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Ensuring Employees Fulfill Compliance-Related Tasks

Exam taking is an experience that has touched us all.

Those few agonizing, dread-filled weeks in the summer where the contents of your brain are spilt (hopefully) parrot fashion onto a blank sheet of paper.

Who can forget the sweaty hands, the morbidity of the ticking clock, the squelch of Hush Puppies as adjudicators pace slowly up and down the aisles - and that nervous sound of silence as rows of bowed heads scribble furiously away.

So how would you feel if you were to take an exam with the penalty of a prison sentence on failure and yet as you turned over the examination paper there were no questions to be seen? Discuss.

It may sound absurd, but this fictitious dilemma is one that senior finance professionals have to face as new financial legislation matures. Although better conformance ultimately improves the confidence and stability of stock markets, much of the new legislation does not clearly define a template of correct processes to ensure full compliance.

In addition, the forced separation of the consultancy and auditor role, although comforting to stakeholders and stock markets, has created another troubling paradox. As the auditors signing off the annual report cannot tell a company what processes they will be looking for in achieving legislative compliance, organizations have to rely on the advice of management consultancies or other auditing firms — hence the questionless examination paper. Consequently, there is the risk that having spent considerable amounts of time and money getting advice on setting up recommended processes, they ultimately don’t meet the auditors’ requirements.

Understandably, senior finance professionals are therefore a little preoccupied. In the new era of corporate governance there are no re-takes or second chances – just the absolute certainty that annual reports are perfectly accurate. And as if the pressure isn’t enough, finance professionals are also being propelled to the front end of the ship to drive value and create strategy.

But while this paradox is certainly enough to give any CFO a reasonable sized headache, the importance of having the right systems in place to ensure that those processes that they have spent so much time and money on embedding are being carried out efficiently is in danger of being overlooked. After all, no organization is capable of delivering long-term shareholder value by having good corporate governance alone. Equally, no one is in business to achieve excellent compliance records.

Therefore to ensure enterprise-wide visibility, auditability and accountability, controls must be in place to ensure that staff members have completed the tasks required of them.

It may be that managers within an organization know there are processes which with they must comply. But does the organization know whether they have carried out that duty or not?

So, although it may be reassuring to have bits of paper telling you what processes you need for regulatory compliance, it’s ultimately a useless exercise without the appropriate control and systems. In other words, lack of actually knowing what is going on will lead to more sleepless nights for CFOs worrying that they are doing the right thing and that their people are doing the right thing.

Research suggests that more process control and performance management capability may in the long term be the only sustainable form of competitive advantage. Admittedly, there has been a never-ending stream of methodologies, frameworks, and software over the years offering businesses the ultimate performance measurement. In fact many elements of performance management have been around ever since organizations began producing monthly reporting packs and using spreadsheets for analysis. Management accountants have provided performance management support for years using spreadsheets, extract programs and OLAP (on-line analytical processing) tools combined with a commitment and hard work.

The real benefit of process control to manage performance is that it frees finance professionals and others from the drudgery of monthly corporate monitoring and allows them to concentrate on more valuable analysis like solving specific business problems such as profitability management and long-term direction setting. It is not technology but a poverty of time to think that is the biggest constraint on most analysis and planning groups.

Successful businesses have long recognized that excelling at tasks such as analysis, business intelligence and decision-making is a competitive advantage in itself. To gain competitive advantage companies need to be able to move through the decision-making cycle quickly. In other words, performance can lead to assurance and conformance to value creation. A key feature of this decision support approach is the recognition that technology needs to be combined with management intuition and “gut feel” for the most effective outcome. Having the appropriate systems and culture in place to create efficient performance orientated “checks and balances” is therefore a plausible solution.

The importance of getting it right is not just in the costs of failure. The benefits of a well-suited, well-implemented set of applications can bring real business benefits both in terms of low operating costs and ability to exploit opportunity. The visibility they provide also acts as an assurance to auditors who at the end of the day are only interested in reality. They also provide assurance to senior finance professionals that everyday transactions are meeting with compliance processes. No more sleepless nights. But putting the right systems and processes is no guarantee. Only flawless execution will push an organization to the top of the corporate food chain.

About Steve Pugh: Steve Pugh is CEO of CODA Financials, Inc in the Americas. He is responsible for CODA’s US commercial operations covering the marketing, sales and support of CODA-Financials and other products. He also sits on the CODA Executive Board and holds executive responsibility for the CODA Global Support function, working closely with support managers around the Group to ensure that the support service provided to customers is of a consistently high standard worldwide. Pugh’s previous story for The IT-Finance Connection was Choosing the Best Financial Software.

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