The spotlight is even brighter on corporate governance and compliance at the moment. The pandemic has raised questions about some organisations’ ability to continue as a going concern. The Government has outlined how it might strengthen corporate governance, including changes to what classifies as a Public Interest Entity.
With auditors expected to put more focus on fraud checks in the next reporting season due to concerns around the exploitation of Covid-19 support measures.
Finance teams have a big part to play in compliance and supporting good governance, from establishing strong systems and processes to investigating queries when they emerge. But like so many operations, teams have had to adjust their approach in response to the coronavirus.
Members of our panel share how they have maintained compliance and increased scrutiny in recent months.
We take a much more proactive approach post-pandemic
Farha Jamadar, FMAAT, Finance Manager, Todd Doors
In normal times, there are policies and procedures in place with systems that we would adhere to, ensuring we are compliant, that we have a handle on it and are aware at all times. This changed with Covid as it felt like a new policy or change was coming out every day. We didn’t have enough information and we were always in the middle of ensuring we utilised measures but were being compliant. Now it feels like, while the dust is settling, we’re trying to merge how we work with the new processes of working.
Our leadership team ensure morality stays with the company, honesty, hard work and being ethical is fundamental, and that is led from the top. I feel as it is deep-rooted in culture, it’s a part of all our decisions to ensure we are doing the best for all our stakeholders.
My team and I engrain this into our monthly close process so it’s a consistent check. In the past, this was a reactive process and only when an issue is raised was a loophole closed. Now we take a more proactive approach. While not all loopholes can be closed. we ensure consistency is kept and checks are done. This, coupled with our ethical culture, enables us to keep on top of it and significantly reduce fraud. We also rely on utilising technology to ensure checks are done.
As a manager, I feel like there is awareness and knowledge of what the process is if there is a discrepancy. The issue is researched quickly and presented to me. I will review and speak to a director so that action and issues concerned can be closed or sorted. While this has not happened in a negative way, but has alerted to system issues we can fix swiftly to not cause delays.
In the past, we have had what I would call seamless audits, where there were a few queries but processes were consistent. However recently, with the new processes, we have given auditors more information. With new systems like furlough, more questions have been asked. However, this is due to us having a lot more control. To anticipate this, we review the auditor’s process and then incorporate this into our close process – essentially making the auditors check into our close process.
A lot of adaptation comes down to staying informed
Björgvin Vigfússon, Finance Manager, Westmorland Linen Rental and Laundry
Our team, like in many businesses and departments, receives some internal pressure when it comes to governance and assurance. By being transparent and upfront on the reasons why certain things are reported the way they are, has helped us ease some of that internal pressure.
We have also seen some big changes in our business environment since Mid-February 2020, some of them have been for the better, with some ‘mixed feelings’ regarding others. By keeping one eye on the news, domestic and international, and following business news, such as AAT Comment, we have managed to prevent being caught off guard when it comes to future changes.
Within our team, we are so lucky that all members are qualified or doing their qualifications, so I feel confident that all members of the team know how to deal with discrepancies in the accounts. We then have the unwritten rule: “if you’re not sure, go ask or find the answer” then double-check with someone more senior. We also follow this rule when it comes to risk management.
Corporate Governance needs to continually advance in order to protect society
Clare Elliott, FMAAT, CFO, ILUX
Governance isn’t quite as intensive for SMEs as it is for big corporates, but that doesn’t mean we don’t have responsibilities. As a small company, we are lucky that we have qualified professionals internally, so we are highly aware of our governance responsibilities. Other SMEs might more heavily rely on external agencies, such as their accountants or other advisors. As an FD, and as part of the leadership team with other Directors, we collectively ensure each other are aware of our responsibilities and that the company is compliant.
We have very tight financial controls, ensuring processes and procedures are always adhered to. While this makes it difficult to be flexible, it ensures we are accountable for our actions and less likely to make errors as risks are reduced. This is where we benefit from having qualified and experienced professionals, as control mechanisms are tight and risks of large losses or fraudulent activities are reduced.
Everyone in the team understands their individual responsibilities, and how they feed into the team activities, and how that impacts the organisation. Deviances away from the norm must be authorised, and tight procedures are then implemented for those unusual circumstances. Errors and discrepancies are reported internally, which helps to build resilience even further through training and tighter procedures.
Governance responsibilities continually advance, but personally I still feel we have some way to go. There are frequent reports in the media where companies have neglected to meet their responsibilities, or have acted unethically or immorally. And when that happens there is always a negative effect on society. Organisations should be held accountable for their actions, and individuals must be held responsible. Too often good companies are left with financial losses after another organisation has failed to meet their obligations, and where large corporates fail that affects Government income, which in turn impacts us all. Corporate Governance needs to continually advance in order to protect society.
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.