What are financial controls?

‍

Financial controls are the policies, procedures, and automated checks that a business puts in place to ensure financial transactions are authorised, accurately recorded, complete, and protected from fraud or error. They form the governance layer of the finance function — the mechanisms that give management, auditors, and regulators confidence that the financial statements are reliable.

‍

Types of financial controls

‍

Authorisation controls. Ensuring transactions are approved by the right person before they are processed — purchase order approvals, journal entry sign-offs, payment authorisations.

‍

Segregation of duties. Ensuring that no single person can both initiate and approve a transaction — the person who raises an invoice should not be the person who approves payment.

‍

Reconciliation controls. Regular comparison of balances across systems to detect discrepancies — bank reconciliation, subledger-to-GL reconciliation, balance sheet certification.

‍

Access controls. Limiting system access to authorised users and ensuring access rights align with job responsibilities.

‍

Period-end controls. Specific controls applied at close — journal entry review, balance sheet sign-off, period lock.

‍

Automated system controls. Rules built into financial systems that prevent invalid transactions — blocking postings to locked periods, enforcing three-way matching, flagging duplicate invoices.

‍

Controls and audit

‍

External auditors assess the design and operating effectiveness of financial controls as part of their audit work. Organisations with strong controls can rely on them to support the audit, reducing the extent of substantive testing required. Organisations with weak controls require more extensive auditor testing — which takes longer and costs more.

‍

Related: Audit trail in finance · Journal entry · Financial close · SOX compliance