Meaning
System of rules, practices and processes by which an organization directs and controls its monetary resources. Establishing financial governance ensures that capital is allocated efficiently and that the risk of fraud is minimized. This framework defines the authority of individual managers and the reporting requirements for every department.
Control Mechanism
Separation of duties prevents a single employee from both authorizing and executing a payment. Effective financial governance depends on a series of internal checks that verify the legitimacy of every transaction. These barriers protect the assets of the company from being misappropriated or wasted on unapproved projects.
A secondary reviewer must sign off on any wire transfer that exceeds a specific dollar threshold. This dual authorization ensures that the company remains compliant with international anti-money laundering regulations.
Audit Trail
Every financial decision must leave a clear path of documentation for later review. Maintaining financial governance involves the use of standardized software to record the time, person and justification for each expenditure. External auditors rely on these records to confirm that the financial statements of the company are accurate.
Policy Compliance
Regular training ensures that staff understand the limits of their spending power. Failing to uphold financial governance can lead to severe legal penalties and a loss of investor confidence. The board of directors holds the responsibility for the integrity of these internal systems.
