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Internal controls are the measures a business takes to stay compliant, run efficiently, protect its assets, and produce accurate financial reports for decision-making.
According to the Association of Certified Fraud Examiners’ 2026 Report to the Nations, a lack of internal controls is the leading cause of occupational fraud, contributing to 33% of all cases, with a median loss of $104,000 per scheme. Setting up internal control processes protects your business as you scale.
Learn what internal controls are, how the three main types of internal controls function, and practical examples of internal controls you can implement using Shopify features and standardized workflows.
What are internal controls?
Internal controls are the systems, policies, and procedures a business implements to safeguard assets, ensure accurate financial reporting, promote operational efficiency, and prevent fraud.
An effective internal control system provides business leadership with reasonable assurance that the business is compliant with regulatory requirements, protected from fraud, and produces accurate accounting records that they can use to inform strategic decision-making.
Types of internal controls
Internal control activities fall into three categories:
Preventive controls
Preventive controls are designed to prevent fraud before it occurs. These controls restrict access to sensitive financial data, properly segregate duties, and establish transaction authorization and approval controls.
Examples include password-protected access controls, physical locks on inventory, and automated information processing controls.
Detective controls
Detective controls are designed to detect errors, omissions, or fraudulent activities that preventative controls fail to stop. Internal auditors rely on detective controls to monitor performance and ensure all systems are functioning effectively.
Examples include tracking telecommunication call activity reports, reviewing bank statements, and holding regular performance reviews.
Corrective controls
Corrective controls take effect once a detective control identifies an error or security gap. Their purpose is to remedy the issue, recover assets, and update preventive internal control systems to mitigate risks in the future.
Examples include updating system software after an unauthorized entry attempt and revising your financial practices.
Internal controls examples for small businesses
- Segregation of duties
- Transaction authorization and approval controls
- Record review and reconciliation
- Physical security and training protocols
- Account security best practices
- Cash handling and banking controls
- Formalized policies and documentation
- Monitoring, assessment, and internal audits
Here are eight examples of internal controls you can adapt to your business using Shopify’s built-in tools and team workflows:
Segregation of duties
Segregation of duties is a preventive control that divides tasks among multiple team members so that no single employee has complete control over a financial or operational transaction cycle. Distributing responsibilities creates natural checks and balances across your business processes, reducing the risk of unauthorized use and data entry errors.
Examples of these types of controls include:
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In a retail setting, ensure that the employee who receives physical stock is not the sole person authorizing vendor invoices or managing cash receipts.
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In ecommerce, implement these controls digitally using Store Permissions & Staff Accounts in Shopify. Assign role-based permissions to team members so that fulfillment staff only access order shipping tools, while finance staff handles payout details and financial reporting.
The founders of Canyon Coffee experienced an accounting setback when they began operating multiple business entities. On the Shopify Masters podcast, cofounder Casey Wojtalewicz says their accountant implemented a strict internal control: requiring every entity to hold its own dedicated bank account and independent ledger.
Separating operational and financial responsibilities also frees up leadership to focus on high-impact growth. Diaspora Co. founder Sana Javeri Kadri says on Shopify Masters that trying to oversee every function created management bottlenecks. She and her COO built a separation-of-duties matrix using a Venn diagram. The COO oversees operations, finance, and fulfillment, while Sana leads sourcing, marketing, and sales.
Transaction authorization and approval controls
Transaction authorization controls mandate that financial commitments or operational changes require review and approval from designated managers before processing. They serve as a hybrid preventive and detective control; this prevents unauthorized spending before cash leaves the business and detects irregular sales or transaction activity during approval workflows.
Here are examples of these types of controls:
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Use automated tools like Shopify fraud analysis and fraud control apps to set up automated risk scoring and rule-based workflows.
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Enable Address Verification System (AVS) and Card Verification Value (CVV) checks to automatically flag high-risk orders.
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Using Shopify Flow, build automated rules that place suspicious orders on hold for manual review before fulfillment, preventing fraudulent chargebacks.
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Require dual authorization for expense approvals and supplier payments above a set threshold.
Record review and reconciliation
Reconciliation compares internal financial records against external documents—such as bank statements and payment gateway merchant logs—to confirm accuracy. It is a detective control that helps detect errors, identify missing transactions, and spot unauthorized withdrawals in a timely manner.
Here are examples of these types of controls:
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Schedule weekly or monthly reconciliations between your bank account deposits and your ledger entries.
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Use Shopify finance reports (including finance summary, payments, taxes, and store credit reports) to cross-reference total daily sales or transaction activity against actual cash deposits.
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Work with an accountant to standardize your reporting format.
Physical security and training protocols
Physical controls protect tangible company assets, including retail inventory, warehouse stock, hardware terminals, and paper records, from theft or damage. They act as preventive controls (restricting physical entry) and detective controls (surveillance and counting).
Here are examples of these types of controls:
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Restrict physical access to inventory storage rooms using keycard entry or locked doors.
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Install security cameras covering register areas and loading docks.
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Train employees regularly on inventory security protocols, register closing procedures, and security checks for incoming deliveries.
Account security best practices
Account security controls safeguard online storefronts, customer financial data, and business banking accounts from unauthorized external or internal access. They operate primarily as preventive controls, with detective controls monitoring ongoing system access.
Here are examples of these types of controls:
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Implement mandatory two-step authentication across all administrative access points as part of employee cybersecurity training.
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Set up monthly reviews of staff access lists to immediately revoke access for former team members.
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Use system audit logs to monitor active staff sessions.
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Review telecommunication call activity reports or login location alerts to flag abnormal access patterns quickly.
Cash handling and banking controls
Cash handling controls govern how funds flow into and out of your business, ensuring that revenue is accurately captured and actual expenses match approved budgets. This functions as both a preventive control (restricting cash access) and a detective control (reconciling balances).
Here are examples of these types of controls:
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Maintain dedicated financial accounts for different business activities rather than pooling operational funds.
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Use tools like Shopify Balance and Bill Pay that help organize money by setting up separate financial accounts for tax reserves, payroll, and inventory.
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Use Bill Pay workflows to schedule, approve, and track payments in a centralized dashboard, ensuring accurate accounting for outgoing transfers.
Formalized policies and documentation
Formalized policies document standard operational routines, establishing clear expectations for compliance, data handling, and employee conduct. They act as a preventive control by guiding employee decision-making across the organization.
Here are examples of these types of controls:
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Create written standard operating procedures (SOPs) covering order processing, vendor onboarding, expense reimbursements, and inventory adjustments.
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Store these documents in a central digital repository accessible to all staff, and require new hires to review and sign them during onboarding.
Monitoring, assessment, and internal audits
Monitor activities and continuously evaluate whether your internal control systems are functioning effectively over time. They are a detective control that leads directly into corrective controls when you or a team member identify gaps.
Here are examples of these types of controls:
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Conduct periodic internal audits where management or internal auditors test a random sample of completed transactions, shipping logs, and employee permissions.
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Compare actual inventory counts against recorded stock levels to spot shrinkage trends early.
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If an audit reveals discrepancies, adjust your implementing procedures to fix the vulnerability.
Internal controls examples FAQ
What are good internal controls?
Good internal controls are clear, automated (where possible), and tailored to a business’s risks without slowing down daily operations. They establish strong preventive and detective controls—such as mandatory two-step authentication, segregation of duties, and routine account reconciliations—that protect assets and ensure accurate financial reporting.
What are common internal control activities?
Common control activities include restricting administrative system access based on staff roles, requiring secondary manager approvals for high-value expenses, and conducting regular physical inventory counts. Routine checks prevent unauthorized transactions and ensure accounting records remain accurate.
Who is responsible for internal controls?
Senior management and the business owner ultimately are responsible for designing and implementing internal controls, and maintaining the overall control environment. However, every employee plays a role in following established policies and procedures, while internal or external auditors evaluate the system to ensure controls work properly.
