When most people hear “internal controls,” they think of large corporations with dedicated compliance departments. But internal controls aren’t just for big companies — they’re essential for any business that wants to protect its assets, ensure accurate reporting, and operate efficiently.
What Are Internal Controls?
Internal controls are the processes, policies, and procedures a business puts in place to safeguard its assets, ensure the reliability of its financial reporting, and promote operational efficiency.
They don’t have to be complex. At their core, internal controls answer one question: how do we make sure things are done correctly and consistently?
Why Small Businesses Need Them
Small businesses are actually more vulnerable to fraud, errors, and financial mismanagement than larger ones. Here’s why:
- Fewer people means less natural oversight — the same person might approve expenses, process payments, and reconcile bank accounts
- Informal processes mean things get missed or done inconsistently
- The founder is often too busy to review financial details personally
- Trust-based systems work until they don’t — and by then, the damage is done
According to industry research, small businesses experience disproportionately higher losses from fraud per incident compared to larger organisations, largely because they lack basic controls.
Where to Start: Five Essential Controls
You don’t need a 50-page controls manual. Start with these five fundamentals:
1. Segregation of Duties
No single person should control an entire financial process from start to finish. At minimum, separate these functions:
- The person who approves a payment should not be the person who processes it
- The person who records transactions should not be the person who reconciles the bank account
- The person who manages inventory should not be the person who records inventory adjustments
If you’re too small to fully segregate duties, the business owner or a senior manager should review and approve key transactions regularly.
2. Approval Authorities
Define who can approve what, and at what amount. A simple approval matrix might look like:
- Expenses under AED 5,000: Manager approval
- Expenses AED 5,000–25,000: Director approval
- Expenses over AED 25,000: Owner/board approval
Document this and make sure everyone follows it.
3. Bank Reconciliations
Reconcile every bank account monthly — no exceptions. This is the single most effective way to catch errors, unauthorised transactions, and fraud. The person performing the reconciliation should ideally be different from the person processing payments.
4. Access Controls
Limit who has access to your financial systems, bank accounts, and sensitive data. Use unique login credentials for each user, enable two-factor authentication where possible, and review access permissions when employees change roles or leave the company.
5. Regular Financial Review
Set a routine for reviewing your financial statements — monthly at minimum. Look for unusual transactions, unexpected variances, and trends that don’t make sense. If something looks off, investigate it immediately.
The Payoff
Good internal controls don’t just prevent fraud. They also make your business run more smoothly by creating consistency in how things are done, reducing errors, improving the quality of your financial reporting, and making audit preparation significantly easier.
They also build confidence with investors, banks, and partners — all of whom will look at your controls environment as part of their due diligence.
Getting Started
If you’re not sure where your controls stand today, a good first step is an internal controls assessment. At Bayswater Financials, we help small businesses evaluate their current processes, identify vulnerabilities, and implement practical controls that fit the size and complexity of their operations.
You don’t need a compliance department. You just need the right processes in place.