Four pillars of exceptional CFO governance

August 2015  |  SPECIAL REPORT: TECHNOLOGY IN BUSINESS

Financier Worldwide Magazine

August 2015 Issue

August 2015 Issue


The role of the chief financial officer (CFO) within any business is a highly challenging one. Tasked with managing the financial risks of the corporation, as well as financial planning, recordkeeping and financial reporting to higher management, CFOs want to establish a reputation that hinges on attention to detail, focus on quality and efficiency.

However, it’s not just a CFO’s personal reputation on the line; inaccurate financial reports can throw an entire company into the media spotlight too. For example, when Tesco overstated its financial figures by £250m at the end of 2014, the retailer was scrutinised by international press and saw its share price plummet to an 11-year low. This caused ripples among the CFO community which felt greater pressure to mitigate reporting risk in order to stop errors from snowballing.

As the saying goes, a stitch in time saves nine – if CFOs can prevent problems happening in the first place, they will avoid greater complications further down the line, which require more effort to fix.

The pressure is on for CFOs to achieve accurate statements, timely loss recognition, strong internal controls and ultimately decrease the probability of restatements. So, how can CFOs mitigate risk in a measurable way and ensure they are serving the organisation’s needs? And, what core skills make a good CFO a great one?

Rigorous governance – manage a variety of complex processes

The financial close is a fundamentally complex process. It is not just ‘one’ task, but is comprised of many elements and niche components, and the CFO has to understand how all the parts work. As a result, demand for well-rounded finance professionals has never been higher. In the UK, for example, finance directors are on a clear mission to develop the expertise of their team, with three-quarters expecting to match or increase their recruitment budgets in 2015. Effectively managing all of these nuances for a consistent close can be a stressful experience. We live in the age where tighter compliance regulations and growing pressure to achieve more for less – all while maintaining complete accuracy – is driving businesses to scrutinise every part of the financial close.

Traditionally, corporate finance has identified the ‘last mile’ of finance to essentially mean ‘disclosure’. However, the manual steps across the entire entity close processes typically take up around two-thirds of the time and effort associated with the entire close. CFOs can radically reduce the amount of time spent on repetitive manual tasks if they consolidate all of their end-to-end processes. Reducing the time spent on manual tasks allows the CFO and finance department to focus their energies on insightful analysis and innovative business ideas.

Accuracy – achieve a precise close every time

The financial close is a critical process for understanding the business and its growth potential. Data integrity and complete confidence in the numbers that drive and underpin the business is key, but this should not mean that finance teams spend their time so absorbed in repetitive manual tasks that they lose sight of the crucial post-close analysis that supports their long-term goals.

Endless and unnecessary repetitions of key tasks can have major implications for the quality of information delivered. Our research suggests that companies dedicate more than 8300 full personnel days to the close each year, with the activity sprawling for days and even weeks around the actual close date. These piecemeal manual business and IT processes may be commonplace, particularly in growing companies, but they don’t need to be. With enormous pressure on IT teams to deliver round-the-clock value with ever-diminishing budgets, CFOs and their finance teams can free up more time (and bandwidth) if they streamline processes; removing silos to escape the fragmented norm.

Consistency – reliable and efficient auditing from number crunching to analysis

Reliable decision-making hinges upon dependable data and the CFO has to take responsibility for data integrity. However, when lots of data passes in and out of the finance department, CFOs need a way to improve visibility, security and data quality. With financial close automation, no CFO has to deal with restatements or talk their way out of tricky misreporting, because, chances are, this situation won’t arise in the first place. Financial close automation eliminates repetitive error-prone manual activities. It guarantees accuracy and frees the finance and accounting team so that they can focus on analysis of the close figures. With the correct information at hand, it’s far easier to make vital decisions and grow the business.

End-to-end financial close process automation across multiple corporate entities enforces standardisation and compliance cleanly and easily. With automatic documentation of every step, the CFO and wider team have a wealth of audit material at their fingertips, which can be processed to support any regulatory or compliance requirement.

Foresight – leading the business towards greater maturity and growth

CFOs and financial directors are claiming their role as strategic pillars within the business, taking a more prominent seat on the board than ever before. Now, it is commonly recognised that a great CFO usually differs from a good CFO by the way that he or she is able to project the long-term financial picture of the company and by how the company thrives based on his or her analyses.

To cement their future position of leadership and add maximum value to their business, CFOs need to harness technology to help deliver against their promises and establish a reputation that hinges on rigorous governance, accuracy, consistency and foresight. Why? Because, now, solutions like financial close automation go far beyond just time and cost saving to help CFOs develop strategy and guide key business initiatives, all while keeping their focus on cash flows, controls, costs and risk.

 

Greg Fritsky is director of finance transformation at Redwood Software. He can be contacted on +44 (0)1628 60 1500.

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