Running a business of any size is no small feat. When it’s a small business, the buck stops with you— you’re in charge of all decisions, putting out fires, and wearing more hats than you ever imagined. It makes sense that internal controls often get overlooked, but failing to put a system in place can cost you in a big way.
I’ve worked with countless small businesses, and I can tell you that most don’t realize they have an internal controls problem until something goes horribly wrong. Maybe an employee has too much access, an account is tied to the wrong person, or fraud goes undetected for months. These issues don’t just happen in big corporations. But when they hit small businesses, it can be even more devastating.
My team and I come in on the financial side—that’s where most business owners think they need help. But almost every time I onboard a new client, I find internal controls should be stronger across the board.
Yes, it’s about fraud prevention—that’s a given. However, it’s also about operations—how your business functions day to day and whether you have the right checks and balances in place to prevent chaos, inefficiencies, and financial risks.
With that in mind, I’m going to help you understand what internal controls are, why they matter to your small business, and how to put them in place before disaster strikes.
What Are Internal Controls & Why Should You Care?
You might be wondering, what exactly are internal controls?
Internal controls are the financial and operational procedures that keep your business running securely. They help prevent fraud, limit access to sensitive financial information, and ensure that your business doesn’t crumble if someone leaves or a crisis hits.
That’s where business continuity planning comes in. Without it, small businesses are vulnerable to fraud, financial mismanagement, and operational disruptions.
What is a business continuity plan?
It’s your safety net—a plan that ensures your company keeps running, no matter what unexpected challenges arise. But, I always remind people that a business continuity plan covers you for more than major disasters. Yours should also focus on ensuring everyday operations don’t grind to a halt if an employee leaves, a key system goes down, or access to critical accounts is lost.
That’s why internal controls and business continuity plans go hand in hand—while internal controls protect your business from fraud, mismanagement, and financial risks on a daily basis, a business continuity plan ensures that if something goes wrong, your operations don’t stop.
Understanding Why Small Businesses Struggle with Internal Controls
Most small business owners don’t set out to create security gaps—it just happens. You start lean, trust your team, and breathe a sigh of relief that someone else is handling the details. The only problem? Over time, bad habits form, which puts your business at risk.
Here are just a few issues that could turn into major red flags:
- Lack of separation of duties means there’s no oversight because one person controls everything—payments, approvals, reconciliations.
- Small business fraud prevention gaps mean there are no checks and balances. One person controls everything.
- Accounts tied to individual employees (and 2FA to personal cell phones and siloed email addresses) means that if and when they leave, you could lose critical access that leads to costly delays
- No regular internal controls audits mean that no one is checking up on your security.
- Lack of internal controls procedures and policies means that mistakes and fraud can slip through the cracks.
The result? Poor internal controls and risk management can lead to fraud, wasted money, compliance issues, and even business failure.
Internal Controls in the Wild
You might be thinking, “This won’t happen to me.” But I’ve seen these scenarios play out time and time again. Even if you’re the one holding all the keys, what happens if you’re unable to access your phone or accounts?
Here are a few real-world examples of control issues:
Scenario #1: Disappearing Funds
A small business owner trusted their bookkeeper to handle payments and reconciliations. With no oversight, the bookkeeper siphoned off funds for years before getting caught. By then, tens of thousands were missing.
Scenario #2: Locked Out of the Business
A team member who managed the company’s business continuity plan for small businesses quit unexpectedly. Turns out, all purchasing accounts were set up under their email, and 2FA codes were linked to their phone. The company couldn’t order supplies, pay vendors, or access their SBA loan portal.
Scenario #3: Unauthorized Purchases
An internal audit revealed that a manager was bypassing approval procedures, spending thousands on non-business expenses—simply because there were no proper internal controls and procedures in place.
Do You Have an Internal Controls Problem?
There’s a good chance you do. Most businesses I work with have at least one major internal controls gap.
Here are some signs that you might need to take a closer look:
- One or more employees have unrestricted access to business finances.
- No internal controls process to approve expenses.
- Business logins are tied to personal emails or phone numbers instead of company-owned accounts.
- No multi-factor authentication (MFA) or shared access protocols.
If any of these sound familiar, don’t beat yourself up. Instead, take some steps to strengthen your internal controls.
Best Practices for Strong Internal Controls & Risk Management
Wondering where to start? I recommend using this checklist as you run through all of your logins and accounts to ensure your business runs smoothly, securely, and without unnecessary risks.
- Ensure Separation of Duties – No one person should handle both bill processing and bill payment or both customer invoicing and receiving customer invoice payments and deposits, cash transfers, approvals, and reconciliations. And the person processing bill payments should not have check-signing access.
- Align Your Accounts with Small Business Continuity Plan – Set up company-owned accounts and document key access points.
- Perform Internal Controls Audits – Regularly review financial security, access permissions, and process gaps.
- Set Up Role-Based Access – Limit financial and operational access to only what employees need.
- Enable Multi-Factor Authentication (MFA) – Prevent unauthorized access by securing key accounts.
Are Your Internal Controls Protecting Your Business?
Most small businesses don’t realize they have an internal controls issue—until it’s too late. But with the right strategies in place, you can prevent fraud, eliminate risks, and protect your bottom line.
Think about this: If a key employee left today, would your business be able to function tomorrow? If the answer is “No” or “I’m not sure,” then it’s time to take action.
Now is the time to make sure your internal controls are working for you, not against you. Contact us today to see how we can help.
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