectives of internal financial controls include protecting the company from fraud and ensuring that suitable payment controls are in place. Financial controls also enhance network security and can be used to control the actions taken by specific users. Financial control is not to be confused with the fiscal control definition, which relates to government finances and tax law compliance.

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Financial controls checklist

Financial controls can take a number of different forms, but companies should look at a number of different types of finance control in order to maximize the resilience of their financial operations. As well as putting in place effective processes and procedures, this might mean adopting a robust financial control system. Examples of financial controls include the following:

  1. Pre-emptive checks. Financial controls can be used to check counterparties against sanctioned party lists in order to avoid transacting with sanctioned parties, and potentially incurring penalties as a result. By identifying sanctioned parties, companies may be able to replace suppliers with suitable alternatives. Companies should also check whether counterparties are based in sanctioned countries, as this can also cause issues and require contingencies.
  1. User control. It’s important to ensure that the right controls are in place to restrict user access. Only authorized individuals should be able to perform payment-related functions. This might include securing access using a virtual private network (VPN) and putting in place multi-factor authentication (MFA). Whatever the chosen approach, the goal is to ensure that the person performing the action is who they are supposed to be – and that they can only perform the specific tasks relevant to their job.
  1. Invoice control. Supplier invoices are the first step in the payments process, so it is important to have suitable controls in place to reduce the risk of errors and avoid any opportunities for fraudsters to tamper with invoices. Approvals and validation are an important part of the process – and as invoices are not normally urgent, these can be completed without undue time pressures.

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For example, if a particular supplier’s payment terms are net 30, the company will have 30 days to validate all aspects of the invoice. As such, the company should take the time to ensure that the relevant goods or services have been received, and inspect them for quality. Documentation can then be validated, with time to follow up on any queries if needed before an invoice is approved. By carrying out a thorough review early on in the process, you can avoid delays later on when the invoice is due for payment.

  1. Duplicate checks. Duplicate invoices – whether sent in error or deliberately as part of a fraud scam – can result in overpayments, leading to financial loss if the duplication is not identified. To avoid this, invoices received from suppliers should be compared against historical trends, and checks should be made to identify any duplicates or anomalies that will require further investigation.
  1. Paying the approved invoice. If checks and controls are not carried out until payment is due, the resulting time crunch can result in delays. As such, all approvals should be performed ahead of time to ensure that payments can be processed in an efficient and timely manner.
  1. Communicating with the bank. The process of communicating payments to the bank in a timely manner is another step where suitable controls should be in place to avoid the risk of fraud. Every touchpoint in the process presents an additional risk, so it’s important to keep the number of steps and touchpoints to a minimum.

Likewise, the risk of interference arises any time that a file – particularly an unencrypted file – is left in a directory for even a short time. As such, it’s important to limit the opportunity for fraudulent changes to be made to authorized files – for example, by using a treasury system that uses API connectivity to create a direct link between the company and the bank.

  1. The tie out. Financial controls should not only be applied to the processes that take place before and during a payment is made. It’s also important to have checks in place to ensure that any bank activity that takes place tallies with expectations. In other words, you need to make sure that instructions sent to the bank are the same as the resulting activity – and any anomalies need to be identified and communicated quickly and accurately.

Likewise, financial controls are needed across your receivables, cash application and invoice clearing processes. Any bank activity needs to be applied accurately to the right receivable – not least because goods may not be released until the relevant checks have been made. By carrying out the necessary checks quickly, you not only keep customers happy but may also be able to free up additional capacity and enable customers to purchase more goods.

Key takeaways of financial controls

When performed correctly, good financial controls are rarely recognized. However, bad or inadequate controls can be much more visible if the worst happens. Falling victim to a high-profile fraud attack or compliance failure can result in everything from huge fines and financial loss to bad press and irreparable damage to your company’s reputation.

Above all, remember that financial controls are only as strong as the weakest link. Even a single point of vulnerability can nullify all the security and control measures you’ve invested in throughout your other subprocesses. Be thorough, look closely at all areas of financial control, and approach the exercise as a team effort.


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