8 Internal controls every accounting team needs to implement

Internal controls in accounting are the specific policies, procedures, and mechanisms your company puts in place to protect financial data and ensure accurate reporting. They're the rules and systems that prevent errors, catch mistakes, and stop fraud before it happens.

Think of internal controls as your financial safety net. They divide tasks so no single person controls money from request to payment. They limit who can access financial systems. They require approval for big purchases. They verify inventory matches your records. And they catch discrepancies before they become problems.

Without the right controls, you're flying blind. Weak controls mean errors compound, fraud goes undetected, and audits become painful.

Take for example the collapse of Silicon Valley Bank. Findings from a report by the Federal Reserve indicated issues in SVBFG’s ability to identify internal control weaknesses and manage risks proactively. The report noted that these issues had been lingering since as early as 2016. While SVB ultimately collapsed due to interest rate risk and a deposit run, weak internal controls made the company vulnerable to financial mismanagement and regulatory scrutiny..

Or look at FTX, the cryptocurrency exchange that filed for bankruptcy due to a complete lack of internal controls. The result was a corporate scandal and billions in missing customer funds. The company had no board of directors, virtually no documentation of meetings, and zero transparency around ownership and control. The Institute of Internal Auditors was so alarmed they called on Congress to enact new mandates specifically designed to prevent internal control failures in crypto exchanges.

These examples show what happens when internal controls and governance disappear. To protect your business, you need the right controls in place to ensure the accuracy, reliability, and integrity of your financial information.

Now let's look at the eight controls you need in place. Each one addresses a specific vulnerability and works best alongside the others.

1. Separation of duties

The first preventative control to use is separation of duties (SoD), which aims to prevent fraud, errors, and conflicts of interest by dividing key tasks and responsibilities amongst different individuals within a finance team. In other words, no single person has complete control over a financial transaction from start to finish.

An example of separation of duties would be for one person to be responsible for initiating a transaction, another for authorizing it, and a third for reconciling accounts. Another example would be designating separate individuals for your company’s accounts payable and for accounts receivable. This ensures that the individual receiving payments is distinct from the individual disbursing funds. By enforcing a separation of duties, finance teams can create a system of checks and balances that reduces the risk of both intentional and unintentional mismanagement or misuse of funds. It also increases both transparency and accountability within a finance team, which helps avoid the possibility of fraud or mishandling of money.

Implementing a separation of duties can present some challenges, like resistance to change or just resource constraints. But these can easily be overcome through training, clear lines of communication, and by leveraging accounting automation to streamline processes and enforce duties more effectively.

2. Access controls

The second measure is access controls. These are the policies, procedures, and mechanisms that control and monitor access to your financial data and systems. Access controls safeguard sensitive information by restricting who can reach it and preventing unauthorized tampering or misuse.

Access controls come in three types:

1. Physical controls include locked doors, card security terminals for your IT room, and surveillance cameras that prevent unauthorized access to areas storing financial data.
2. Administrative access controls include policies on who accesses what information and when. Background checks for employees handling sensitive data and clear guidelines on access approval fall here.
3. Technical controls include user accounts with unique usernames and passwords, and multi-factor authentication requirements when signing into financial systems like one-time codes sent to mobile devices.

By enforcing these controls and following best practices for password management, finance teams lower the risk of data breaches and fraud while ensuring controlled access to confidential information.

3. Physical audits

If your business carries physical inventory, conducting physical audits is critical. These are inventory counts that verify your physical stock against what your accounting system shows. Physical audits identify discrepancies like data entry errors, theft, damage, or ordering inefficiencies. By addressing these issues quickly, finance teams minimize risks and improve inventory management overall.

To maximize effectiveness, run surprise counts to prevent data manipulation. Use in-depth documentation for every audit, including who counted, what they found, and any variances. This creates a clear audit trail that makes future counts easier and shows where processes need improvement.

Technology simplifies audits further. Inventory management software reduces human error and speeds up counts, freeing your finance team to focus on strategic analysis instead of manual work.

4. Standardized financial documents

This one should come as no surprise. Use standardization for financial documents like invoices, receipts, and purchase orders. Maintaining consistency with important documents like invoices, receipts, and purchase orders not only creates efficiencies, it ensures that there is a uniformity to financial reporting across your organization. This uniformity eliminates confusion for internal stakeholders when tracking down specific information, and minimizes accounting errors and discrepancies with employees who have to manually enter data.

5. Double-entry accounting

Double-entry accounting is the backbone of modern accounting systems. Every financial transaction gets recorded as two equal and opposite entries, a debit and a credit. This creates a self-balancing system where total debits always equal total credits.

Why does this matter? Double-entry accounting catches errors automatically. If your books don't balance, you know something went wrong. It also gives you a complete picture of your assets, liabilities, and equity. One transaction shows up as both the money going out and where it went. Implementing double-entry correctly prevents costly mistakes by forcing mathematical accuracy. It creates an early warning system when discrepancies emerge. And it makes audits simpler because the system is designed to catch errors built-in.

6. Periodic trial balances

The sixth control is periodic trial balances. These give your finance team a financial snapshot at specific moments in time, like quarterly reports, so you can compare numbers against previous balances. A trial balance lists all general ledger accounts and their ending balances. If total debits don't equal total credits, you've found an inconsistency.

Running a trial balance is straightforward. Summarize all account balances and compare your totals. Do this regularly at the end of each accounting period, whether monthly, quarterly, or yearly. The hard part is tracking down where exactly discrepancies hide.

7. Periodic reconciliations

Periodic reconciliations compare your internal accounting records with external sources on a regular basis. Spend management software can track all employee spending and reconcile transactions monthly or quarterly to ensure every dollar is accounted for.

Common examples of accounts you’d reconcile are:

• Bank accounts: Where you compare internal cash balances to bank statements to identify any missing deposits, outstanding checks, or accounting errors.
• Credit card statements: Ensuring that all charges are legitimate and no unauthorized activity has occurred.
• Accounts receivable: Comparing the total amount listed in your accounts receivable with any outstanding balances from customers.

Periodic reconciliations help you identify errors like typos and missing transactions. They detect fraud through discrepancies that signal unauthorized activity. They ensure compliance with accounting standards and maintain accurate financial statements that reflect your true financial position.

8. Approval workflows

The final control that every finance team should implement to drive efficiency and support responsible spending: approval workflows. These are a critical internal control that ensures only authorized spending is taking place. Approval workflows increase transparency and define a clear path for business transactions to get pushed through.

For example, let’s say a company’s marketing team pitches a new social media campaign. They might be looking for a $50,000 budget. And instead of just going ahead on their own and charging it to the company, an approval workflow may look something like this:

1. Initial proposal: The marketing team creates a detailed proposal outlining the campaign goals, budget breakdown, and expected return on investment (ROI).
2. Manager review: The proposal is submitted to the Marketing Manager for initial review and any potential revisions.
3. Finance team approval: Once approved by the Marketing Manager, the proposal is routed to the Finance team for budget review in relation to company wide spend.
4. Approved.

This is an extremely simplified version of a workflow, but gives you a sense of how adding various steps to an approval on spending can increase accountability. It also creates a documented audit trail so you can track exactly where money is going. This multi-layered approach minimizes the risk of unwanted spending and ensures everything stays on budget.

Strong controls sound good in theory. In practice, teams run into real obstacles. While these challenges are common, they're also manageable with the right approach and tools.

Human error

Even with perfect processes, people make mistakes. Typos, missed approvals, or misunderstood procedures create gaps in your controls. The effectiveness of internal controls relies heavily on human execution, and errors can happen despite the best intentions.

To minimize human error, provide employees with clear training on control procedures and policies, covering why controls matter and how to execute them correctly. Pair training with effective oversight mechanisms like regular reviews and monitoring activities. This helps catch errors as they occur and identifies where processes need adjustment.

Control overload

Well-intentioned teams sometimes pile on controls until the process becomes a bottleneck. Too many overlapping controls lead to inefficiencies, longer approval cycles, frustrated employees, and unclear accountability. The solution is balancing rigor with practicality. Conduct thorough risk assessments to identify the most critical risks worth controlling. Regularly review and simplify control processes to eliminate redundancy. Automation can play a key role in reducing human judgment points and catching errors before they cause problems. Automating approvals, reconciliations, and data matching lets your team focus on analysis instead of chasing discrepancies.

Brex automates the work internal controls require. Your team stops chasing discrepancies and starts analyzing data. Brex captures data from receipts automatically, standardizes how bill payments get recorded, and ensures consistency across your reports. The platform syncs directly with your ERP so data stays accurate across systems, then matches transactions automatically and flags discrepancies so you only review what matters.

Accuracy is built in. Most accounting platforms enforce double-entry automatically, but Brex goes further. It syncs with your software to catch unbalanced entries the moment they happen, not during reconciliation. Brex AI automatically notifies you of duplicate transactions as they occur.

Approval workflows don't have to mean chasing people down. Brex lets you pre-approve spend or set department budgets with pre-allocated limits. In fact, businesses save 4,250 hours on average using Brex’s expense and accounting automation software, and increase their expense compliance across the board to 99%. Get started today and see for yourself how Brex can simplify your processes, and increase the control you have over every dollar spent.