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Financial Statement Series: The Importance of Controls in Your Business and Accounting
- Rylan Kaliel
- 6 minutes ago
- 8 min read
In today’s fast-paced business environment, companies of all sizes are constantly looking for ways to operate more efficiently, reduce risk, and ensure financial accuracy. One of the most critical, yet often overlooked, aspects of running a successful business is having effective controls in place. Controls are not just for large corporations or highly regulated industries—they are essential for any organization that wants to thrive and grow responsibly.
What Are Controls?
Controls, when it comes to running a business or keeping your books in order, are basically the rules, routines, and tricks you set up so things don’t go off the rails. Think of them as your business’s version of seatbelts and speed limits: they’re there to help you reach your goals, dodge disasters, and make sure nobody spends all your loonies on fancy coffee. Sometimes it’s as simple as making two people signing off on a cheque (because we all know one person is way too tempted by those impulse buys), or as high-tech as having software double-check your numbers so you don’t accidentally send a million bucks to the wrong place. A little control goes a long way.
Types of Controls
Understanding the various types of controls is key to building a resilient business that can adapt to challenges and meet regulatory requirements. Each type of control plays a unique role in safeguarding your company’s assets and ensuring smooth, reliable operations. The different types of controls can be summarized as follows.
Preventive Controls: Designed to stop errors or fraud before they happen (e.g., segregation of duties, password policies).
Detective Controls: Aim to identify issues that have already occurred (e.g., reconciliations, audits, exception reports).
Corrective Controls: Focus on fixing problems after they are discovered (e.g., backup data restoration, disciplinary action policies).
Let’s consider an example featuring these control types in action at a coffee shop: Preventive Control is making sure two staff sign off before buying a new espresso machine—so you don’t end up with a golden, diamond-studded model. Detective Control is reviewing the receipts and realizing someone’s been sneaking maple doughnuts onto the supply order. And Corrective Control? That’s restoring your inventory records after someone accidentally counted all the cups twice, or maybe just sending that staff member to inventory counting 101 (with extra Timbits for motivation).
Why Are Controls Important?
Controls serve as your business’s safety net. They help prevent costly mistakes, detect fraud or errors early, and ensure that your financial reporting is accurate. For Canadian businesses, these safeguards are not only good practice but can also be required by legislation or industry standards, such as the Canada Business Corporations Act or the Income Tax Act.
Benefits of Effective Controls
Reduced Risk: Controls help minimize financial losses due to error, fraud, or theft.
Accurate Financial Reporting: Reliable controls ensure that your financial statements reflect the true state of your business.
Operational Efficiency: Well-designed controls streamline processes, reducing bottlenecks and freeing up time for more valuable tasks.
Increased Trust: Investors, lenders, and other stakeholders are more likely to trust businesses that demonstrate strong control environments.
Imagine your business is like running the hottest coffee shop in town. Reduced risk is your trusty spill-proof lid—keeping accidents (and losses) to a minimum, no matter how hectic the morning rush gets. Accurate financial reporting? That’s your crystal-clear menu board, ensuring customers (and you) always know exactly what’s on offer, so there are no surprises at the till. Operational efficiency is like a well-oiled espresso machine: everything runs smoothly and quickly, letting your baristas whip up orders and focus on dazzling customers, not fighting with clogged filters. And increased trust is the growing line out the door—investors, lenders, and loyal regulars keep coming back because they know your shop is reliable, honest, and consistently delivers the good stuff.
Top 10 Most Common Controls in Canadian Businesses
Every successful business, from coast to coast, relies on a solid foundation of internal controls. These tools not only keep your operations running smoothly but also safeguard your assets and reputation. Whether you’re running a bustling café in Montréal or a tech start-up in Calgary, the right controls help you manage risks and foster trust among your team and stakeholders. Let’s look at the top 10 most common controls in Canadian businesses.
Segregation of Duties
By dividing key tasks among multiple employees, you prevent any one person from having unchecked control. For example, one staff member handles payments while another reconciles bank statements.
Imagine your café: one barista collects cash at the counter, while another reviews the daily deposit slip—so no one can slip an extra double-double into their pocket unnoticed!
Approval Processes
All major expenses or financial transactions require sign-off from a manager or owner. This might look like requiring two signatures on cheques over $1,000.
Think of it like ordering fancy new patio furniture: your store manager picks the set, but the owner gives the final “thumbs up” before the company credit card gets swiped.
Regular Reconciliations
Reconciling bank accounts, credit cards, and inventories ensures that records match reality. Many businesses schedule monthly reviews for accuracy and fraud detection.
Picture a bakery owner matching up their flour shipments and sales every month—if the numbers are off, the missing dough isn’t just in the oven.
Access Controls
Limiting who can view or change sensitive information (such as payroll data) protects your business from both accidents and intentional misuse. Implementation often includes password-protected systems and restricted user roles.
It’s like having an exclusive club: only the manager knows the safe code, and only HR can peek at the paycheques. No need for secret handshakes, just secure logins!
Physical Security Measures
Locks on storage rooms, cameras in cash-handling areas, and secure cash drawers are common ways to deter theft and protect assets.
Imagine your inventory room is as protected as the Stanley Cup—cameras, padlocks, and only trusted staff get the key!
Inventory Counts
Regular counts of your inventory help you spot missing items early by checking the counted inventory against your records, keeping your numbers accurate. Restaurants, for instance, might count supplies weekly to prevent shrinkage.
Every Friday, your chef tallies up the maple syrup bottles—so there’s no sticky situation when pancake season hits full swing.
Documented Policies and Procedures
Clear, written instructions guide employees on how to handle key tasks and help ensure consistency. A retail store may have a manual detailing how to process returns or handle refunds.
Like a recipe book for your business: everyone knows exactly how to serve up a refund, no matter who’s working the register.
Automated Alerts
Accounting or banking software can flag unusual activities, such as large transfers or duplicate invoices, so you can investigate before problems grow.
If your system suddenly chirps about a $10,000 coffee bean order, you’ll know to check if someone’s trying to supply the whole city by mistake—or mischief.
Employee Training
Regular training keeps your team up to date on best practices and fraud prevention. For example, staff may attend annual sessions on data privacy and ethical conduct.
It’s like a refresher on the house rules: every year, staff gather for a crash course on keeping customer info safe and the business honest—plus, there might be doughnuts!
Audit Trails
Systems that track changes to key records (like who edited an invoice and when) make it easier to spot and resolve errors. Cloud accounting platforms often include built-in audit logs.
Imagine an invisible detective in your computer: any time someone tweaks an invoice, you’ll see who did it and when—like leaving footprints in fresh snow.
How Controls Fit into Your Business and Accounting
Controls are not a one-size-fits-all solution. They should be tailored to your business’s size, industry, and unique risks. For example, a small retail store might focus on inventory counts and cash handling procedures, while a tech company might prioritize cybersecurity and data access controls.
Imagine these two very different businesses: a bustling local coffee shop and a fast-growing tech start-up. The coffee shop might worry about cash shortages at the till, staff accidentally double-charging customers, or the occasional missing bag of beans. Meanwhile, the tech start-up is more likely to lose sleep over unauthorized access to sensitive client data, unexpected software glitches causing billing errors, or the challenge of keeping track of high-value equipment as the team expands. Both businesses want to avoid surprises and keep things running smoothly—but the way they do it looks a bit different.
We would start by mapping out your business’s specific risks and reviewing past incidents. For the coffee shop, this could mean looking at missing invoices or a time someone forgot to lock up. For the tech start-up, maybe it’s a security breach or duplicate payments in the accounting system. Involve your team—baristas or developers alike—to get practical insights and create a checklist pointing out where things can go wrong, whether it’s at the cash register or with user permissions.
To keep problems from happening in the first place, divvy up financial duties based on your business. At the coffee shop, one person might handle daily cash counts, while another manages supplier orders. You could set purchase limits so only the manager can approve large orders—like that $10,000 coffee bean delivery no one actually needs. For the tech start-up, assign someone to oversee software subscriptions, restrict access to sensitive files with strong passwords, and make sure expensive laptops are locked up after hours. Document these routines so everyone knows what’s expected, from closing the till to updating the password list.
Regular checks help catch issues before they snowball. The coffee shop can schedule weekly cash reconciliations and review sales logs for oddities, like two identical orders in a row. The tech start-up, on the other hand, might run monthly audits of user accounts and check for duplicate vendor payments. Encourage everyone to speak up if they notice something off—maybe a missing bag of beans or an unfamiliar device logging into the system. Keep a simple log of all these reviews so nothing slips through the cracks.
When things do go sideways, have a clear plan. If the coffee shop finds a cash shortfall, they can check security footage, recount the till, and retrain staff as needed. If the tech start-up discovers a data leak, they’ll restore files from backups, investigate which accounts were affected, and hold a team meeting to prevent it from happening again. Update your procedures and offer refresher training so everyone learns from the incident and the business comes back stronger.
Now’s the time to take action—map your risks, implement these controls, and regularly review your systems. Reach out to an accountant or advisor with Canadian expertise if you need guidance. Putting the right controls in place today will protect your business for the long haul.
Getting Started with Controls
Implementing effective controls doesn't have to be overwhelming. Start by identifying your business’s biggest risks and focus on basic controls that address those areas. Consult with your accountant or a business advisor familiar with Canadian best practices for guidance.
Remember, controls should be regularly reviewed and updated as your business evolves. What works for a start-up may not be sufficient for a growing enterprise.
Conclusion
Controls are the backbone of a well-run business and are especially crucial in accounting. They protect your assets, ensure accuracy, and build credibility with stakeholders. Investing the time to develop and maintain strong controls is one of the smartest moves you can make for your business’s long-term success.
Stay tuned for our next blog, where we’ll dive deeper into the importance of controls over cash and inventory, what you should be implementing today to protect these valuable assets.
KLV Accounting, a Calgary-based accounting firm, is here to help. Contact us today to enhance your financial strategy, minimize your taxes, and drive business success! For a free consultation, call us at 403-679-3772 or email us at info@klvaccounting.ca.
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