By Andy Mellor,
senior product manager,
financial control solutions,
Accountability or responsibility? So maybe it’s not what Shakespeare had in mind, but surely this is the question. The question that keeps CFOs awake at night, that is. And CROs, CEOs, line of business managers, and auditors, as well.
Recent news articles have highlighted the intense focus that the regulators are placing on internal controls, with record breaking fines for organisations and individuals who are deemed to be lacking in this area. Whether the cause be due to lack of controls around client money, insufficient risk management processes in the middle and back office, or other aspects of the control infrastructure, the impact of a public disclosure of a control failure can be devastating for an organisation. Such publicity destroys shareholder and investor confidence, and often ends shining careers.
Recently, an interesting case occurred involving a business line manager who had been fined individually as manager of a department that had inadequate internal controls. Without getting into all the details, the manager is appealing the very significant fine on the basis that he had strengthened the controls that were already in place. However, this brings us back to the question. The manager in question was deemed to be both responsible and accountable for the running of the department. While I am sure that objectives of many individuals reference revenue growth targets, how many include similar targets for regulatory compliance?
Another example demonstrates the role of the auditor in such disclosures. A large international financial institution experienced a control failure and the audit firm of record was deemed accountable as a result of their previous positive assessment of the controls that were in place. The audit firm in question is still in negotiation with the regulator about the level of fine that would be appropriate. Clearly, the auditor did not profit from the control failure, but having overstated the level of controls in place, many suggest that a fine, equalling tens of millions of pounds - similar to the fine imposed on the financial institution, would be commensurate.
So, in answer to the question, it is not one or the other - responsible and accountable are entwined together. Shareholders and investors will view the management team as responsible for the growth and running of the business, and the regulators will hold them to account.
With such large consequential impact from the failure of internal controls, the CFO needs to look at cost effective ways of delivering strong controls that mitigate risks and meet regulatory demands. Risk management and compliance must then be balanced with the needs to safeguard profitability, protect organisational value, support growth objectives and maintain shareholder confidence.
Implementing consistent reconciliation best practices across the organisation is one way that the CFO and business line managers can ease their troubled minds. Deployment of enterprise-wide reconciliation controls creates a holistic compliance and financial control framework that automates adherence to consistent processes and provides transparency into transactions, positions and control status. The holistic framework can be deployed to address the myriad reconciliation needs in all financial processes including cash transactions, trade confirmation and settlement, and segregation of client monies.
The benefits of having a universal view of the reconciliation process do not stop at delivering the best practices and audit trails that keep the shareholders and the regulators happy. A centralised solution also improves operational efficiency. The organisation receives the benefits of economies of scale and standardisation by maintaining a single infrastructure, a single set of interfaces and procedures, and a single team of control experts, often based in a Centre of Excellence. This centralisation will improve process performance, drive down labour, exception and processing costs and significantly reduce errors through automation and faster identification of exceptions. And, by having the right technology in place, the organisation is positioned to support future growth objectives, including the faster integration of acquired businesses, and expansion of best-in-class processes across the organisation.
As the market becomes both increasingly competitive and regulated, the CFO needs to ensure that their reconciliation controls address the three demands of regulatory compliance, operational efficiency and organisational growth. Ultimately, a holistic view of the reconciliation process will drive improved financial controls, reduce cost and assure conformance with best practices. And, perhaps best of all for the CFO, they will be finally able to get a good night’s sleep knowing that their institution is both well run and well protected.