Financial controls are a necessary component of running a public company. Finance staff must use a set of predetermined controls to demonstrate to internal and external auditors that the processes associated with generating accurate financial statements are being performed, and are passing routine testing procedures.

However, in large organizations, especially those that are geographically dispersed, the infrastructure of financial controls can get very complex, very quickly. And when finance managers or auditors take a closer look at the controls framework, they may find staff are performing tasks that they call “controls,” but that are really not much more than busy work. The secret to developing a set of effective and efficient financial controls is to put in place an assortment of “sanity checks,” through which the organization constantly re-evaluates why it’s taking the actions in the first place.

In my experience, finance staff often recommend controls that are easy to pass—such as demonstrating that a report is being produced daily—rather than those that could uncover real issues that might impact the business’s financial statements. The purpose of inserting sanity checks into the controls process is to ensure that control activities align with the company’s operational objectives, to avoid the wasteful “check the box” controls mentality.

 

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