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Growth is often viewed as an unequivocal success indicator, but for many Canadian businesses, rapid expansion brings with it a less visible set of risks. As organizations scale, processes that once worked effectively in a smaller, founderled environment can quietly break down. Internal controls that were informal, undocumented, or heavily reliant on a few trusted individuals may no longer be sufficient to manage increased transaction volumes, geographic dispersion, regulatory complexity, and stakeholder expectations.
For Canadian midmarket companies, professional firms, and highgrowth enterprises, control breakdowns rarely occur because of bad intent. More often, they arise because growth outpaces governance. The consequences, however, can be significant ranging from financial misstatements and fraud exposure to audit issues, regulatory non-compliance, and erosion of lender or investor confidence.
This paper explores the most common internal control breakdowns observed in growing Canadian businesses, why they occur, and how proactive control design can support sustainable growth rather than constrain it.
Over Reliance on Key Individuals
One of the most frequent control weaknesses in growing organizations is excessive dependence on a small number of individuals. Founders, long-tenured employees, or trusted managers often retain end-to-end responsibility over critical processes such as cash management, payroll, or financial reporting.
While this approach may be efficient in early stages, it creates significant keyperson risk as transaction volumes increase. Lack of segregation of duties can lead to errors going undetected, delayed reporting, or, in worst case scenarios, misappropriation of assets. From an audit and governance perspective, over-reliance on individuals undermines the sustainability and resilience of the control environment.
Inadequate Segregation of Duties
Segregation of duties is a foundational control principle, yet it is commonly compromised in growing Canadian businesses due to resource constraints. As organizations expand, finance teams often struggle to keep pace with increased workloads, resulting in individuals performing incompatible functions such as transaction initiation, approval, and reconciliation.
This breakdown increases the risk of both unintentional errors and intentional fraud. In particular, cash disbursements, revenue recognition, and journal entry processes are areas where weak segregation can have direct financial statement implications. While full segregation may not always be practical, the absence of compensating controls—such as independent reviews or automated system checks can significantly elevate risk.
Informal or Undocumented Processes
Many growing businesses operate with processes that exist primarily in practice rather than in documented form. While this informality may support agility, it often leads to inconsistent execution, knowledge gaps, and control failures as new employees are onboarded.
Undocumented processes make it difficult to ensure consistency across locations or teams, and they limit management’s ability to monitor control effectiveness. From an external audit perspective, lack of documentation can result in increased audit effort, control deficiencies, or reliance on substantive testing rather than controls.
As Canadian businesses mature, regulators, lenders, and investors increasingly expect documented policies, procedures, and approval frameworks that clearly define roles and responsibilities.
Weak Financial Close and Reporting Controls
Rapid growth often places pressure on monthly and quarterly close processes. As transaction volumes rise, finance teams may prioritize speed over accuracy, leading to reconciliation backlogs, unsupported journal entries, and delayed variance analysis.
Weak close controls can result in incomplete or inaccurate financial information being used for decision-making. Over time, this erodes management confidence in financial reports and increases the risk of material misstatements. For businesses preparing for external financing, audits, or regulatory filings, deficiencies in the close process are among the most commonly identified control issues.
Insufficient IT and Systems Controls
As Canadian businesses adopt new accounting systems, cloud platforms, and thirdparty applications to support growth, IT control environments often lag behind system complexity. Common issues include excessive user access, lack of role-based permissions, weak change management controls, and limited monitoring of system interfaces.
These weaknesses can compromise data integrity and increase the risk of unauthorized transactions or reporting errors. Given the growing reliance on system-generated reports for financial reporting, IT control breakdowns can have direct implications for internal control over financial reporting and audit reliance.
Ineffective Review and Oversight Mechanisms
In early-stage businesses, informal oversight by founders or senior leaders often substitutes for structured review processes. As organizations grow, this approach becomes less effective, particularly when leaders are focused on strategic expansion rather than operational detail.
Common breakdowns include cursory financial reviews, lack of documented approvals, and insufficient challenge of unusual trends or variances. Without effective review controls, errors and control failures can persist across multiple reporting periods before being identified.
Boards and
advisory committees also play an increasingly important role as organizations scale. Where governance structures do not evolve alongside growth, oversight gaps can emerge.
Compliance and Regulatory Control Gaps
Growth frequently brings new regulatory obligations, whether through geographic expansion, new product offerings, or changes in workforce size. Canadian businesses may face additional requirements related to payroll, sales taxes, data privacy, or industry-specific regulations.
Control breakdowns often occur when compliance responsibilities are unclear or when monitoring processes are not updated to reflect new obligations. These gaps can result in penalties, interest, reputational damage, and increased scrutiny from regulators and auditors.
Cultural and Change Management Challenges
Internal controls are only as effective as the culture that supports them. In fast-growing organizations, employees may view controls as bureaucratic obstacles rather than essential safeguards. When growth initiatives are prioritized without sufficient attention to control discipline, shortcuts become normalized.
A lack of training, communication, and accountability can undermine even well-designed controls. Canadian businesses that successfully scale tend to embed control awareness into their culture, emphasizing that strong controls enable growth rather than hinder it.
How Faber LLP Can Help
Faber LLP works closely with growing Canadian businesses to strengthen internal control environments in a way that supports, rather than restricts, expansion. We help organizations identify control gaps arising from growth, assess their potential financial and operational impact, and design pragmatic solutions tailored to the organization’s size, industry, and risk profile.
Our team assists with control assessments, process documentation, and segregation of duties analysis, providing clear recommendations and practical remediation plans. We also support the enhancement of financial close processes, reporting controls, and IT general controls to improve accuracy, reliability, and audit readiness.
For organizations preparing for audits, financing transactions, or regulatory scrutiny, Faber LLP provides targeted support to align internal controls with stakeholder expectations. By combining technical expertise with a deep understanding of the Canadian business environment, we help clients build scalable control frameworks that evolve alongside their growth.