In depressed economic times, when desperation is widespread and the margin for corporate safety is wafer-thin, financial departments need more help than ever in guarding against fraud, writes Beth Burke, idu software marketing manager.
In its traditional form, financial risk management is an indirect, sometimes inefficient affair, with its custodians – the financial department – having to rely on various indirect process controls to alert it to fraud and other risks.
In recent years, such controls have proliferated throughout the enterprise, providing more checks and balances against the risk of fraud and errors.
Effective budgeting offers additional armoury in the battle for effective financial risk management, as it can firm up the organisation’s lines of defence beyond the financial department.
This has the added benefit of up-to-date governance practices, as the King III Report, due out soon, singles out line managers as the first line of defence in risk management.
Traditional budgeting and reporting
Traditional budgeting, a top-down process of drawing up a spending plan, offers little direct or immediate defence against over-spending, unauthorised spending or other risks to a company’s financial health.
Static forecasts and reports, delivered to managers in a format that can only really be understood by financial people, is a factor that greatly discourages line manager participation.
Since querying or clarifying an anomaly at business unit-level is cumbersome and seen as an interruption to more pressing issues, the finance department cannot rely on traditional financial budgeting and reporting to play a role in identifying fraud and errors. Instead, it must use another means altogether – monitoring process violations that trigger indirect alarms (such as invoices not being received or an order number not being authorised).
In many cases, alarms are sounded only after the horse has bolted, and in any event, this scenario leaves the finance department very much on its own in manning the fort.
By comparison, latter-day budgeting and reporting software gives line managers that operate at the coalface of the business the means to catch financial risks as they occur. The following benefits of these tools stand out:
* Rapid online access to information that applies to their cost centre;
* Ease of use for non-financial managers;
* The means to monitor financial performance on an ongoing basis; and
* A direct link to the financial department.
Managers can now access their financial information at any time, instead of being handed rigidly formulated reports at pre-arranged intervals, without transparency or the opportunity to report variances and provide an explanation. They also have the ability to interact with online financial reports by making annotations that directly reach the finance department and other executives, cutting out the middle man and any corporate agendas.
These tools have, in idu’s experience, given unit managers the control they require to engage with budgeting software far more frequently and completely than is currently the case.
In the process, their employer gains an invaluable ally in its fight against fraud and other financial risk.