THE HIDDEN COST OF POOR FINANCIAL CONTROLS

How weak systems quietly undermine organizations, and why strong controls are often the difference between collapse and resilience.

Introduction

Financial controls are often misunderstood. in many organizations, they are seen as procedural hurdles, but in reality, financial controls are part of an organization’s operating backbone. They determine how decisions are made, how fast projects move, how accountable people feel, and how much trust stakeholders place in the institution.

When financial controls are weak, the damage is rarely immediate or dramatic, rather, it accumulates over time through delays and eventually, failure. On the flip side, when controls are strengthened and aligned with how work is actually done, they often become a powerful lever for recovery and growth. And this is a pattern that keeps playing out all over the world.

The Slow Bleed

Poor financial controls rarely appear as fraud from the get go, rather, they show up as small, persistent breakdowns such as approvals that take too long because reporting lines are muddled; financial reports that arrive late or cannot be reconciled with operations; and projects that stall because money cannot be validated confidently. Over time, leadership begins to make decisions with imperfect information, and the business starts to bleed slowly and continuously, shifting teams from delivery to fire-fighting.

An example of this happened in the mid-2000s, in a multinational in Nigeria, with the company facing a major accounting scandal involving overstatement of profits. Whilst the issue was eventually uncovered and addressed, the episode exposed deep weaknesses in internal financial controls and oversight. The consequences were severe, ranging from loss of investor confidence to regulatory scrutiny, and eventually, long- term reputational damage.

The lessons from the business are numerous, spanning misconduct, weak systems and controls that allowed misstatements to persist undetected, with the organization paying a heavy price even after corrective action was taken.

Globally, the Enron collapse remains one of the clearest examples of how control failures can destroy organizations that appear outwardly successful and systemically sound for several years. Complex financial arrangements, inadequate internal controls, and weak board oversight snowballed into the eventual collapse of the business when it came under scrutiny.

In both cases, the warning signs existed long before the collapse– they lacked the necessary financial discipline and control architecture required to help the business thrive.

The Cost of Execution

Poor financial controls have a more damaging effect than just the bad reputation, they actually undermine execution. In project environments, especially those involving multiple funding sources or stakeholders, weak controls typically result in delayed vendor payments, even when funds are available; constant revalidation of expenditures; emergency approvals becoming routine; and program teams spending excessive time resolving financial issues instead of delivering outcomes.

These dynamics have been observed repeatedly in public-sector and donor-funded projects across Africa. In 2025, Nigeria reportedly lost about $4 million in World Bank funding because agreed audit and reporting conditions tied to financial governance were not met by certain revenue agencies. There was no public allegation of theft, however, control and reporting failures alone were enough to trigger the cancellation of disbursement. This illustrates a critical point that poor financial controls can cost organizations money even when the funds are not misused.

Research also supports this as studies on public financial management consistently show that weak internal controls are associated with poorer service delivery and lower organizational performance. For example, a 2025 study examining financial and IT controls found a strong relationship between effective internal controls and improved financial outcomes in public institutions. In practical terms, systems and controls shape how smoothly money moves through an organization, and money that cannot move predictably cannot deliver results.