This informal CPD article Five Pillars of Financial Control was provided by Sue Courtney, Communications Manager at FISCAL Technologies, a proven leader in Procure-to-Pay (P2P) risk management solutions.
In a post-pandemic world facing an horrendous energy crisis, rising inflation, a war in Europe and possible recession, organisations are recognising that, now more than ever, financial resilience is critically important. Accounts Payable, Procure-to-Pay, and Shared Service teams find themselves on the front line; defending against risks that would otherwise damage their working capital, supply chain, and reputation.
Five Pillars of Financial Control
This article uses the following 5-pillars framework to manage and implement financial controls that keep fraud, risk, and compliance issues at bay.
- Leadership and People
- Controls and Protection
- Value Creations
- Supplier Management
- Use of Technology
1st Pillar - Leadership and People
When we look at the five pillars of financial control, it’s clear that the first pillar is always leadership and people. No organisation, business, or group can effectively function without solid leadership. It’s a necessary foundation for smooth operations. Leaders inspire people, they make sure that everybody is where they should be in terms of the vision of the company, and their role within it. It’s vital to have strong leadership.
Your project, regardless of what you’re trying to do, relies upon the people you choose to do it. Therefore, everything you do with them needs to be done properly. There needs to be an effective use of your time and resources. You need to make sure that you have worked out the team dynamic at the start, because it can’t be left uncertain halfway through.
Setting a Vision
It’s generally agreed that a good company has to set the vision for its team at the beginning. It is essential for leaders to identify who is part of the team:
- What are their strengths and weaknesses?
- What do they bring to the situation?
Team members must also start exploring who they are as a team, what habits they have got into, what their mindset and behaviours are.
- What are we trying to achieve?
- What’s the journey?
- How are we going to get there?”.
Through these exercises, opportunities can emerge for individuals and the team as a whole to successfully thrive.
The Right Hiring
Build the right team with complementary skills. It’s very tempting when putting a team together to pick a group of forward-thinking, ambitious, bright businesspeople, but those kinds of personalities can invariably clash because they’re all striving for the same thing, and there can only be one or two people at the top. There’s no point hiring a team of people where everybody wants to be the manager, and nobody wants to go and talk to the retailers.
It is also essential to make sure that you establish the team’s dynamic, give everybody a chance to put across their ideal characteristics, and showcase what they can do.
2nd Pillar– Controls and Performance
It is essential to be able to monitor and track how the company is performing. Everybody understands the importance of performance tracking because it’s so ingrained now into business. When it comes to getting the best results for your control and performance systems, it’s important to remember that an overreliance on methods can be a problem. You need to have a diverse set of control measures in place and use system-driven controls rather than manual controls. We have modern technology available, so it makes sense to use it.
It’s also important to remember that you don’t need hundreds of KPIs to gauge how well the company is doing. Less is often more, and being able to track performance is quite simple when you have a few key performance indicators that target the following important areas:
- Process Performance Measures for tracking spending and order purchases
- Business User Performance Measure for tracking training opportunities and areas of improvement
- Team performance measurement which point to how fast internal paperwork such as invoicing is completed.
Above all else, it’s important to have targeted control measures that do a specific thing. You need to match the purpose of what you’re doing to the controls that you develop because this guarantee is the most effective way of doing things. Everything else is often just fluff; it doesn’t contribute meaningfully to the running of the company, just provides people with confusing numbers. Basically ensure you also have the right policies for the job but ensure you give P2P freedom to challenge these policies and enforce them.
Communication
It’s necessary to educate people on how performance and control are prevalent at all levels in a business. It’s not just about the higher-ups. Encourage communication from the bottom up to the top.
System Driven Controls
Finally, we discuss the importance of system driven controls rather than person-to-person driven controls. However, beware of being over-reliant on certain operating systems, financial directors can have an overreliance on three-way marching. then discovered later that actually this allowed a costly items to slip through the gap.
It is therefore essential to take the approach that it’s necessary to have a flexible control system, something which has many different avenues to make sure that nothing gets missed out. The overreliance upon one system is where a lot of businesses tend to fall apart because every system has its failings, and if you don’t have a backup in place to deal with that, you very quickly start to see the problems.