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Remember in school when one missed a decimal point in a math problem and ended up with an answer of 500 instead of 50? Back then it meant a possible low grade on a test; in the corporate world, it means millions of dollars in losses or USD 900 Million, to be precise, as in the case of a US bank. The loss attributed to an ‘operational error’ now has the bank pumping USD 1 Billion to shore up its risk and compliance functions.
The shift to remote or Work-from-Home (WFH) models has only exacerbated the risks for companies with scattered networks prone to data breaches. For CFOs navigating this new and complex landscape, risk and compliance takes on a new meaning. In the ‘Global CFO Survey 2020’ conducted by Everest Group and supported by WNS, 47 percent of CFOs said reviewing compliance and controls was a priority area in the new normal.
To mitigate new risks, compliance teams should thoroughly evaluate and understand data, and the new ways in which it is being created, stored and shared across their organizations. In their evolving role as data arbiters, CFOs are best positioned to facilitate this requirement while augmenting informed and timely decision-making.
One such example is of behavioral data that is collected by companies as a part of their daily operations. By deploying behavioral analytics, CFOs can help their information security teams detect fraud and potential threats swiftly, and take remedial measures to contain the risks in order to avert financial, regulatory and reputational damage. By applying sentiment analytics to organizational data, CFOs can revisit internal policies and controls, and plug gaps in data leakage, if any.
Advanced analytical techniques, including audit and recovery analytics, forensic analytics, journal entry analytics, cash flow forecasting and working capital analytics can aid in compliance and controllership. Many of our clients are often surprised by how much working capital is unlocked as a result of targeted payables analytics. But the more interesting aspect is when we take a holistic view of the benefits. Targeted analytics has a significant impact on the bottom line, while ensuring a high level of compliance in areas such as early payments, lost discounts and duplicate payments.
Advanced statistical algorithms and the power of massive computation have taken the world of audit to the next level by challenging the very concept of sampling (which inherently has biases). Audit teams can now easily scan all the data to identify risky, vulnerable or abnormal transactions. By applying artificial intelligence, machine learning and natural language processing to even conventionally underused elements such as open text narrations for invoices or journal entries, organizations can glean actionable insights.
Similarly, forensic analytics enables the identification of ‘under the radar’ transactions in Accounts Payables, and Travel and Expense data. In short, all these techniques are now offering enhanced visibility and controllership to the CFO’s office while driving improved efficiencies.
Seamless collaboration across all levels is also key to achieving the desired state of compliance – especially during ‘unprecedented’ situations. As compliance leaders review existing controls and shape new strategies, CFOs should help them understand the financial and operational implications of each action. As members of the C-suite, they are better equipped to offer these insights.
Former US Deputy Attorney General Paul McNulty famously said: “If you think compliance is expensive, try non-compliance.” As liquidity pressures continue to mount, the cost of strengthening the risk and compliance function may seem daunting. However, the damage associated with a breach or even a tiny misstep can be colossal and long-lasting. CFOs who evaluate compliance as cost-savings instead of looking at it as an expense will truly be able to change the future odds of their organizations.
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Finance and Accounting
23 February 2022
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