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Losing Sleep - CFOs Inundated With Risk

May 01, 2017 by David Griffiths, CEO

The modern CFO is a long way from their more conventional accounting past. The last decade has seen their role transform even further, from financial steward to strategic advisor, technology evangelist, innovation champion, business partner and operations expert. But with these new responsibilities come new concerns, about whether they are doing everything they can--taking every precautionary measure and utilising all tools and technologies--to protect their organisations from risk – of fraud, compliance issues and lost profits.

They are right to be anxious because corporate fraud is rife. This year’s BDO Fraudtrack Report found that the total value of reported fraud is at a 5-year high, having risen by almost a third from £1.5bn in 2015 to £2bn in 2016.

To help combat the risk of fraud, two new roles are rising through the corporate ranks to lend support to CFOs, namely, CISO (Chief Information Security officer) and CIO (Chief Information Officer). Both are now forming part of the company-wide protection strategy, especially in large global organisations. However, with this substantial risk increasingly prevalent, it is very much the responsibility of the CFO to protect the organisational spend that goes through their finance systems.

This is becoming harder to do, as further evidenced by the latest Kroll Global Fraud and Risk Report which identified the largest ever proportion of companies (82%) experiencing a fraud incident within the past year. More than a quarter experienced vendor, supplier or procurement fraud, second only to theft of assets as the most common type of corporate fraud.

Protecting against this type of fraud is becoming more difficult as the procure-to-pay process becomes ever more complex. Gerard Zack, CFE, Association of Certified Fraud Examiners (ACFE) Regent and Managing Director of Global Forensics for BDO Consulting, warned thattechnology will increase the sophistication of fraud schemes.“More and more we are reacting to reports of fraud with, ‘how did they do that?’” Zack said. “While simple frauds still exist, we are seeing a distinct proliferation of more complex fraud schemes. It’s a reflection of schemes becoming more complex and capitalising on technology, including some of the new technology deployed by companies in the interest of improving efficiency.”

This new technology, which centres around automation, can bring substantial benefits and is an important part of any evolving finance department, but when it moves too fast and rips through existing talent and processes, especially within Purchase-to-Pay (P2P), the results are surprising, counter-intuitive and sometimes devastating. They include the loss of knowledge when automation leads to redundancies and the most experienced employees leave. The nuanced checks and balances that used to serve as an early warning system for errors and fraud disappear when the human oversight of the process is replaced with automated controls. CFOs must also consider the hidden cost of purchase order compliance, and the problem of purchase order blindness, which compels employees to stop questioning invoices and payments just because the paperwork appears to be in order.

In almost 80% of Kroll’s cases of fraud, the perpetrators were insiders, either employees, former employees, freelancers or temporary staff. Which is why CFOs must ensure that forensic controls are effective across the organisation. Empowering purchase-to-pay departments with the most appropriate tools on the market to constantly monitor invoices, payments, employees and suppliers will eliminate one major risk concern from CFOs’ overloaded plate of anxiety and free up their time to concentrate on strategy and business growth.

And maybe they will sleep better too.

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