Managing risk within Finance

In our recent survey, we found that ‘reassessing business risk’ was one of the first actions that organisations were taking post-lockdown. But what does this mean in reality and in what areas of risk can the finance team exert an influence? This article sets out a few considerations.

Who are you trading with?

It was often the case that organisations would be comfortable with a customer list including FTSE250 companies – they were very unlikely to have serious financial problems. One consequence of the lockdown has been that no organisation is safe and therefore, cash flow can be significantly impacted.

As a result, finance teams should by now have reassessed all customers and commenced lines of communication. A good credit control team will foster good working relationships with customer accounts payable teams making sure that outstanding debts are paid and cash continues to flow. In respect of future sales, the organisation needs to assess the ‘new risk’ profile based on what is known now. What I have found particularly disturbing is those companies that are dictating terms to their suppliers around discount expectations without discussion. Trading is a two-way agreement and this should be respected by all.

FX and currency

This is a more specific situation for those organisations who have any foreign trade or own international businesses. I will not go into details here as this is to be covered in our webinar on this very subject (more info here)

Reporting

This is one that is often overlooked. If reporting is incorrect, this can have a significant impact on the organisation. For example, if a quoted company files incorrect or inaccurate results, this can have huge consequences, such as a massive drop in the share price and the confidence of the market in the management team. This could be due to an error in the documents themselves that are published or the fact that the actual results do not meet expectations, whether the variance is positive or negative.


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Let us look at errors in documents first. This is often a result of the report production process being manual rather than automated. It is still common practice for market presentations to be prepared by ‘cut-and-paste’ into Word or PowerPoint. This risk can be mitigated by automating this process, connecting reports and presentations directly to underlying source systems so that they update as the data changes. We are discussing this subject in more detail in an upcoming ‘Deep Dive Live’.

Whether you are quoted or not, inaccurate plans and forecasts can have a significant impact on your organisation. Plans are the basis for future actions, such as employing of staff, new product releases etc. The best way to mitigate risk is to have a planning process that is driver based and is connected so that any changes show the impact on all aspects of the organisation. Of course, this does not guarantee accuracy, but it does give you a baseline to explain variances.

Error or fraud

This is an area that has been covered in the past by an internal audit team (from those organisations large enough to have one), external audit or ad hoc as an when required.

By its very nature, this is the most difficult area to control and mitigate risk, especially where you have millions of transactions and postings. With the advances in technology, we are seeing AI being used to identify outliers of transactions that meet a pre-defined criteria e.g. value, date posted. This would pro-actively mitigate risk of error or fraud occurring rather than reacting when suspicion is aroused, or something comes to light. Again, we are hoping to look at this subject in our ‘Deep Dive Live’ series of webinars.


Written by Mark Cracknell, Head of Research, Generation CFO.  For more information on Generation CFO services, please get in touch here.

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