In light of regulatory compliance and overall financial scrutiny increasing on a regular basis, companies around the world are finding it difficult to reliably strengthen their controls throughout the entire Record to Report (R2R) process as they seek to scale their business.

Organizations are also confronted with the ever-present challenges of implementing internal controls, corrective actions and other obligations into their daily processes and procedures.

Manual Process Increases Financial Risk

It requires an incredible amount of work and accurate data in order to properly handle matters of regulatory compliance. No matter the industry, many organizations are still approaching their work using manual processes and legacy systems. This approach poses an increased financial risk, partly due to the lack of visibility and timely access to relevant financial information for the Office of Finance to prepare and respond accordingly.

Without full visibility into the data, it’s difficult to supply validated information to fulfill requirements and tasks needed to move forward. In other words, manual processes leave organizations in the dark about what activities were completed in order to satisfy regulatory compliance requirements.

Completing reconciliations and risk management controls throughout the closing process creates huge inefficiencies within the organization. These inefficiencies generate additional risk, and keep growing with each department that’s needed to complete and file reports. In addition, organizations need to be prepared to weave in environmental, social and governance standards, which in the U.S., can be unclear and is constantly evolving.

Although ESG standards and potential regulatory frameworks are currently voluntary (with guidelines provided by organizations like the Sustainability Accounting Standards Board), there are ongoing debates as to whether they’ll become mandatory sooner than later. That’s why it’s important to build a governance framework in order to anticipate more specific standards from regulators as they are approved. The value of a structured financial controls process ensures that an organization can strengthen their risk management culture and improve their data integrity.

For example, the banking industry is one of many sectors facing constantly evolving regulatory requirements. Banks are still dealing with changes due to the pandemic, and now also need to consider the continuing consequences of Brexit and potential changes in U.S. policies.

Banking compliance officers need to keep a finger on the pulse of current regulatory reporting requirements and ensure that they can translate these regulatory documents into actionable steps in order to update process, controls, and policies within their organizations or they may face the consequences.

Creating a Compliance Framework Reduces Risk and Improves Efficiency

There is a real danger in wasting valuable time and resources on redundant or low-value controls for companies with subsidiaries, global operations and multiple legal entities.

Companies must ensure corporate and regulatory compliance by:

• Managing corporate social responsibility (CSR) initiatives such as DE&I (diversity, equity and inclusion) and ESG (environmental, social and corporate governance)
• Managing cross-enterprise compliance initiatives, including SOX, GRC, HIPAA and FERC/NERC code of conduct
• Coordinating security standards, such as ISO 27001, and other process management initiatives including quality control and IT governance and security
• Ensuring that the financial governance model is properly implemented and that relevant performance and controls are properly identified, scoped, scheduled and performed
• Leveraging state-of-the-art technologies such as dynamic scoping, scheduling, test and evaluation workflow, exception and remediation workflow, management consoles, audit trail and flexible reporting

Given the sheer amount of tasks and regulations to keep up with, manual processes are no longer simply a hindrance. Rather, they can lead your organization to deal with the consequences of missing the mark on meeting requirements around regulatory compliance.

Technology to The Rescue

An organization’s comprehensive compliance framework is one of the most critical pieces of the Record to Report (R2R) process. This framework is what keeps all financial data accurate while it flows in and out of the R2R in the form of the financial reports.

Technology can improve the compliance framework of any organization regardless of its unique needs — although that framework and the way it’s executed will vary based on country, industry, public vs. private, private preparing to IPO, nature of the close, and other relevant factors. Finance controls and automation are critically important to adhering to regulatory compliance standards, private governance, as well as external and internal audits.

Using a System of Controls to manage regulatory compliance allows organizations to ensure greater disclosure accuracy by providing more opportunities for contextual reporting. When implemented correctly, a System of Controls helps to promote a culture of risk management by preparing organizations for changes in regulatory compliance and offering a high level of accuracy and visibility when it comes to data.

Trintech recognizes the challenges that regulatory compliance requirements have on the Office of Finance which is why it provides leading financial close solutions that help to ensure the full R2R process is consistent with compliance requirements. Trintech’s System of Controls anchors within your compliance framework to enable you to cover your environment and ensure that capabilities such as intercompany preventative and detective controls, or disclosure management and statutory reporting are included, managed and audited.

Organizations that fail to directly address or set up a comprehensive control framework are in jeopardy of accidental compliance violations that may greatly impede the success of the overall business, both financially and reputationally.

Receive a complimentary guide highlighting how to optimize your key financial controls to simplify processes like the internal audit and streamline adherence to regulatory compliance standards, here.

 

Read the blog as it was originally published on CFO Dive here.