Managing Compliance Risks: Why CFOs need to be one step ahead

Managing Compliance Risks: Why CFOs need to be one step ahead

CFOs are held accountable for every activity related to the finance function. They eat, sleep, live, and breathe numbers. In many cases, the same is true for risk and compliance. It’s not an easy job, and no one could pretend otherwise. However, there are ways of reducing the burden somewhat, particularly when it comes to leveraging tools that can help CFOs monitor their company’s compliance organization-wide.

Risk management, the CFO, and the organizational conscience

Back in September 2016, EY did a poll on the role of the CFO. Their research revealed that 57% of finance leaders believed risk management would be a “critical capability” in the years ahead, and 71% said they thought CFOs would become increasingly responsible for the ethics of decision-making in support of their organization’s purpose.

Five years later, EY states that “CFOs are protagonists in rolling out a code of conduct or ethical guideline.” In their  CFO Barometer survey from October 2021, they asked, “Is it the job of finance to be the conscience of the organization?” 64% of respondents said yes.

It would appear that finance leaders overwhelmingly still believe that finance should be the organization’s conscience.

It makes sense since few C-level execs understand the depth and breadth of risk and the implications almost every decision may have on a company’s future the way a CFO does. But this responsibility weighs heavily on the shoulders of the financial leader, who increasingly has to deal with staffing issues, motivation, and even data storytelling on top of their regulatory and fiscal responsibilities. Compliance risk adds complexity to this already large burden. There has to be a way to lighten the load.

What compliance risks do CFOs face?

A CFO’s guide to compliance reminds us that “CFOs can’t afford to give compliance efforts short shrift, or they run the real risk of stiff fines and penalties, financial restatements, and serious damage to their corporate (and personal) reputations.”

Having the auditors discover significant errors or fraud is every CFOs worst nightmare.

Sadly, this possibility is all to real regarding rebate management. As we cover in an article on how to achieve financial compliance with better rebate management, it can be a real challenge to calculate rebates using spreadsheets and gain an accurate picture of rebate income or expenditure. Many organizations still use spreadsheets or have to mangle data from multiple sources to get an accurate picture of their rebate position. This often results in manual data tracking or munging, which is time-consuming, error-prone, and increases the risk of missing non-compliant behavior. The penalties for non-compliance with hyper-local and ever-changing global regulations can be onerous. Even the most innocent mistakes could lead to massive fines for non-compliance. Without an audit trail, there is a real possibility of understating or, worse, overstating earnings.

The risks of poor rebate accounting can include:

  • Inaccurate rebate payments
  • Poor visibility of rebate deals (with no tracking, audit trails, or transparency)
  • Limited financial insights into rebate use and effectiveness
  • Misrepresented numbers in reports due to incorrectly inputted information.

In addition, when legislation changes, as it often does on a state-by-state basis in the USA and, to a lesser extent, in different global geographies, companies must be ready or have systems in place to meet new standards and even take the opportunity to improve performance and visibility. Relying on manual intervention is not a sustainable, long-term strategy.

Advice for CFOs to stay ahead

Gartner says, “Organizations must utilize data for growth and cost optimization while managing risk.” Speaking to Chief Data Officers, their advice is to improve financial governance and cost transparency by deploying augmented financial operations (FinOps). They say that, by 2026, augmented FinOps will have improved cloud cost optimization and reduced budget planning efforts by up to 40%.

But this is only a reality if organizations are already using digital systems to manage their financial processes.

CFOs must assess their rebate compliance risk.

Auditing your rebate accounting process is a good place to start. Reviewing the accessibility of deals makes it possible to check whether the business is exposed to rebate risk. The next step is to examine whether the business can report on rebates accurately and efficiently, consider whether rebate claims have been missed in the past, and assess whether the rebate accounting team is aligned with the wider business.

Once a rebate risk assessment has been conducted, it may be necessary to consider an organizational mind-shift. While it hasn’t always been possible to monitor deals constantly (and certainly not when using spreadsheets or multiple disparate data sources), with real-time access to information and automation, it’s easier than ever for an organization to ensure financial compliance challenges are being met. Helpful, proactive tools like rebate management software make it possible to go further: To proactively manage risks by identifying threats before they become a reality.

The right software can alert CFOs to suspicious transactions long before a risk becomes a crisis. It can ensure CFOs get accurate real-time financial reporting despite the complex nature of rebate management. And it can help reduce risk by connecting data to see one version of the truth with data that all parties can trust.  

How Enable reduces risk

Utilizing rebate management software like Enable helps reduce risk by:

  • Improving visibility
  • Specifying and simplifying approval workflows
  • Providing a single source of truth and
  • Ensuring alignment between relevant parties.

With Enable, contracts are visible to all relevant parties – a great relief since, according to research cited in the Journal of Contract Management, 71 percent of companies couldn't find at least 10 percent of their contracts. That’s just the start of the visibility benefits, however. With the right tools, it’s possible to gain complete visibility of all deals, rebate-related income and expenditure, and deal-related performance in real-time. With good data visibility, the savvy CFO can analyze rebate performance more effectively and predict future performance.

Improving approval workflows also reduces financial risk. Effective approval workflows can significantly improve your company’s compliance, audit trail, and productivity. Good workflow management facilitates the creation and use of new and revised trading agreements while ensuring that the correct approval workflow is followed at all times and that rebates are approved, collected, and signed off correctly.

Conclusion

When data flows seamlessly between systems and trading partners, a trusted rebate management platform can finally be used as a single source of truth: Removing friction and providing the basis for solid, stable partnerships.

After all, isn’t that what rebates are meant to do? Ensure alignment between relevant parties so everyone can make money while keeping customers happy.

At Enable, we know that effective rebate management isn’t just about putting the right numbers in place and ensuring compliance; it’s also about removing risk, improving relationships, and creating business benefits for all trading partners. That’s why we do so much more than just rebate management.

Get in touch to discuss how Enable can help your organization manage rebates more effectively. Or try Enable’s rebate management software for free.

Elizabeth Lavelle

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