Hey Lykkers! Ever had that feeling you've left the front door unlocked? You go about your day, but a little nagging thought in the back of your mind tells you something isn't quite secure.

For businesses, that "front door" is their internal control system. And when it's left unlocked, it's an auditor's job to find out.

But what if you could spot the vulnerabilities yourself? Knowing what auditors look for isn't about tricking them—it's about building a stronger, more secure business. So, let's pull back the curtain and look at the most common red flags that make an auditor's eyebrows shoot up.

Imagine if one person could print the checks, sign them, and record the payment in the books. That's a massive red flag known as lack of segregation of duties. It's the equivalent of having a single person be the player, coach, and referee.

Why it's a red flag: It creates a golden opportunity for errors or fraud to go unnoticed. A robust system has different people handling different parts of a transaction (e.g., one approves an invoice, another processes the payment, a third reconciles the bank statement). This creates a built-in system of checks and balances.

"Segregation of duties is essential in every organization. It's the first line of defense against fraud and errors. When one individual holds too much control, even the best systems can be compromised." — Dr. Norman Marks, Author of World-Class Internal Auditing.

The "Trust Me" Method: Poor Documentation and Authorization

Don't worry, I approved it verbally. If that's your company's standard authorization process, consider this a major warning sign. Auditors love a good paper trail (or digital trail). They look for signed purchase orders, approved expense reports, and written management sign-offs.

Why it's a red flag: Without proper documentation, there's no proof that a transaction was valid, approved, or even occurred. It turns your financial records into a story instead of a verifiable history.

The Mysterious Reconciliation

A key part of bookkeeping is reconciling accounts—like your bank statement with your company's cash records. When an auditor sees that reconciliations are done months late, are full of unexplained discrepancies, or are simply not done at all, it sets off alarm bells.

Why it's a red flag: Regular and accurate reconciliations are a fundamental check on your financial data. If they're neglected, mistakes and irregularities can pile up undetected, making your financial statements unreliable.

The Boss Who Bends the Rules: Management Override of Controls

This is a tricky one. Sometimes, a manager or owner decides the rules don't apply to them. They might pressure staff to bypass a control just this once to close a deal quickly, or approve an unusual transaction with no supporting documents.

Why it's a red flag: This behavior, often justified as "being flexible," completely undermines the entire control system. It signals a weak tone at the top and creates a culture where policies are seen as optional, opening the door to significant misuse of assets.

High Employee Turnover in Key Financial Roles

While not a direct financial error, a constantly revolving door in your finance department is a subtle but serious red flag. It suggests underlying problems like a stressful work environment or, more worryingly, that someone doesn't want a new person looking too closely at the books.

Why it's a red flag: Consistency is key for strong controls. Frequent turnover makes it hard to maintain procedures and increases the risk that important tasks, like reconciliations, will be forgotten or rushed.

Your Business, Fortified

Spotting any of these in your own organization? Don't panic! View it as a free health check-up. Addressing these red flags isn't just about passing an audit—it's about building a more resilient, efficient, and trustworthy business.

By strengthening these areas, you're not just pleasing the auditors; you're protecting the heart of your company. Now go on, Lykkers, go check your locks!