How can growing companies build internal controls without slowing down the business?
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One golden rule of designing robust internal controls is to segregate incompatible duties—namely, Authorization, Custody, and Recording. For a growing company, this is far easier said than done.
Nonetheless, to safeguard assets and prevent loss, a growing company must keep the following key principles in mind when designing controls:
Internal controls are only worthwhile when the expected benefits outweigh the cost of execution.
Setting the right tone at the top demonstrates management's commitment to control objectives. In other words, practice what you preach.
Senior management must exercise closer supervision as a compensating control.
Internal controls are only as good as their design and implementation—they can be breached through collusion.
Now, let's bring this to life with a practical example—the cash receipt process.
In a more structured and mature company, you'll typically see the three duties handled by three separate departments. Authorization sits with Credit and Collection. Custody sits with Treasury. And recording sits with Accounting. Clean separation. Clear accountability.
But a growing company may not have that luxury. It may not have the people or the structure to split these duties across three departments. So, what does it do? It adapts. Authorization can sit with Operations. Custody can sit with the bank—if the company allows only online cash collections, the bank effectively holds the cash. And recording can stay with Accounting or be handled by an outsourced service provider.
The key takeaway here is this: the principle of segregating duties doesn't change. But the way you apply it can—and should—evolve with the size and maturity of your business.
If you're navigating growth and need finance function guidance, contact VMC.
VMC's views are general insights—not one-size-fits-all advice. Every company's situation is unique.
