Accounting Irregularities. Investigation. Fraud. Words capable of striking fear into any accountant.
As Finance Director, you’re responsible for the company’s finances. So how do you make sure nothing untoward happens on your watch?
Whether joining a new company as Finance Director or being internally promoted to the FD role, you should take the same approach. Never assume that you know all the secrets just because you’ve worked in a department for 5 years: if you’re promoted to FD, you’ll have a different perspective and need to recalibrate your viewpoints. Don’t be tempted to shortcut and roll-forward your previous knowledge.
So how do you check those filing cabinets for skeletons?
It boils down to three C’s: Controls, Comprehension and Culture. With these in place, you’ll know you’ve made it far more challenging for anything untoward to happen.
CONTROLS
Say ‘Controls’ to anyone in finance and you get a mixed reaction. Auditors get excited about them, others are usually less enthusiastic, regarding them as box-ticking admin or creating a time-consuming, longwinded process. Yet Finance Directors can sleep easier at night knowing controls exist.
Having controls in place is a deterrent in itself. They stop temptation and give the message that you are taking financial security seriously.
Checks and Balances
One of your first tasks as Finance Director is getting to grips with your Balance Sheet. You’ll be signing off the accounts, so you must be confident that the numbers are rock solid. You won’t be doing your company, or your own career, any favours if you overlook a stray account.
- Are Balance Sheet reconciliations being done for all your accounts, especially cash?
- Are accounts being reconciled monthly (or as frequently as appropriate?)
- Are the reconciliations reviewed by an appropriate & different person?
- Is there anything posted in the wrong place? Has it been corrected?
If you’re not sure why an item is parked up on the Balance Sheet, get an explanation you’re comfortable with, including supporting documentation. A hazy ‘it’s always been like that’ or ‘the Chairman’s got the paperwork’ won’t cut it. Get a copy of the paperwork yourself – you’re the FD, it’s your Balance Sheet. No documentation is off limits for you. And if you’re not certain, consult a confidential expert like your auditors. Your auditors are your allies and, like the taxman, they are delighted when you call them for advice. Straightening out a query upfront is far better for everyone than untangling months of errors.
Systems
Access rights are on your key controls list. Find out who has what access level to the finance system, the bank, the file drives and any other key systems you use. Do the right people have access to each area? Are access levels in line with each person’s needs and responsibilities? Are sensitive areas restricted, like payroll data? Have leavers been struck off or can they still access the system?
Importantly, find out who has the Master User rights to each system, which allows creation of new user accounts, or changes permissions. Often someone in IT Support is the Master User – great from a segregation of duties perspective- but have you drilled down further and established who IT Support take their orders from? It won’t be very secure if the whole team can have their requests actioned without a senior finance authorisation.
Segregation of Duties
If you ever studied auditing, this will be etched on your brain, with good reason. Review all the processes and make sure no one can process a transaction from start to finish without due approvals.
Get dual authorisation set up on your bank portal as a minimum, and restrict who can access supplier data in the system. Don’t let anyone share accesses for systems – the extra licence cost is minor compared to fraudulent activity.
COMPREHENSION
Understanding the nitty gritty of your team’s tasks is a must. This doesn’t mean getting bogged down in the weeds or supervising the entire team yourself. You need to understand what activities your team are doing, so you know what controls and processes exist and are being followed. How else can you tell the Board that all is secure?
Sit with your new team as month end tasks or reviews are done. Ask What, Why & How questions continually. If you don’t understand a process, chances are that no one else does and it’s either not fit for purpose or you need to invest in some team training. Which, whilst not ideal, is still a good thing to know early on in your FD tenure, rather than have a nasty surprise later on.
You’re likely to have pleasant revelations too, where you manage to shortcut a process then & there, saving a couple of hours each month end. It’s a great start to a relationship with a new team member -they see you’re interested in their work and you’ve actively helped them save time and effort. If they were feeling nervous about talking to the FD, this kind of outcome turns it into a positive experience.
As well as establishing your understanding of the department, you should also be assessing how well your team understand their duties. Form your own opinion of people’s abilities and whether the team is structured appropriately, with the right people in the right places. Getting a strong team in place, who really understand their roles and aren’t just following instructions by rote, will give you peace of mind: if each individual is capable of spotting something odd, you immediately have eyes & ears across the finance department.
A switched-on team with clear processes can also provide cover for each other. This isn’t just a learning & development benefit for your team, but enables a vital control to occur: a mandatory 2-week holiday period each year for staff. If anything dubious is happening, it’s relatively easy to keep it under wraps for a week’s absence. Concealing it for a fortnight is at least twice as hard, and therefore increases the likelihood of discovery.
CULTURE
Some people object to controls, saying that it suggests staff are not trusted and it fosters uneasiness. This isn’t the case. A company with a strong control environment gives staff more freedom to do their jobs without distraction.
Remind your team that controls actually protect staff in two ways. Firstly, if anything untoward does happen, controls can prevent the finger of blame being pointed incorrectly: it’s harder to accuse someone of stealing money if there are a serious of checks in place for each transaction. Secondly, controls can prevent small accidents leading to bigger issues: whether accidentally deleting an account because access rights to the finance system were not restricted, or an invoice misposting which was parked unnoticed on the Balance Sheet for months.
Does your company have a Whistleblowing policy? Is it fit for purpose and has it ever been tested? A culture where staff are fearful of recriminations is detrimental, preventing people from stepping forward with suspicions. How are team leaders, including yourself, regarded? Are you approachable? Could someone actually find an opportunity to speak to you in private if they wished, without the whole team knowing about it? Regardless of how the rest of the company and teams are perceived, you have to make sure the culture in the Finance Team is open and accessible if you want to get the best out of your staff and business.
Follow your Instincts
Controls, Comprehension & Culture form a strong finance department and prevent any irregularities. Yet if someone’s out to get money, they will persevere, be creative and possibly succeed. There isn’t a list of how to prevent everything.
Sometimes you just need to follow a hunch. If you think something’s not quite right, follow it up. Don’t be thrown off the scent, or stop when you hit a brick wall of answers. Only stop investigating when you are completely sure that all is well – or, if it isn’t, that you’ve fully dealt with the issue.
Getting to Finance Director has taken years of training and experience. Your gut instinct counts for a lot, so follow up. After all, it’s not just the business that could flounder, it’s your career and personal life too. You cannot put too high a price on peace of mind.
Enhance provides coaching and mentoring for ambitious Directors, by Directors. If you would like dedicated support from a coach who understands your position, call us on 0203 500 6300 to find out more or contact us here.
Ambitious Finance Director Series