Accounting irregularities. Investigation. Fraud. Three words capable of striking fear into any accountant.
As finance director you’re responsible for the company’s finances, but how do you make sure nothing untoward happens on your watch? How do you check those filing cabinets for skeletons?
Whether joining a new company as finance director or being internally promoted, you should take the same approach. Never assume that you know all the secrets just because you’ve worked in a department for five years.
According to finance director and consultant Kate Coles, it boils down to three C’s: controls, comprehension and culture.
Having controls in place is a deterrent in itself. They stop temptation and give the message that you are taking financial security seriously.
Checks and balances
One of your first tasks as a finance director is getting to grips with the balance sheet. You’ll be signing off the accounts, so you must be confident that the numbers are rock solid. You won’t be doing your company or your own career any favours if you overlook a stray account.
If you’re not sure why an item is parked up on the balance sheet, get a full explanation. A hazy ‘it’s always been like that’ or ‘the chairman’s got the paperwork’ won’t cut it. Get a copy of the paperwork yourself. You’re the FD: no documentation should be off limits for you. If you’re not certain, consult a confidential expert like your auditors.
Review who has what access to what system, and make sure it’s appropriate. Don’t forget to find out who has the master user rights to each system. Often someone in IT support is the master user, but make sure they only action changes that have been authorised by the appropriate team member.
Segregation of duties
Alongside your system review, check that all duties are appropriately segregated. This can be tricky in small teams, so be pragmatic and assess each situation individually. Get dual authorisation set up on your bank portal as a minimum, and restrict who can access supplier data in the system. Don’t let anyone share accesses for systems: the extra licence cost is minor compared to the potential damage fraudulent activity can do.
Understanding the nitty gritty of your team’s tasks is a must, so you know that controls and processes exist and are being followed. How else can you tell the board that all is secure?
Ask what, why and how questions continually. If you don’t understand a process, chances are that no one else does and it’s either not fit for purpose or you need to invest in some team training. Which, whilst not ideal, is still better to know early on in your FD tenure, rather than have a nasty surprise later on.
Form your own opinion of your team’s abilities and team structure. Getting a strong team in place, who aren’t just following processes by rote, will give you peace of mind: if each individual is capable of recognising and reporting something odd, you immediately have eyes and ears across the finance department.
Some people object to controls, saying that it suggests staff are not trusted and that it fosters uneasiness. This isn’t the case. A company with a strong control environment gives staff more freedom to do their jobs without worry and improves the working culture.
Controls protect staff in two ways. Firstly, if anything untoward does happen, controls prevent the finger of blame being pointed incorrectly. It’s harder to accuse someone of stealing money if there are a serious of checks in place for each transaction. Secondly, controls prevent small accidents leading to bigger issues: whether accidentally deleting an account because access rights to the finance system were not restricted or a misposted invoice which went unnoticed for months.
Does your company have a whistleblowing policy? The effectiveness often comes down to staff feeling that they can approach a member of management and be listened to. Make sure you and your finance team operate in a manner which encourages open conversations and discussion.
Follow your instincts
Controls, comprehension and culture are the backbone of a strong finance department. Yet if someone’s out to get money, they will persevere, be creative and possibly succeed. There isn’t a list of how to prevent everything.
Sometimes you just need to follow a hunch. Becoming finance director has taken years of training and experience. Your gut instinct counts for a lot, so trust it. After all, it’s not just the business that could flounder, it’s your career and personal life too. You cannot put too high a price on peace of mind.
About Kate Coles
Kate Coles is a chartered accountant, business consultant, trustee and co-founder of enhance.finance, a coaching and mentoring business for FDs by FDs.