Building Internal Controls Without Bottlenecks

Introduction - Building Internal Controls

For construction and engineering SMEs, internal controls can feel like bureaucratic red tape. Business owners fear that adding checks and approvals will slow down projects.

However, robust controls are like an immune system for your business. They detect errors, prevent fraud and build stakeholder confidence.

This blog explains how to implement controls that protect assets without creating bottlenecks.

Are Impactful Implementations Distracting or Have a Long Learning Curve?

Many firms worry that new controls will distract employees or require extensive training. In reality, most controls are simple practices that integrate into daily workflows. For example, separating duties so that the person who approves invoices is not the same person who writes cheques can drastically reduce fraud risk. Technology, such as cloud accounting and approval apps, minimises manual effort. When implemented thoughtfully, controls become second nature.

Great Controls for Teams Without Strong Leadership

When leadership is stretched thin, processes must stand on their own. These controls are easy to adopt and enforce:

1. Segregation of Duties

No single employee should handle an entire transaction from start to finish. Split responsibilities between ordering materials, authorising payments and reconciling accounts. This reduces fraud risk and ensures errors are caught quickly.

2. Two‑Step Approvals

Require dual approval for payments over a certain threshold, say £5,000. Use a cloud‑based system where project managers can approve invoices digitally. This prevents rogue spending while keeping the process quick.

3. Regular Reconciliations

Weekly bank and supplier statement reconciliations ensure you catch discrepancies early. Assign this task to a different staff member than the one handling receipts. Use automated bank feeds to speed up the process.

4. Defined Spending Limits

Create clear spending limits for site managers and engineers. Anything above the limit triggers an automatic request to the FC or business owner. This empowers teams to purchase materials quickly while maintaining oversight.

5. Standard Operating Procedures (SOPs)

Document processes, how to raise purchase orders, handle petty cash, or submit expenses. SOPs are invaluable when leadership is absent or new staff come on board. They provide clear guidance and reduce dependence on individual judgement.

Controls for Employees Who Struggle With Problem‑Solving or Decision‑Making

Not everyone is confident making financial decisions. Controls should support them rather than stifle them.

1. Checklists and Templates

Provide checklists for routine tasks, invoice processing, CIS submissions, or site stock counts. These help employees follow steps without missing key actions. JFA’s Credit Control Procedures Checklist and Late Payment Letter Templates (available on the resources page) make debt collection systematic.

2. Training and Education

Lack of employee knowledge is a leading cause of internal control failure. Train staff on new procedures and explain why each control matters. Consider a quarterly “finance basics” session so everyone understands cash‑flow and margin impacts.

3. Visual Dashboards

Use simple dashboards showing project budgets, spend to date and cash‑flow status. Visual cues (red, amber, green) help non‑financial staff quickly see when action is required.

4. Exception Reporting

Implement systems that flag anomalies, such as invoices outside usual ranges or sudden spikes in material usage. Exception reports prompt discussion rather than leaving employees to solve issues alone.

5. Encourage Feedback Loops

Encourage staff to report control weaknesses or suggest improvements. When employees feel ownership, they’re more likely to follow procedures.

Need to Review

Ask yourself:

1. Where are the current risks? Map out processes and identify points where mistakes or fraud could occur.

2. Are duties adequately separated? If one person does ordering, receiving and payment, that’s a red flag.

3. Does your system highlight exceptions? Without reports, issues may go unnoticed.

4. Do employees understand why controls exist? If not, invest in training.

   
   

Strategy – Practical Steps

1. Perform a risk assessment: Use the Management Accounts Review Checklist or engage a fractional controller to review your processes.

2. Prioritise high‑risk areas: Start with cash handling, supplier payments and payroll.

3. Implement tech solutions: Cloud accounting, digital approval workflows and integrated project management systems reduce manual entry and speed up approvals. Check out JFA’s blog on how not to run your finance function for more tips.

4. Establish monitoring: Set up monthly reviews where the FC presents bank reconciliations, aged debtors and project profitability.

5. Iterate and train: Adjust controls as your business grows and provide ongoing training. Use JFA’s CIS Compliance Checklist and Management Accounts Review Checklist for guidance.

   
   

Key Takeaways

• Internal controls don’t have to slow your business; simple practices like segregation of duties and two‑step approvals are highly effective.

• Teams lacking leadership benefit from SOPs, checklists and clear spending limits.

• Training and visual dashboards help employees who struggle with problem solving understand when to.

• Regular reviews and technology reduce errors and strengthen compliance.

Solid internal controls safeguard your hard‑earned profits and keep projects on track. For tools that make implementation easier, download our 13‑Week Cashflow Forecast Template and Credit Control Procedures Checklist from the resources page.

You may also like our article on sensitivity analysis for construction SMEs to understand how changes in costs impact your forecasts.

Wrapping up today's insights, tomorrow we simplify another accounting challenge.