Warning signs: CFOs and Risky Reporting

Regulatory Reporting

According to a KPMG study, almost 1/3 of CFOs are falling short of expectations. CFOs need to place more emphasis on insight generation and analysis. By doing so, finance departments can help usher in a new era of efficient growth for their company.

That said, CFOs are still responsible for producing accurate and timely reporting. In an environment of change and regulatory scrutiny, finance departments must both:

  • Ensure financial and management reporting is accurate and timely; and
  • Reduce the time they spend preparing reports (allowing more time insights and analysis).

This conflict can increase the risk of errors and missed reporting deadlines. It is critical that finance leaders see and act on warning signs in relation to their reporting. The warning signs:

1. Do you rely on spreadsheets, access databases and macros?

Most companies say their data is "trapped" in legacy systems and data silos. As a result, finance departments often combine data and prepare reports using spreadsheets. A few facts and figures about spreadsheets:

  • Finance staff spend, on-average, 25% of their day in Excel (source).
  • Around 90% of spreadsheets contain errors (source).
  • 1 in 3 large companies believe spreadsheet problems have led to poor decision making (source).
  • Almost 1 in 5 companies have suffered financial loss due to poor spreadsheets (source).

While versatile and flexible, spreadsheets can become complicated and error-prone. Staff often embed their knowledge and understanding into formulas and macros. This can become problematic when reporting is re-assigned (e.g. following staff turnover). This can lead to staff following procedure instead of truly understanding their process.

Finance leaders need to question and challenge their staff in relation to reporting. Staff must have a clear understanding of why their report matters and for whom. They also need to be able to explain their reporting process in absence of the spreadsheet they use.

2. Do you depend on key staff to prepare reports on time?

Many reporting tasks sit below the surface (i.e. they are less visible to management). They are often not documented and rely on a one or two staff members to get work done. This lack of visibility can result in bottlenecks causing missed reporting deadlines.

Finance leaders need to ensure they can avoid processing downtime. For example, if a staff member is off sick or on leave, is their reporting:

  • Transferable. Can a new staff member pick up the task and complete it?
  • Documented. Is it easy for the new staff member to understand the process and complete it as intended?
  • Accessible. Do replacement staff have access to the data and systems necessary to do the job?
  • Self-validating. Are there any prescribed validations and checks to flag errors for the new staff member?

Finance leaders need to question and challenge their staff in relation to reporting. Staff must have a clear understanding of why their report matters and for whom. They also need to be able to explain their reporting process in absence of the spreadsheet they use.

3. Do you lack consistent processing of reports?

Inconsistencies in how staff prepare reports can result in errors. This may also flag that the process is not as efficient as it can be. Examples of inconsistent processing:

  • Staff perform steps in slightly different ways each time they create a report.
  • Staff ignore or forget steps in the process altogether.
  • One staff member focuses their effort on validations and checks. Another staff member prefers to spend their time formatting the report and so-on.

This lack of consistency can result in delays and errors. Over time, it will erode the trust and credibility in the reporting.

Finance leaders need to enforce a clear and repeatable process for creating reports. They also need ways to ensure staff execute the process to specification each week, month or quarter.

4. Do you NOT have validations and checks embedded in your processes?

In the January 2019 issue of Acuity Magazine, Ian Bennett, a partner from PwC said:

Error checks are the nervous system running the length and breath of your model, carrying the messages of comfort.

When faced with an approaching deadline, staff may ignore validating their report. An unfinished report is obvious to everyone. A lack of validations is easier to hide and ignore.

This is why it is so important to embed validations and checks into the report itself. By doing so, finance leaders can help ensure a minimum level of quality in the reporting. You should always:

  • Build balances and checks into the report itself. For example, reconcile totals to their sub-totals, with visible variance calculations.
  • Create a "master checks" tab, summarising key validation checks performed. Make this available to the consumers of the report.
  • Use all input data (rows) in the report or explain which rows are not used.
  • Use colour to highlight errors (e.g. red vs green cells)

5. Are you unable to to produce audit trails, logs and process documentation?

The last thing an overworked finance department needs is an audit that they are not prepared for. Staff can find themselves working overtime to satisfy requests from the auditor. The cost for the audit may also increase due to a lack of readily available information.

The problem is not only relevant when dealing with external auditors and regulators. Not having clear audit trails and logs makes it difficult for staff to troubleshoot errors. Lacking clear documentation makes it difficult to transfer reporting tasks between staff members. This further exacerbates the burden of getting reports done on time.

A few practical actions for finance leaders:

  • Version files used in the reporting task - e.g. from month-to-month. Ensure that staff preserve historical versions of the report.
  • Design spreadsheets in a way that separates inputs, calculations, manipulations and outputs.
  • Encourage and support staff in maintaining records of changes they make to the reports.
  • Ensure that staff document their processes and keep the documentation up-to-date. Create and share templates for documentation to enforce minimum standard of quality

CFOs need to leverage digital technologies

CFOs need to create capacity for the insight generation and communication their CEO demands. They also need to ensure that reporting continues to be accurate and timely.

Finance leaders need to be aware of key risks in their reporting including:

  • An over-reliance on spreadsheets (vs business knowledge)
  • Dependency on key staff to get work done.
  • Inconsistency of report preparation processes.
  • Not having validations and checks embedded in their reporting.
  • Lacking audit trails, logs and documentation.

Companies must look to modern, digital technologies to mitigate these risks. By using cloud-based automation tools, such as SolveXia, CFOs can reduce the time spent on reporting. They will also mitigate the risks mentioned above and help usher in a new era of efficient growth for their company.

To learn about the key challenges facing CFOs that want to automate, see our whitepaper here.

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