Financial Data
Updated 26 Feb 2020

GAD Consulting outlines why financial controls must be carefully designed

The founder of GAD Consulting Services explains why it’s crucial for business owners to have control of their finances, build their knowledge of financial management and set the financial management tone for the business.

Monique Verduyn, 26 May 2016  Share  0 comments  Print

All the answers to your unique business lifestage questions


Business is about finance. Financial controls and systems are critical in managing risk and promoting best practice. Be active and vigilant to protect your resources.

Finance is the language of business. Precious Mvulane, a CA (SA), founder and MD of GAD Consulting Services, and author of “The Essential Finance Handbook for Business Owners”, says that good internal financial controls will help you achieve business goals, increase operational effectiveness and efficiency, enable compliance with laws and regulations, safeguard your assets, and ensure that your business is running on reliable information.

The control environment sets the tone of the business, influencing the control consciousness of its people. The tone provides discipline and structure for the people. As the business owner, you are responsible for the integrity, ethics and competence of the business and its people.

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Mvulane says there are four key components to the control environment:

1. Controls to help achieve and manage business goals

Without accurate financial information, decision-making becomes impossible and the business suffers. Controls should include dates for reporting and meetings to review performance; policies and procedures for handling setbacks or non-compliance; clear direction on corrective action and timelines; and appropriate supervision of staff, including monitoring tools for employee self-management.

2. Controls to ensure that financial information is accurate and reliable

Internal controls support the collection of correct information for management and financial reports. Most decisions are based on the information in these reports, so accuracy is crucial. Maintaining accurate reports is required by legislation and management, and reduces time lost in correcting errors.

Readers of financial reports assume that assets and liabilities actually exist; records are kept according to legislation; liabilities, rights and obligations are disclosed and recorded; all entries have been allocated to the correct accounts; and all relevant information has been disclosed according to the guidelines of the International Financial Reporting Standards (IFRSs).

3. Controls to ensure compliance with financial and operational requirements

Businesses have many compliance obligations, and you need to ensure these are met. Examples of controls used to ensure compliance include assigning responsibility for compliance; physical controls to prevent accidents, including safety signs and guides; processing customer complaints timeously; and running audits to check the effectiveness of controls.

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4. Controls to safeguard assets

Controls are put in place to protect fixed assets and intellectual assets. They are intended to minimise losses that may arise from both internal and external events. These controls should include physical security such as cameras, safes and locking of premises; restricted access based on role and need; avoiding giving total control over a process to just one employee; ensuring independent checks on processes and procedures; having firewalls and protective devices on computer systems; having clear guideline on personal use of business assets; and ensuring proper management supervision at all times.

Remember that as a business owner, you are responsible for demonstrating characteristics such as a sound approach to taking and managing business risks, a positive attitude toward financial reporting, and a professional attitude towards information processing and dealing with accountants and auditors.

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Monique Verduyn

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