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The first time an auditor asked me to “walk them through our controls,” I froze.
This was at my first startup. We had a finance person, we had QuickBooks, we paid our bills, and our numbers more or less tied out. In my head, that was controls. Then the auditor asked who approved wire transfers, who could change vendor bank details, and where that was written down. The honest answer to all three was “me, also me, and nowhere.”
I’m Yuval, founder of Glitter AI. Years later, after building a company, surviving a few audits, and learning the hard way, I can tell you financial controls aren’t a binder you produce once a year. They’re the day-to-day plumbing that keeps money from leaking and keeps your numbers honest. This is the explanation I wish someone had handed me back then.
What are financial controls?
Financial controls are the policies, procedures, and checks an organization uses to manage its money accurately, prevent fraud and error, and produce reliable financial statements.
That’s the textbook version. The practical version: a financial control is anything that answers the question “how do we know this didn’t go wrong?” Who approved this payment? Does the bank balance match the books? Can one person create a vendor and pay that vendor without anyone noticing?
Controls aren’t bureaucracy for its own sake. Every one of them exists to address a specific risk. No risk, no control. Where most growing companies go wrong is bolting on controls because an auditor or investor asked, rather than starting from a simpler question: what could realistically go wrong with our cash, our revenue, or our reporting? The ACFE’s 2024 Report to the Nations found that more than half of fraud cases involved either a lack of internal controls (32%) or management override of existing controls (19%) - meaning that in the majority of fraud events, the controls were either missing or bypassed by someone with the authority to do so.
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The types of financial controls
There are two useful ways to slice this, and you need both.
By when the control acts
This is the classic split, and it maps directly to risk timing:
- Preventive controls stop a problem before it happens. Segregation of duties, approval thresholds, system access restrictions, requiring two signatures on large wires. These are your first line of defense and the cheapest place to catch problems.
- Detective controls catch a problem after it happens. Bank and account reconciliations, variance analysis, exception reports, internal audit. They assume something slipped through and are designed to find it fast.
- Corrective controls fix the problem and stop it recurring. A documented adjusting entry process, a root-cause review after a misstatement, updating an SOP after a control failure.
A healthy control environment leans heavily on preventive controls, backs them with detective controls, and has a real corrective loop behind both. Catch everything after the close and you don’t have a control environment. You have a cleanup crew.
By what the control does
The other lens is functional. The categories I actually use day to day:
- Authorization controls - who is allowed to approve what, and at what dollar threshold. Spend limits, delegation of authority matrices, approval workflows.
- Segregation of duties - no single person controls a transaction end to end. The person who sets up a vendor isn’t the person who approves the invoice isn’t the person who releases payment. This is the single highest-leverage control for fraud prevention. I cover the mechanics in more depth in our guide to internal controls in accounting.
- Reconciliation controls - independent verification that two records agree (bank vs. ledger, sub-ledger vs. GL, intercompany).
- Physical and access controls - locking down who can touch cash, check stock, banking portals, and the ERP. In 2026, “physical” is mostly access control: MFA, role-based permissions, and a quarterly access review.
- Reporting and review controls - management review of financials, variance analysis, board-level oversight, and the documented evidence that proves the review actually happened.
A control isn’t real unless someone can point to evidence it ran. “We review the financials” is a hope. “The controller signs off on the variance memo by the 8th business day, archived here” is a control.
The frameworks behind financial controls
You don’t need to memorize a framework to run good controls. You do need to know the language, because your auditors and investors speak it.
COSO Internal Control - Integrated Framework is the dominant model in the US. It defines five components: control environment (the tone and culture), risk assessment (what could go wrong), control activities (the actual controls), information and communication, and monitoring. Most “do we have good controls?” conversations are really COSO conversations whether anyone names it or not.
COSO ERM extends that thinking to enterprise risk more broadly.
SOX (Sarbanes-Oxley) is the one with teeth if you’re public or heading there - Section 404 requires management to assess and document internal control over financial reporting (ICFR), and auditors to attest to it. Private companies don’t have to comply, but smart ones borrow the discipline early because retrofitting controls under deal pressure is miserable. According to the 2025 KPMG SOX Survey, only about 17% of in-scope controls at public companies are automated, while 45% are still entirely manual - a profile that should prompt serious investment in control automation even at the private company stage.
The COSO-aligned control matrix is what this looks like in practice: a spreadsheet (or better, a documented system) mapping each risk to a control, an owner, a frequency, and the evidence produced. If you build one thing this quarter, build that.
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Implementing financial controls without grinding the team to a halt
Here’s the part nobody tells you. Bad controls are worse than missing controls, because they create a false sense of safety while slowing everyone down. The goal is proportionate control, not maximum control.
This is roughly the order I’d run it:
- Map the money flows. Cash in (revenue, collections), cash out (procurement, payroll, expenses), and reporting (close, financial statements). You can’t control what you haven’t mapped.
- Risk-rank each flow. Where is the dollar exposure highest, and where is a single person most powerful? Wire transfers and vendor master changes are almost always the top two. Start there.
- Pick the control per risk. Prefer one strong preventive control over three weak detective ones. A hard approval threshold beats a monthly report nobody reads.
- Assign an owner and a frequency. A control with no named owner is not a control. Daily, per-transaction, monthly, quarterly - write it down.
- Document the procedure so anyone can run it. This is where most control environments quietly fail. The control lives in the controller’s head, the controller goes on leave, and the control doesn’t happen that month.
- Test it. Pull a sample. Did the approval actually occur before payment? Does the reconciliation actually tie? A control you’ve never tested is an assumption.
- Review and prune annually. Risks change. A control that made sense at $2M revenue may be theater at $20M, and you’ll have new exposures the old matrix never imagined.
Don’t try to implement all of this in one quarter. Land segregation of duties on cash disbursement and a real reconciliation discipline first. Those two cover an enormous share of your actual risk.
Documenting financial controls (the part that breaks)
Every control environment I’ve watched fail, failed at documentation, not at design.
The controls themselves were fine on paper. The trouble was the paper: a stale Word doc, or worse, nothing written down at all and the control surviving only because one person remembered to do it. Then that person leaves, or gets buried during a hard close, and the control silently stops running for three months until an auditor finds the gap.
Good control documentation has a few non-negotiable properties:
- It states the risk, the control, the owner, and the evidence. Not just “reconcile the bank account” - why, who, and what proves it happened.
- It’s specific enough to execute. A new hire should be able to perform the control from the doc without a tribal-knowledge phone call.
- It’s versioned and current. A control doc that doesn’t match reality is a liability in an audit, because now you’ve documented a control you’re not following.
- It produces an audit trail. The doc and the evidence connect. This is exactly what compliance documentation and a well-run audit SOP are for.
This is the problem I started Glitter AI to solve. Finance teams don’t let control documentation go stale out of laziness. They let it go stale because writing step-by-step procedures by hand, with screenshots of the actual ERP screens, is brutally tedious. So it doesn’t get done, or it gets done once and then rots.
With Glitter AI, you click through the control as you actually perform it, the wire approval, the reconciliation, the access review, and it generates a clean, shareable step-by-step guide with screenshots automatically. Process changes? Re-record in minutes. The documentation stays alive instead of becoming the thing you scramble to fake the week before the audit. If you want the broader picture, our guide to documenting accounting procedures goes deeper on structuring this across the whole department.
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A few hard-won lessons
A handful of things I only learned by getting them wrong:
- Segregation of duties is the control that pays for itself. Almost every internal fraud case I’ve read about traces back to one person who could both create and pay. Fix this before anything else.
- The vendor master file is more dangerous than your bank. Changing a vendor’s bank details is how modern payment fraud works. Treat vendor banking changes as a high-risk, dual-approval event.
- A control nobody can describe doesn’t exist. If your team can’t explain a control in two sentences and show you the evidence, assume it isn’t running.
- Document before you scale, not after. Controls retrofitted under fundraising or audit pressure are always worse and always cost more than controls built deliberately while you had time.
Financial controls aren’t about distrust or red tape. They’re how a finance leader sleeps at night, and how a company earns the right to be believed about its own numbers. Build them from real risks, keep them proportionate, and please, learn this from me rather than from an auditor: write them down.
Frequently Asked Questions
What are financial controls?
Financial controls are the policies, procedures, and checks an organization uses to manage money accurately, prevent fraud and error, and produce reliable financial statements. Each control exists to address a specific financial risk, such as unauthorized payments or misstated reporting.
What are the main types of financial controls?
Financial controls split two ways: by timing (preventive controls stop problems, detective controls catch them, corrective controls fix and prevent recurrence) and by function (authorization, segregation of duties, reconciliation, physical and access controls, and reporting or review controls). A healthy environment uses preventive controls first, backed by detective and corrective ones.
What is the difference between preventive and detective financial controls?
Preventive controls stop a problem before it happens, like approval thresholds and segregation of duties. Detective controls catch a problem after it happens, like bank reconciliations and variance analysis. You want to rely mostly on preventive controls because catching issues early is cheaper and less damaging.
What framework is used for financial controls?
The COSO Internal Control Integrated Framework is the dominant model in the US, defining five components: control environment, risk assessment, control activities, information and communication, and monitoring. SOX Section 404 builds on COSO for public companies by requiring documented internal control over financial reporting.
What is segregation of duties in financial controls?
Segregation of duties means no single person controls a financial transaction from start to finish. For example, the person who sets up a vendor should not also approve the invoice and release the payment. It is the single highest-leverage control for preventing internal fraud.
How do you implement financial controls?
Map your money flows, risk-rank them, choose one strong control per high-priority risk, assign an owner and frequency, document the procedure so anyone can run it, test the control with a sample, and review the control set annually. Start with segregation of duties on cash disbursement and disciplined reconciliations.
Do private companies need financial controls?
Yes. Private companies are not legally bound by SOX, but they still face the same fraud, error, and reporting risks. Smart private companies adopt SOX-style discipline early because retrofitting controls under fundraising or audit pressure is more expensive and more painful.
What is an internal financial control?
An internal financial control is a control operated within the organization over financial reporting and money handling, as opposed to an external check like an independent audit. Examples include approval workflows, reconciliations, access restrictions, and management review of financial statements.
How should financial controls be documented?
Good control documentation states the risk, the control, the owner, and the evidence; is specific enough for a new hire to execute; is versioned and kept current; and connects to an audit trail. Outdated documentation is a liability because it records a control you are no longer following.
Why do financial controls fail?
Most control environments fail at documentation, not design. Controls are well designed on paper but live in one person's head or in a stale document, so when that person is unavailable the control silently stops running until an auditor finds the gap. Keeping control documentation current is the most common weak point.
