Strengthening Internal Controls: A Guide for Scaling Companies

Why Internal Controls Matter More as You Scale

As companies move from scrappy startups to structured scaleups, their financial operations shift from simple to sophisticated—fast. A founder might approve every invoice in the early days. But once you have multiple departments, new entities, and a growing vendor list, that same informal process becomes a risk vector. This is where internal controls step in—not as red tape, but as operational scaffolding that protects scale.

Internal controls are the policies, procedures, and systems that safeguard your company’s assets, ensure financial accuracy, and mitigate fraud and compliance risks. While often associated with large public companies, they’re even more critical for high-growth private firms navigating fast-paced transactions, hiring sprees, and new market entry.

Here’s why scaling companies must treat internal controls as strategic:

• The cost of control failure compounds: A minor error in a startup might be an inconvenience. In a scale-stage company, it could mean financial misstatements, audit delays, or investor distrust.

• Regulatory exposure increases: Expansion into new geographies introduces new tax, audit, and compliance regimes. Without strong controls, staying compliant becomes guesswork.

• Your finance team can’t catch everything: Manual oversight doesn’t scale. As transaction volume grows, so does the probability of fraud, duplicate payments, and missed accruals.

Controls are not about slowing the business down. When designed thoughtfully, they increase confidence, reduce risk, and free up finance teams to focus on strategic activities—like forecasting, scenario planning, and investment decision-making.

The Anatomy of an Effective Internal Control Framework

A solid internal control framework is like a well-oiled financial immune system: it detects threats early, responds effectively, and strengthens the organization over time. Scaling companies need a balance of preventive, detective, and responsive controls to stay resilient without creating operational friction.

Let’s break it down.

1. Preventive vs. Detective Controls

• Preventive controls are designed to stop errors or fraud before they occur. Think of them as guardrails:
  • Role-based access restrictions in ERP or expense systems

  • Dual approval workflows for vendor onboarding or high-dollar invoices

  • Pre-set budget thresholds and automated alerts for overages

• Detective controls help uncover issues after the fact—crucial for early intervention and audit readiness:
  • Bank-to-book reconciliations

  • Exception reports and trend analyses

  • AI-powered pattern recognition tools that flag unusual transactions

The strongest organizations implement both. Preventive controls reduce exposure, while detective controls create visibility.

2. Segregation of Duties (SoD)

Segregation of duties is one of the most fundamental internal controls—and one of the most commonly violated in early-stage businesses. The principle is simple: no one person should control all aspects of a critical transaction.

Examples:

• The person creating a vendor in the AP system should not be the one approving payments

• Payroll entries should be prepared by HR but reviewed and posted by finance

• Journal entries over a certain threshold should require secondary review

Failing to implement SoD opens the door to errors, fraud, and audit flags. Even with lean teams, compensating controls—like periodic independent reviews—can help mitigate the risk.

3. Documentation and Audit Readiness

If it’s not documented, it didn’t happen. That’s the mantra external auditors and investors often follow. As a company scales, internal controls must become codified, version-controlled, and auditable.

What this means in practice:

• Policies and procedures should be centralized and accessible (ideally in a knowledge base or GRC platform)

• Evidence of control execution—approvals, reconciliations, reviews—should be stored securely with timestamps

• Teams should perform mock audits or readiness reviews ahead of fundraising or formal audits

Investing in documentation early reduces fire drills later and signals maturity to external stakeholders.

Common Internal Control Gaps in High-Growth Companies

Even the most forward-thinking companies can fall into control traps as they scale. Growth brings complexity, and without intentional design, cracks in the system widen—creating financial blind spots, reputational risk, and operational drag.

Here are the most common internal control gaps we see in fast-growing businesses:

Manual Reconciliations and Spreadsheets

Many finance teams still rely on Excel for reconciliations, journal entries, and budget vs. actual comparisons. While flexible, this approach is fragile.

Risks include:

• Human error: A mistyped formula or wrong cell reference can throw off financials.

• Version control issues: Multiple copies of the same file make audits and collaboration a nightmare.

• Limited visibility: Leadership can’t get a real-time view of key metrics.

As transaction volume grows, manual workflows become a bottleneck—and an easy target for fraud or mistakes.

Inadequate Access Controls

Who can log into your ERP? Who still has access to your bank portals or invoice approvals—even after leaving the company?

Without a clear policy on role-based access and periodic reviews, these risks multiply:

• Former employees with active credentials

• Finance interns with unrestricted access to sensitive ledgers

• Over-permissioned users creating and approving their own entries

A lack of system hygiene is more than an IT issue—it’s a control failure waiting to happen.

Informal Approval Processes

Email-based approvals. Slack messages. Verbal sign-offs. They work in a startup—but break down in scale-ups.

The risks:

• No audit trail: Can’t prove who approved what, when.

• Policy inconsistency: Approvals vary by department or urgency.

• Bypassing thresholds: Spend limits are ignored due to urgency or exceptions.

Tools like Tipalti, Ramp, or ProcureDesk offer embedded approval logic tied to workflows, spend categories, and business rules—making informal approvals obsolete.

Next, we’ll shift from control gaps to proactive fraud prevention—the real reason many CFOs invest in internal controls. Want me to continue into that section?

Internal Controls as a Fraud Prevention Tool

Fraud doesn’t start with bad actors—it starts with opportunity. As companies scale, so does the complexity of their financial operations, and with that comes new entry points for fraud.

To prevent it, CFOs must go beyond basic compliance and adopt a risk-aware control mindset.

The Fraud Triangle: A Mental Model for CFOs

Developed by criminologist Donald Cressey, the Fraud Triangle remains the foundational framework in corporate fraud prevention:

1. Opportunity – Weak controls, poor oversight, or lack of segregation enable wrongdoing

2. Pressure – Personal or professional stress (e.g., debt, performance goals)

3. Rationalization – “I’ll pay it back later” or “They owe me this”

Internal controls directly impact the opportunity leg. Reduce opportunity, and you reduce fraud.

Real-World Fraud Scenarios in Scaling Companies

• Expense reimbursement fraud: Employees submitting the same meal twice or inflating travel expenses

• Fake vendors: An insider creates a dummy vendor to siphon funds via falsified invoices

• Duplicate payments: Invoices paid twice due to lack of invoice-matching or system alerts

• Ghost employees: A fictitious hire added to payroll in decentralized HR/finance environments

Each of these is preventable—with the right control environment.

AI-Enhanced Fraud Detection: The New Standard

Today’s fraud detection tools go beyond rule-based alerts. With machine learning, finance teams can:

• Flag outliers across time, geography, and vendor behavior

• Detect payment pattern anomalies (e.g., frequent round numbers or Sunday approvals)

• Identify duplicate invoice attributes across systems (e.g., same bank account, similar vendor names)

Vendors like MindBridge, AuditBoard, and ZenStatement offer AI modules trained on historical finance data—scanning thousands of transactions per second for anomalies your team might miss.

Building a Scalable Internal Control Environment

As a company scales, internal controls must evolve from manual spot-checks to integrated, automated safeguards. The challenge? Avoiding the “compliance tax” that slows innovation. The solution? Right-sized controls matched to your control maturity.

Maturity Model for Internal Controls

Use this 5-level maturity model to assess where you are—and where you need to go:

Most high-growth Series B+ companies aim to shift from “Basic” to “Integrated” within 12–18 months, especially pre-audit or pre-IPO.

Role of Automation and AI

Modern control environments rely on automation, not headcount, to scale:

• RPA (Robotic Process Automation) automates rule-based tasks like three-way invoice matching, journal entry workflows, and approval routing.

• Intelligent Document Processing (IDP) extracts and validates data from vendor PDFs, receipts, and contracts.

• Machine Learning (ML) flags anomalies in spend, payroll, or GL entries based on historical patterns.

Together, these reduce manual work, lower fraud risk, and enable faster closes.

A CFO’s Playbook: Designing Right-Sized Controls

Internal controls aren’t one-size-fits-all. Overengineer them, and you slow the business. Underbuild them, and you invite risk. The most effective finance leaders use a risk-based, stage-appropriate approach to internal control design.

Here’s how to operationalize that mindset:

Step 1: Risk Assessment

Start with a finance-led risk assessment. Your goal: Identify where volume, value, or manual intervention make your processes vulnerable.

High-risk areas typically include:

• Accounts Payable – Frequent vendor additions, large-value payments

• Payroll – High employee turnover, multiple jurisdictions

• Revenue Recognition – Complex contracts or manual invoicing

• Treasury – Manual payments or international wire transfers

Use these insights to prioritize controls—not just based on likelihood of error or fraud, but potential financial and reputational impact.

Step 2: Map Controls to Business Processes

Controls should mirror operational flows. Map key business cycles to control activities:

Visualizing your controls within the actual workflow (rather than around it) increases adoption and effectiveness.

Step 3: Align Controls with Growth Plans

Your control strategy should scale with your business trajectory:

• Pre-audit readiness: Build documentation, enforce policy versioning, and embed controls in your ERP

• Fundraising or M&A: Ensure historical controls can be evidenced and mapped to compliance frameworks (SOX-lite, SSAE 18)

• Cross-border expansion: Plan for tax, data privacy, and regulatory controls in new geographies

Controls aren’t static—they must flex to support your next strategic move.

 Final Thoughts: Treat Controls as a Growth Enabler, Not an Obstacle

The best CFOs don’t see internal controls as a compliance exercise—they see them as an accelerator of strategic growth.

Done right, internal controls:

• Shorten your close cycles by reducing manual interventions

• Increase investor and auditor confidence through transparency and consistency

• Prevent fraud and leakage before they erode margin or trust

• Prepare your business for scale, M&A, audits, and geographic expansion

In high-growth environments, agility and accountability must co-exist. Internal controls are the connective tissue between the two.

This isn’t about slowing the business down—it’s about building a finance function that moves fast without breaking things.