Avoid These 5 Material Weaknesses Tied to Intercompany to Save $8 Million

Despite the progress finance organizations have made in automation and controls, material weaknesses continue to surface in financial reporting, often stemming from intercompany transactions. Why is this? As organizations grow more global and complex, the volume and intricacy of intercompany activity increases. What was once manageable using spreadsheets and manual reconciliations has become a liability when not properly governed.

In many cases, these weaknesses are not the result of fraud or bad actors but of process breakdowns, timing mismatches, or inconsistent policies across entities. When companies fail to settle intercompany balances accurately or document transactions in a timely, standardized way, it creates the opportunity for misstatements that can trigger audit findings. And when auditors flag these issues, they don’t just highlight a one-time error, they point to systemic failures in internal controls.

Material weaknesses aren’t just a check-the-box concern during audit season – they carry real financial and reputational consequences. When a company discloses a material weakness, it risks losing investor confidence, increased scrutiny from regulators, and higher audit and compliance costs. In the worst cases, unresolved weaknesses can delay financial filings or lead to restatements.

In fact, reducing or preventing potential compliance issues that lead to material weaknesses or misstatements could save as much as $8M per occurrence!

Today’s CFOs continue to be stewards of financial accuracy. They're also expected to be strategic enablers, and with that expanded role comes increased accountability. Regulators and stakeholders expect the Office of the CFO to ensure that financial reporting is timely, accurate, and free of material misstatements. That includes having robust controls over intercompany accounting.

The challenge is that many CFOs inherit a variety of ERPs and other fragmented systems, decentralized teams, and legacy processes that simply weren’t built to handle the scale and complexity of modern intercompany transactions. Fixing these weaknesses demands a rethinking of intercompany as a core, cross-functional process that needs ownership, automation, and continuous oversight.

Let’s look at how intercompany applies to five major material weakness categories to better understand how your business can avoid costly errors.

Inadequate Accounting Documentation

One of the most common culprits behind intercompany-related material weaknesses is a lack of standardized, documented policies. Intercompany processes touch multiple teams and systems, and without formal documentation, it’s too easy for things to fall through the cracks.

For example, when finance teams operate without a clear playbook for how to initiate, record, and reconcile intercompany transactions, inconsistencies are inevitable. One entity books a transaction one way, another does it differently, and suddenly, you're looking at unreconciled balances, manual adjustments, and audit questions you can’t easily answer.

Organizations that take the time to create clear, comprehensive intercompany policies, such as trading agreements that spell out the parties involved, pricing terms, delivery expectations, payment timelines, and dispute resolution procedures, are far less likely to encounter errors that result in material misstatements.

Undertrained or Understaffed Accounting Personnel

Even with the best systems and policies in place, intercompany processes can break down if the people behind them aren’t equipped with the right knowledge, training, and/or expertise to handle the nuances of intercompany transactions. Whether it’s misclassifying entries, applying the wrong transfer pricing, or missing elimination entries during consolidation, these errors often stem from a lack of understanding.

One way to bridge the gap is with intercompany technology that automates tasks and adds a layer of intelligence, such as flagging imbalances, tracking transfer pricing, and providing visibility across entities. But ultimately, there’s no substitute for ensuring your teams are trained, supported, and aligned on what intercompany accounting should look like at your company.

IT, Software, and Security Gaps

When subsidiaries operate on disconnected ERPs or poorly integrated platforms, it becomes nearly impossible to automate intercompany matching and reconciliation. Transactions fall out of sync, data gets duplicated or lost, and manual workarounds become the norm, introducing risk at every step.

In addition, when systems lack proper access controls or audit trails, there's no clear way to track who did what, when, or why. This undermines financial accuracy and raises serious questions around security and compliance. And while consolidation tools may help roll things up at a high level, they rarely provide the granular transaction-level insight needed to identify and resolve intercompany discrepancies effectively. 

That’s why leading finance teams are turning to ERP-agnostic solutions like BlackLine that bring together data from across disparate systems. We offer robust access controls, transaction-level visibility, and a global subledger that supports both local compliance and corporate oversight.

Segregation of Duties Failures

When it comes to intercompany controls, who does what—and who’s checking—matters a lot. A material weakness can quickly surface when there’s poor segregation of duties or when control design allows too much responsibility to rest with a single person.

For example, if one employee can initiate, approve, and record an intercompany transaction without any independent oversight, the risk of errors or even fraud goes up.

To strengthen this weak spot, leaders in the Office of the CFO are looking to systems that automate approvals, enforce role-based access, and provide visibility into who’s doing what. This can maintain the checks and balances needed to protect the integrity of intercompany transactions and the accuracy of financial statements.

Incomplete or Late Disclosure Controls

A material weakness can easily arise when there’s no formal process to ensure intercompany balances and eliminations are reviewed, reconciled, and finalized before reporting deadlines hit. Without structure, finance teams risk reporting inaccurate or incomplete information in the consolidated financial statements.

The consequences are serious. Misstated disclosures about related-party transactions or lingering intercompany mismatches can confuse stakeholders and raise red flags with auditors and regulators.

That’s why it’s important to implement technology and processes that bring real-time visibility into the status of intercompany reconciliations. With the ability to track progress, post timely adjustments, and validate balances before close, CFOs can be confident that what’s reported externally is both accurate and defensible.

Material weaknesses tied to intercompany processes don’t happen in isolation. As organizations scale and complexity increases, so does the risk of misstatements, delayed closes, and audit findings.

As a baseline for strengthening governance, companies should look to intercompany to help reduce or prevent potential compliance issues, which could lead to material weaknesses or misstatements.