Under the microscope!Business risk landscape is changing

Business risk landscape is changing and so must the role of the financial director

With local and international investors increasingly demanding more transparency and no surprises, the role of the financial director is coming under tremendous scrutiny. From what was once considered an overhead and treated as such, the financial director is now increasingly being seen as a key organisational asset to drive business competitiveness and effectiveness.

"Financial directors, perhaps more than most executives, are engaged in creating internal controls that deliver not simply a compliant business, but a proactive risk managed business. In many ways, especially with the advent of the Sarbanes Oxley Act, the financial director is seen as the custodian of the 'risk and control' mindset required to achieve that objective," says Thiru Pillay, director, Business Risk Services at Ernst & Young.

An Ernst & Young Internal Control Survey conducted earlier in 2007 shows that many Chief financial Officers (CFO's) and Heads of Internal Audit still believe that some internal controls are ineffective, with the biggest 'blind spots' being controls over expansion into international markets, post-acquisition integration and real estate and construction projects.

Particular blind-spots and gaps in control arise in areas outside 'business-as usual' such as major change programmes. "The survey also showed that three quarters of all businesses were planning to make considerable investments in control. The financial director has a pivotal role to play in overseeing that control improvements achieve the Return on Investment (ROI) that is expected from them".

"Today's CFO recognises the importance of maintaining stakeholder confidence through visibly ensuring compliance with regulatory requirements while building in the flexibility to accommodate the next wave of change," he says.

Pillay acknowledges that all businesses face common drivers for a better controls environment. These, he says, include the need to respond to both external and internal stakeholders' expectations, achieving improved governance whilst reducing the cost of compliance and the need to improve business processes in order to maintain and enhance competitiveness.

"The financial director is likely to be best placed to drive a proactive risk-based approach and to help others use the same approach to build effective controls in their area of responsibility," he adds.

He says that equally important is creating the appropriate mechanisms for feedback so that senior management is able to gain assurance that what was requested is done. "Gaining confidence and comfort through a properly established feedback loop allows financial directors to decide how much detail they need in the processes supporting particular controls".

Pillay concludes: "So adopting a risk-based approach to challenge why processes and monitoring controls are executed in a particular way makes it possible to drive efficiencies and streamline controls so that they are cost effective. Finance directors need to identify how controls within their organisation are managed at a practical level in order to find areas for improvement. They need to understand what the cost of operating their present system of internal control is and how new thinking may help to achieve greater efficiency and deliver a system that is fit for its purpose".