Li-an Wang, CPA
Aug 25, 2026

In This Article, You Will Find:

  • Strong internal controls start with leadership. A strong control environment requires clear expectations around ethics, accountability, oversight, and consistent adherence to policies at every level of the organization.
  • Separate key financial responsibilities whenever possible. Dividing authorization, custody, recording, and reconciliation responsibilities can reduce the risk of fraud, errors, and unauthorized transactions. When staffing is limited, compensating controls can provide additional oversight.
  • Design controls around your organization’s actual risks. Effective controls should reflect the organization’s size, operations, regulatory requirements, systems, and risk profile rather than applying the same level of oversight to every activity.
  • Monitoring is just as important as designing controls. Regular reconciliations, management reviews, variance analysis, risk assessments, and control evaluations help identify weaknesses before they lead to audit findings, financial reporting issues, or compliance problems.
  • Effective controls have to work in practice. Policies alone are not enough. Employees need to understand their responsibilities, controls must be consistently followed, and processes should evolve as the organization and its risks change.

Internal control problems rarely happen all at once. They usually start small: a reconciliation gets pushed back, an approval becomes a routine sign-off, or a review gets skipped because everything seems fine. These things can go unnoticed for months, until an audit finding or fraud exposes the problem. By then, fixing it can be costly and time-consuming.

The good news is that effective internal controls don’t have to be complicated. They need to make sense for the organization, be consistently followed, and be part of the day-to-day work. The goal isn’t to have controls that look good in a policy manual. It’s to have controls that actually work.

What Internal Controls Actually Do

Internal controls are the policies, procedures, and safeguards established by management and the board. They provide reasonable assurance that transactions are properly authorized, records are accurate, assets are protected, financial reporting is reliable, and the organization complies with applicable laws and regulations.

The COSO (Committee of Sponsoring Organizations of the Treadway Commission) framework outlines five key components of internal control: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities. Together, these components help organizations identify risks, address them, and achieve their goals.

Internal controls are not the same as audits. Controls are embedded in day-to-day processes to prevent or detect errors, misstatements, and unauthorized activity, while audits independently assess financial information or controls. Controls are also not a one-time exercise or solely a finance responsibility; they are an ongoing management responsibility that spans the organization and must evolve as risks and operations change.

Start With the Control Environment

The control environment is really the foundation of the COSO framework. It starts with leadership and how seriously the organization takes things like integrity, ethics, accountability, and oversight. Even the best policies and controls can fall short if leaders don’t follow them or hold others accountable. At the end of the day, employees tend to pay attention to what leaders actually do, not just what the policies say.

 

Best practices

  •  Maintain a written code of ethics and conduct.
  • Require annual conflict-of-interest disclosures from board members and key personnel.
  • Establish a clear organizational structure with defined roles, responsibilities, and reporting lines.
  • Hold management and employees accountable to the same standards and policies.
  • Ensure the board and its committees provide active oversight of management and internal controls.

Strengthen Controls Through Separation of Duties

Segregation of duties is one of the most important structural controls in an effective internal control system. The principle is straightforward: no single individual should control all key stages of a transaction, including authorization, custody, recording, and reconciliation. Separating these responsibilities reduces the risk of error, fraud, and unauthorized activity and increases the likelihood that issues will be detected promptly.

 

Best practices

  • Keep transaction approval separate from custody of cash, assets, or payment instruments.
  • Separate transaction recording from the reconciliation and review of those transactions.
  • When staffing limitations prevent full segregation of duties, use compensating controls, such as an independent review of bank statements, reconciliations, and significant transactions by a board member or senior manager.
  • Require dual approval for transactions that exceed established dollar thresholds.
  • Periodically rotate or independently review key control responsibilities to help identify errors, unusual transactions, or potential conflicts that may otherwise go undetected.

Assess Risk Before You Design Controls

Controls should be designed around the risks they are intended to address. Not every process requires the same level of control. Applying extensive controls to low-risk activities can waste resources, while insufficient controls over higher-risk areas can leave significant gaps.

 

Best practices

  • Assess risks across financial reporting, operations, compliance, and fraud.
  • Evaluate each risk based on its likelihood and potential impact and prioritize higher-risk areas.
  • Reassess risks as the organization changes, including new programs, systems, assets, personnel, or operating environments.
  • Schedule periodic risk assessments to ensure controls continue to address the organization’s current risks.

Put the Right Control Activities in Place

Once the control environment is established and key risks have been assessed, organizations can design control activities to address those risks. The specific controls will vary by organization, but several practices are broadly applicable to financial operations and reporting.

 

Best practices

  • Reconcile accounts monthly, with the reconciliation performed or independently reviewed by someone who does not process the underlying transactions. Investigate and resolve outstanding items promptly.
  • Require documented approval for disbursements, contracts, and significant commitments in accordance with established authorization limits. Approval should be retained as part of the transaction record.
  • Define required supporting documentation for each transaction type, including invoices, contracts, purchase orders, and written approvals. Records should be maintained in a manner that supports review and retrieval.
  • Limit system access to what employees need to perform their assigned responsibilities. Review access when employees change roles and promptly remove access when employment ends.
  • Safeguard cash, negotiable instruments, and other high-value assets, and periodically perform physical counts of inventory or other assets and reconcile the results to the accounting records.

Monitor and Evaluate Control Effectiveness

Designing effective controls is only part of the process. Organizations also need to monitor controls regularly to confirm they are operating as intended and to identify weaknesses before they result in significant problems.

 

Best practices

  • Build monitoring into routine operations through exception reports, budget-to-actual variance analysis, reconciliations, and management review of financial information
  • Investigate unusual or unexpected results promptly so issues can be addressed before they become larger problems.
  • Conduct periodic control self-assessments, allowing department leaders to evaluate their processes against established policies and document any identified gaps or corrective actions.
  • For organizations with sufficient resources, maintain an independent internal audit function that objectively evaluates controls and reports significant findings to the board or audit committee.

Train Your People — and Hold Them Accountable

Every control ultimately depends on people carrying it out properly. Control can fail when employees do not understand their responsibilities, do not understand why a control matters, or see that controls are not consistently enforced.

 

Best practices

  • Include internal controls training in employee onboarding for anyone with financial responsibilities, with refresher training when policies or procedures change.
  • Keep training relevant to each employee’s role and explain how their responsibilities support the organization’s broader control environment.
  • Apply controls consistently. Repeated exceptions, bypassed procedures, or unaddressed violations can undermine the control environment and create the impression that compliance is optional.
  • Maintain a confidential reporting or whistleblower process that allows employees to report suspected fraud, misconduct, or control violations without fear of retaliation.

Build Controls That Last, Not Controls That Sit on a Shelf

Strong internal controls protect the organization’s assets, support accurate financial reporting, and give management and the board greater confidence in the information they rely on. They do not need to be complicated. They need to be clear, practical, consistently followed, and regularly reviewed.

Organizations with the strongest controls do not wait for an audit finding, a fraud incident, or a compliance problem to take action. They treat internal control as an ongoing part of how the organization operates. They establish clear responsibilities, separate key duties, assess risks, document important controls, and regularly check that those controls are working as intended.

The goal is not to create more controls for the sake of having more controls. It is about having the right controls in the right places and making sure people actually follow them. When controls become part of the way an organization operates, they are much more likely to catch problems early and protect the organization over the long term.

Strengthen Your Organization’s Internal Controls

Strong internal controls are not about adding unnecessary processes or creating more administrative work. They are about putting practical safeguards in the right places to reduce risk, improve financial accuracy, strengthen accountability, and give leadership greater confidence in the information used for decision-making. Rubino works with organizations to assess existing processes, identify control gaps, strengthen financial oversight, and develop practical internal controls that align with their operations and compliance requirements. If you are concerned about weaknesses in your internal controls or want to strengthen them before they become audit, fraud, or compliance issues, contact Rubino to discuss how our accounting and advisory professionals can help.

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