Navigating material weaknesses: Root causes, governance, and modernizing controls

Talking points

• Navigating material weaknesses means understanding and addressing root causes instead of opting for quick fixes.
• Effective governance, continual staff training, and strategic use of technology are vital to avoid control deficiencies.
• A modernized Sarbanes-Oxley (SOX) program can help prevent material weaknesses and build resilient, future-ready compliance programs.

Few phrases in finance and accounting will make your heart race like the words material weakness. More than just a minor headache, a material weakness can pose significant risk to a company’s reputation and investor confidence, which is why it demands quick action.

In this blog, we explore the leading causes of material weaknesses and significant deficiencies, why quick fixes often fail, and how internal controls and governance practices can help prevent future issues.

What is a material weakness?

The US Securities and Exchange Commission (SEC) defines a material weakness (MW) as a deficiency in internal control over financial reporting (ICFR) that creates a reasonable possibility of material misstatement in a company’s financials.¹ Simply put, one or more internal controls are ineffective enough that the investing public should be informed. Even without an actual misstatement, a material weakness can undermine financial data quality, damage a company’s reputation, affect stock price, and create significant remediation costs. Not surprisingly, preventing MWs, strategically remediating them when they do occur, and addressing root causes remain top priorities for audit committees and boards.

What are the causes?

The leading root causes of material weaknesses include:

• Lack of technical staff experience in accounting and IT to address GAAP (generally accepted accounting principles) requirements, financial statements, and notes. In the past 12 months, 64% of disclosed material weaknesses were due to not having adequate personnel operating controls.²
• Improper scoping of business processes, statement line items, or systems—often due to insufficient financial risk assessments that are not thoughtfully updated.
• Insufficient documentation confirming that controls or procedures were properly carried out or that a control effectively addressed the intended risk. Of the material weaknesses disclosed in the past 12 months, 98% had a documentation component.³
• Failures in general information technology controls (GITCs), particularly in access and change management as technology environments evolve. Material weaknesses related to GITC failures have increased significantly every year since 2021.⁴ In the past 12 months, 61% of companies disclosing material weaknesses had a technology component in their MW.⁵
• Failures in system implementation or transformation controls, often because controls are not built in by design, which can cascade into GITCs, management reports, automated controls, and financial data reliance.

Getting to the heart of a material weakness

When a company races to remediate a material weakness, it can be tempting to apply a quick fix—implementing duplicative controls, adding additional reviews, or tweaking investigation thresholds. But these patches rarely last and often add complexity without improving how the underlying risk is addressed.

Instead, treat remediation as an opportunity to genuinely upgrade the processes behind the problem using a risk-based approach to confirm controls actually mitigate risks. By identifying root causes and investing in strategic improvements—governance, training, and more—you can reduce repeat issues and build a stronger, more resilient foundation that’s predictable in outcome and more efficient to operate.

An opportunity to assess your SOX program governance

Major or complex control deficiencies can be a valuable opportunity to assess the overall health of your SOX program’s governance. When governance issues are identified as part of the root cause of a material weakness, they can serve as a springboard for strengthening your SOX operating model and improving oversight, accountability, and long-term effectiveness.

Enhancing SOX compliance with next-generation controls

Technology has evolved considerably since many SOX programs were first developed more than 20 years ago. Today, using advanced technology like artificial intelligence (AI), automation tools, and governance, risk, and compliance (GRC) platforms, organizations can modernize their risk management systems and SOX controls. Modern controls increase accuracy and reliability, reduce deficiencies and errors in financial statements, and greatly enhance SOX program quality (see The Pulse Blog: “Modernizing your SOX compliance program with advanced technology”).

Investing in training and education

As noted earlier, skilled accounting, operations, and technology staff are an essential element for preventing deficiencies and material weaknesses—and that extends to SOX controls. Staff should understand SOX requirements to maintain effective compliance, yet SOX-specific training is often overlooked, even in companies with long-standing compliance programs.

Targeted SOX training can improve control quality and effectiveness. Control owners, process leads, and application owners should understand their responsibilities and how their roles impact overall compliance. Deep experience isn’t required, but a solid grasp of SOX principles, risk, and controls is essential. Broad education programs help equip those involved in the SOX controls ecosystem with the knowledge needed to reduce material weakness risks.

Final considerations

Leading practices for managing material weakness risks start with building agile, skilled teams and maintaining robust controls throughout the organization. Clear protocols simplify early issue detection and escalation, while remediation playbooks enable rapid issue resolution. After addressing a material weakness, it’s important to reassess your controls strategy and maturity level. This includes leveraging modern technology such as AI to enhance controls and your overall SOX compliance program.

What role can Deloitte play?

Deloitte can advise you on effective risk management, SOX compliance, and governance practices. Our dedicated risk and controls specialists have the experience to guide you through the stages of the risk and controls life cycle. We also support clients as they remediate and resolve material weaknesses and deficiencies. To learn more, visit our Audit & Assurance services page or contact us for more information.

Endnotes

1. Federal Register, “Securities and Exchange Commission 17 CFR Parts 210 and 240,” September 10, 2007.
2. Audit Analytics, December 2025.
3. Ibid.
4. Ibid.
5. Ibid.
   

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