No system of internal controls is perfect—and they don’t have to be.
Controls are designed and implemented to reduce the risks of things going wrong that may damage the organization in some way. But controls come at a cost. If a system were to be so highly controlled that risks are reduced to almost zero, the inevitable result is an unwieldy, cumbersome and slow process that limits the ability of your organization to simply get the job done.
So, you’re faced with a perpetual trade-off between running a high-performance process versus reducing the risks of fraud, error, abuse and regulatory non-compliance. While some of these risks may not be considered material enough to negatively impact strategic objectives, how can you be sure?
For example, how do you know whether a series of payments that managed to circumvent proper approval procedures are not actually part of a pattern of bribery that could result in massive fines, penalties and negative publicity? What if some senior managers are manipulating sales figures or expenditures in a way that distorts financial results?
How can you achieve an optimum balance between running a high-performance financial process and efficiently managing the gaps that exist in your ERP-centric controls?
The answer is in your data. It’s no secret that technology and “big data” analysis has done much to transform marketing and the insights that can be achieved into areas such as customer behavior, product requirements and market opportunities. Business intelligence software has likewise illuminated performance at a high level.
What’s in it for you?
Risk analytics, monitoring and risk visualization, closely integrated into risk and control management systems, has a comparable ability to transform the effectiveness of financial control systems—providing a balance between the goals of tight control and maximizing performance. In fact, data analysis can provide an additional, compensating layer of control over financial processes—enabling ERP systems to be very productive and efficient, while reducing risks such as fraud, error, abuse and regulatory non-compliance.
If you engage external auditors, make no mistake: they are utilizing this technology. And the highest-performing finance and control teams are now running similar analytics, not only to improve controls and strategic risk management, but also as best practices to help ensure the “audit readiness” of the organization.
The Finance Leader’s Guide to Balancing Risk and Performance
A guide for government finance leaders, this eBook will help you identify the gaps in your ERP system controls, maximize performance, and ensure that you are adhering to the highest levels of integrity over public funds. It also provides five performance hacks for improving payroll and expense systems and reducing the risks of corruption and fraud.