Managing Risk – Taking The Business Centric Approach

To combat pillage, whereby organisations who take other peoples’ or organisations’ assets, demands reliable and trustworthy finance and business insights.  This is where the finance function comes into its own. A recent report from ACCA (Association of Chartered certified Accountants) and IMA® (Institute of Management Accountants) revealed that successful organisations encourage their other business departments […]

By Brenda Lee Tang

July 15, 2015

To combat pillage, whereby organisations who take other peoples’ or organisations’ assets, demands reliable and trustworthy finance and business insights.  This is where the finance function comes into its own. A recent report from ACCA (Association of Chartered certified Accountants) and IMA® (Institute of Management Accountants) revealed that successful organisations encourage their other business departments to partner with the finance team to deliver data insights for better decision support. This joint study looked at the progress commercial finance functions are making in business partnering.

The report, “Financial Insight: Challenges and Opportunities“, draws on global survey data; finance leadership roundtables in New York, London, Toronto, Vancouver, Singapore, and Hong Kong; and interviews with more than 750 senior finance executives from some of the world’s leading organisations.

Taken together, the findings and feedback show that business partnering is one of the critical ongoing challenges which CFOs must tackle, and one which they must get right.

With the wealth of data and information available to enterprises, there is a big opportunity for the finance function to drive future growth, and anticipate risks. There are opportunities that have to be taken, importantly because they are a vital way to manage risks.

Rapidly changing business environments and increasingly complex digital environments are listed among the main challenges CFOs and their finance functions face in delivering effective financial insight.

However, finance organisations that adopt a business-centric approach and emphasise the importance of good finance-business partnering practices can not only meet those challenges but capitalise on them by extending their influence and leadership across the enterprise.

According to the study, CFO organisations need to take the opportunity in three key areas:

  • Create a sustainable mandate for finance-business partnering practices to flourish
  • Fix and rework the quality of data insights provided to the enterprise
  • Deploy the right finance talent with the right mindset to deliver.

The report predicts that the growing digitisation of businesses and a highly competitive enterprise landscape will have a profound effect on the future of CFO organisations because in a fast-moving, data-rich business environment, enterprise data insights will be increasingly important in creating advantage, corporate value and challenging risks.  This leads onto the complicated issues of cybercrime and how that relates to the business world in managing and mitigating risks.

The world’s business and finance leaders have identified rising fuel costs, cyber-security and the emergence of digital currency as key factors which are driving change across the globe, according to survey findings from ACCA and IMA.

The pan-global survey, Drivers for Change, found that 75 per cent of senior company executives and finance professionals across the world saw energy and fuel costs as a major concern for the foreseeable future, while one of the most important drivers within global businesses and among accountants was the potential for digital finance to replace money as the main basis of currency exchange over the long-term with 54 per cent of business and finance professionals citing it as a future factor.

Survey participants, who were from the UK, US, Asia-Pacific, Middle East and Europe and from a range of businesses from different sectors, cited the growing requirements of non-financial reporting as well as the increased need of accountants’ roles as business partners as being essential factors within their future strategies in the next four to nine years.

While there were some differences on a market by market basis, similar factors emerged consistently among respondents irrespective of the size, sector and location of their business and irrespective of whether they were senior executives or finance professionals.

However, the underlying message is that the world’s economy is expected to go through radical change over the short, medium and longer term and businesses and the finance professionals who work with them are ready to adapt together to a more demanding and globally focused business landscape.

Other findings that emerged from the survey include:

  • More than 70 per cent of senior executives and accountants saw a closer focus on the accountant’s role as business partner and the broader skill sets required as being a key driver for change.
  • Across most regions, the changes in the global reserve currency from the US dollar to a different currency topped the list as the strongest driver for change looking beyond the next 10 years. Respondents from the US and Asia-Pacific gave this the highest rating.
  • Cyber-security challenges were considered a major short-term challenge by two-thirds of all respondents – executives and finance leaders – with American respondents the most concerned and those based in Asia-Pacific were the least worried about the issue.

Such is the threat, that ACCA USA and Pace University in New York recently published a report called Skimming the surface, which illustrates how criminal enterprises are employing “skimming” mechanisms – often using the latest technologies – to steal countless dollars from consumers. The report provides examples from across the globe to highlight “skimming” growth and scope, and offers recommendations for institutions and individuals to combat such activities.

A skimmer is an electronic device used to read and store electronic data. While there are many different types of skimmers (including devices used to read data from tags embedded in U.S. driver licenses and passports), the new research focused on devices that read and recorded data from consumer payment cards, such as ATM, credit, debit, prepaid and electronic gift cards.

There are 2.2 million ATMs worldwide, which will grow to more than 3 million by 2016. A new ATM is installed every five minutes. North America has the largest ATM market in the world, with the most – approximately 425,000 – in the United States. So the opportunities for fraud are growing and the finance function has to be not one – but ten – steps ahead. Financial institutions need to accelerate the integration of anti-skimming solutions and fraud investigations into their daily operations and improve coöperation with national and international law enforcement to keep up with the increased sophistication and global nature of skimmer schemes. The future of ATM transactions lies in contactless cards, biometric security, and smart phone withdrawals instead of traditional ATM cards.

Poor people management, fraud, scams, pillage, cyber crime: for these to be beaten, they all demand constant vigilance by finance professionals.

It may seem trivial statement, but when there is a suspicion of wrongdoing, the alarm always needs to be raised. An employee, a customer or a client needs to be able to blow the whistle.

Whistle-blowing laws and policies must be promoted by finance professionals, working in both the public and private sector around the world. From a public sector point of view, this would ensure that communities can have full confidence in how their taxes are being spent.

This is a long-held view of the UK’s Public Accounts Committee, chaired by the Rt Hon Margaret Hodge MP. In a PAC report, Ms Hodge said recently that: “Far too often whistle-blowers have been shockingly treated, and departments have sometimes failed to protect some whistle-blowers from being victimised.”

Public accountability needs to be bolstered. There needs to be a proper separation between the accounting and auditing functions within all governments. In some countries that does not exist, which impairs accountability and transparency, since the auditors who check the reports prepared by the accountants should be separate and independent.

A proper scrutiny of accounts by an independent and strong audit function is critical if the public is to be re assured that money is being spent wisely and that the organisation represents value for money.

While the PAC report focused on the public sector, there is much from it that is applicable to the world of business. When it comes to flagging risky behaviour, or reporting unethical behaviour, the business has to be open to such warnings. It has to have the right corporate culture in place, with the right management approaches to deal with it.

Management, the board, the CEO, the CFO, – all must set the right tone. After all, it is people – and not a rulebook’s words – that establish a healthy corporate culture.

Finance professionals have a critical role to play in building public trust by championing the cause of developing anti-corruption procedures and cultures.

It is critical that finance professionals feel able to speak out about genuine concerns that fraud behaviour or corrupt practices are taking place without fear of serious repercussions for them. It is vitally important that finance professionals feel empowered to highlight issues where public money raised through taxation is misspent or misused – and that those responsible can be held to account.

A healthy culture is a prerequisite of good governance and risk management and, by extension, good long-term corporate performance. A board can exhibit leadership by using relevant and timely questions to generate great insights for the executive team.

As such, board meetings need to include regular conversations with executive management about the organisation’s risk management process. As the saying goes, it is good to talk. In doing so, board members would do well to remember that ‘if you never disagree you’re irrelevant’ (Rockwell 2012; [i]). And we can take a very relevant insight from a book called Tools for Talking When Stakes are High: ‘The best at dialogue…are both totally frank and completely respectful’ (Patterson, et al. 2012: 133).

Curiously, this book also notes that ‘’the more important the discussion, the less likely we are to be on our best behaviour. More specifically, we advocate or express our views quite poorly.’  Board group-think has to be eradicated and for that to happen the board also needs to be diverse, to have a diversity of skills and abilities. They also need to trust what management is telling them.

If all this is the case, then fresh thinking must be encouraged and bold conversations need to be had if company governance and risk management are to be strengthened following the deepest global recession the world has ever seen.

Corporate governance is vital to societies that depend on business to create economic wellbeing. Ultimately, governance is about how to make good decisions. As providers of financial and other information to support better decision making, accountants play a key role.

Examples of poor culture and the subsequent results have been well documented in both the public and private sectors. Despite regulatory frameworks and best practice, dysfunctional behaviour has been too common.

As our Drivers of Change report concluded, there are key things the business world and the accountancy profession can do when uncertainty is the ‘new normal’; businesses have to factor in turbulence as a very real possibility and develop strategies for a range of different economic and market scenarios. And as businesses adapt to this turbulent environment, opportunities are emerging for accountants to assume a far greater organisational remit, which means this is a golden age for the finance profession.

Brenda Lee Tang

Brenda Lee Tang is a Fellow of the Association of Chartered Certified Accountants. As head ACCA Caribbean, Ms. Lee Tang leads ACCA’s business and key relationships in the Caribbean and is responsible for advancing ACCA’s strategy in the region.