Increasing oversight and regulation have placed a greater accountability on organisations that may inadvertently be sailing close to the wind
Financial governance is about processes: processes that are open to interference or abuse as soon as the human element is introduced. This is not to say that all cases involve malicious intent, but increasing oversight and regulation have placed a greater accountability on organisations that may inadvertently be sailing close to the wind.
According to global high-performance management consulting firm Rinedata, “financial governance is an aspect of modern corporate life that is here to stay. Indeed, the impact of this type of oversight has altered the role of the CFO dramatically in the last ten years as finance teams come under growing internal and external pressure to prevent financial irregularities within the enterprise as well as increasing the transparency and reliability of financial processes.”
Rinedata identifies four areas in the finance function that have been placed under greater review as a result of greater regulatory scrutiny. These are:
- The delivery of verifiable financial information
- The development and maintenance of efficient and reliable business planning and reporting processes
- The management of regulatory compliance, and
- The deployment and regulation of comprehensive financial control processes
The firm suggests that even celebrated enterprise resource planning (ERP) systems are poor substitutes for dedicated financial consolidation systems given that they still require integration with financial spreadsheets and human intervention. Such a mish-mash of solutions is open to human manipulation, intervention and error.
Wessel van Zyl, financial director of construction group Esor, alludes to the compromises that have to be made when trying use tools that are not built for purpose – that purpose being producing a consolidated view of an organisation’s finances.
“We just couldn’t get reporting packs that delivered the information in the form we wanted,” he explains. “In most cases we were told: this is the way it works – you need to take your pack and we will rewrite it in another language,” he comments.
He says this need for cross platform integration opens up the processes to exactly the type of human manipulation that governance rules are trying to overcome.
For Rinedata only an integrated technology platform can avoid exactly these types of pitfalls. It proposes that such a solution should encompass:
- Financial consolidation
- Budgeting, planning and management processes
- Intercompany transactions
- Access and role management
- Risk management, and
- Process control
In this regard the firm believes that “integrated financial governance applications resolve the pressure to provide timely and reliable financial information and guarantee its validity and compliance. They do this by ensuring that the financial planning and reporting processes are managed in an integrated manner and deliver them within the context of a secure process control environment. As a consequence the finance team can monitor performance and be assured that each financial process is rigorously policed.”
Rhys Robinson PhD, executive director: strategic partnerships and marketing for Infinitus Reporting Solutions, says one of the main benefits of using a financial consolidation platform is that it eases the role of the external auditor who is assured of working on a set of financials bereft of any glaring gaps or alarming question marks.
“This is especially so when a clear trail of the entries and amendments is evident. The increasing scrutiny and regulatory control of groups’ financial accounts necessitates that organisations review their systems and operations to avoid any governance concerns. This evolution in approach is inevitably a matter of changing the attitude of people in the finance function more than a lack of solutions,” he explains.
Given the impact of local reporting standards and regulations such as King III organisations have much less manoeuvring space and a far greater need to be transparent.
Robinson believes doing so with full confidence that all numbers represented are beyond reproach, is no longer a luxury or merely the preserve of the best-resourced organisations. “These are the current and future norms that all companies are expected to adhere to, and therein lies the challenge for many CFOs who have not yet embraced the changing times,” he concludes. ❐