The Institute of Directors in Southern Africa (IoDSA) is calling on companies to ensure their finance function is in a position to lead the way out of the economic downturn.
“Now, more than ever before, finance teams need to be equipped to provide the levels of strategic insight, risk oversight and other key aspects of business support,” says Parmi Natesan, senior governance specialist for the IoDSA. “This is in addition to their traditional transaction processing role.”
This is especially true, given the pressure on the finance function to achieve the appropriate balance between dealing with compliance, providing insight on strategy and performing its duties more efficiently.
“It’s a fair question to ask these days whether the finance team is able to meet these ever-increasing expectations,” says Natesan, who insists it’s up to the audit committee to ensure the expertise, resources and experience of the company’s finance function.
The King Report on Governance for South Africa 2009 (King III) requires the audit committee each year to consider and satisfy itself of the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the financial function. The results of the review should be disclosed in the integrated report.
“In addition to this, for listed companies, the audit committee is required to evaluate the suitability of the expertise and experience of the finance director and recommend to the board if any changes are necessary,” she adds.
The following are some key questions for the audit committee to consider regarding the finance function:
* Is the focus on providing decision support and business insight, rather than mere transaction processing?
* Does it have a thorough knowledge of what the business does and the market in which it operates?
* Does every member of the finance function deliver to their maximum potential?
* What could be done to improve on the established finance practice?
* Does the finance function work towards maximising cash flow and releasing value?
* Does the finance team have the requisite financial qualifications, personal attributes and business understanding?
Having carefully considered the answers to the questions, Natesan recommends several things the organisation can do to ensure its finance function is in a position to perform to its maximum potential:
* Consider transferring routine transactional activities to service centres or others in order for the finance staff to focus on the bigger issues.
* Invest in increasing the finance function’s capabilities through training and/or additional resources.
* Implement more robust performance management within the finance function.
* Develop deeper skills and knowledge of the company and the industry in which it operates.
* Ensure that everyone is working towards a single strategy and structure.
* Improve the supply, accuracy, consistency, timeliness and relevance of data.
* Improve the performance of the finance IT systems used.
* Streamline finance processes in order to speed up delivery, curb costs and enhance efficiency.
* Ensure that the finance function has the necessary knowledge, skills and capabilities to satisfy the needs of the organisation.
“The importance of the finance function in ensuring that the company continues to operate and grow despite the economic environment cannot be overstated,” concludes Natesan. “Ultimately, the strength of this crucial function rests on the audit committee and by extension the board, to keeping a close eye on its finance operations and make changes where necessary.”
The audit committee’s assessment of the finance function could take into account, amongst others, the following:
* Feedback from the internal audit department on the finance function.
* Feedback from the external auditor, as well as the level of audit adjustments identified during the external audit.
* Internal performance assessment reports, including goals/KPIs set, self evaluation against these and final overall assessment of each member of the finance team.
* Discussions with CFO and other senior management regarding the performance of the finance function.
* Benchmarking the size and quality of the finance function against similar organisations.
* The quality of financial reporting in the annual/integrated reports, as well as internal reporting to the audit committee and the board.
* Other relevant interactions with finance staff, including any presentations to the board.