Coworkers discussing internal controls in accounting
Coworkers discussing internal controls in accounting

Why your business needs internal controls in its accounting system

Fraud remains a top concern for insurers worldwide, according to findings from the Reinsurance Group of America (RGA) 2024 Global Claims Fraud Survey. The report highlights the ongoing challenges insurers face in managing fraud, with 74% of survey respondents indicating that the number of fraud cases is either holding steady or increasing compared to previous years. In light of the prevalence of bad actors (yes, they even come after small businesses), it’s clear that businesses of all sizes need to be vigilant.

Across my years in cloud accounting, I’ve seen firsthand how businesses can fall victim to fraud, especially as they grow and have more people involved in their financial processes. One of my clients, who operates multiple businesses, found this out the hard way. When you’ve got a lot of hands in the kitchen, it’s essential to have safeguards in place—and that’s where internal controls come into play.

Also known as dual controls, internal controls are a feature of financial operations software BILL and have proven to be a game-changer. Simply put, implementing internal controls means following a workflow that requires multiple people to be involved in the accounts payable cycle. It’s not about creating extra steps for the sake of complexity; it’s about creating a system of checks and balances that protects against fraud and error.

Preventing fraud with dual control accounting

One of my clients liked the idea of having someone in the organization do the approvals, but also wanted someone from my team to do a double-check. We’re on the same page, literally and figuratively. Oversight is particularly important when you’re dealing with multiple businesses, and dual controls give you peace of mind.

Here’s a real-life example. Not too long ago, I caught a case where a bookkeeper tried to game the system. She was paying the business’s Chase bill, but at the same time, she opened a Chase card in her name and started paying that bill with company funds too. On the books, the payments were marked as “Chase,” so it took a while for the owner to figure out what was going on. In this scenario, setting up BILL to require an approver prior to payment of the bill would’ve stopped the theft. The approver would be able to review the statement and transactions prior to payment, ensuring that everything looks legitimate. 

Real-world consequences of not having internal controls in accounting

Fraud is not just some abstract problem—it’s real and it’s growing. Another client of ours learned this the hard way last year when someone got hold of their checks, removed the payee name, and replaced it with another name. The result? A complete disaster that forced them to switch banks and caused all sorts of headaches. It took a long time to untangle which of their vendors hadn’t been paid, even though the checks had been dropped in the mail.

This situation could have been avoided with BILL, which uses a clearing account for checks. BILL customers’ actual bank account information is never exposed on the checks sent through the mail. Plus, with everything being paid via Automated Clearing House (ACH), you can stop worrying about physical checks being stolen or tampered with.

A layer of security for all transactions

Dual control isn’t only for paying bills—it also applies to all kinds of transactions. Approvals can be set at different levels; based on the vendor or the dollar amount, for example. If someone tries to slip in a duplicate invoice, it won’t go unnoticed. With the right internal controls, there’s always someone double-checking every transaction.

You may also be interested in: 27 essential internal financial controls for small businesses

Why every business needs internal controls in accounting

So why should you care about internal controls in accounting? It boils down to one word: security. Requiring (at least) two people to approve actions creates a stronger defense. Ensuring that the same person entering the bill isn’t authorized to pay the bill is another way to mitigate against fraud or errors. It’s a simple, effective way to keep your business’s financials under control, without putting too much trust in any one person. Even the most trusted bookkeeper or staff member can make a mistake, and unfortunately, some may try to exploit gaps in the system.

With dual controls, you’re safeguarding your business’s most critical actions and reducing the chance of something going wrong. Whether it’s preventing fraudulent payments, avoiding duplicate invoices, or just making sure all financials are correct, internal controls provide an extra layer of protection that every business—especially those with multiple entities or complex operations—should have.

In short, two sets of eyes are better than one!
Let us know if you need assistance setting up a secure accounting system for your business.

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