Robust financial reporting provides the key to business performance

Informed business decisions require accurate financial information and solid internal controls.

Whether dealing with an internal audit function, the board of directors, an external audit firm or shareholders, every organization should do what it can to ensure a robust financial reporting process supported by strong controls. Financial systems are the backbone to any business, and if the structure breaks down, the entire company could fail and become paralyzed.

Control failures, or the lack thereof, make businesses vulnerable to fraud, hackers and other malfeasance. This, in turn, leads to negative impacts that include data and monetary loss, regulatory fines, missed business opportunities and reputational damage. Recovery from such impacts is both difficult and expensive.

What is the cost, after all, of diminished customer trust and/or suspicion resulting from a tainted reputation? Overlooking or ignoring the importance of precise financial information leads to plenty of trouble but can and should be avoided at all costs.

Let’s take a look at some recent examples of problems encountered by businesses when financial processes are lacking. We’ll also explore some ways to help ensure a sound financial footing is in place.

Damages follow slack financial practices 

Ignorance is anything but bliss, and looking the other way when it has to do with an organization’s finances is negligent.

The Securities and Exchange Commission recently announced civil monetary penalties against First American Financial Corporation for failure to maintain sufficient disclosure controls and procedures related to cybersecurity risks. Beyond the cease-and-desist order and monetary penalty of $487,616, FAFC, which provides title insurance policies, closing and escrow services, will face an uphill battle as it works to rebuild its tainted reputation.

Another case involves Tandy Leather Factory and its former CEO as they recently settled charges stemming from failures in the company’s accounting, reporting and internal controls. The CEO and other personnel knew historical cost information for the organization’s inventory-tracking system was incorrect but failed to fix it. The result? The company has been fined $225,000 for ignoring the issues and, like FAFC, faces damage to its brand.

Reputational risk poses a threat to the survival of any company — big or small — but is not easily measured. Although it can be mitigated through quick damage control initiatives, it can also have lasting, hard-to-erase effects.

For instance, IDC discovered that 80% of consumers in developed nations will defect from a business if their personally identifiable information is compromised in a security breach. In the era of social media, negative company events are easily magnified, and reputations can be lost, sometimes permanently. But it doesn’t have to be that way if your financial systems are solid.

Changes enabling financial wellness

Financial analysis, reporting and controls help lay the foundation for business success. As such, here are some ideas companies should consider bolstering their financial systems and ensure they remain rock solid.

Give older ERP systems a health check. Maybe they did an adequate job a decade or two ago, but aged, cobbled-together ERP systems significantly hold companies back, particularly when they don’t integrate with other solutions. If yours is manual, cumbersome, and lacks the flexibility of more modern ERPs, consider upgrading an outdated, legacy one with a system that integrates with accounts payable, payments automation procurement and other financial systems. Here’s a hint: If your finance function relies on Excel for all of its reporting and data analysis, you may want to consider an upgrade.

At times, companies underuse their ERP by only tapping into, for example, the system’s invoice management functionality to achieve a paperless AP process, leaving other automation capabilities untouched. By tapping into all of these solutions, companies can realize better synergies across the source-to-pay and record-to-report processes, freeing up time to and resources to work on business development initiatives.

Transition to the cloud. Rather than burying financial data in spreadsheets and having to gather this data from multiple sources, move it to the cloud. Doing so enables information to be updated easily and makes it readily available from anywhere, which is particularly important in today’s hybrid work environment. Cloud-based AP automation, for instance, saves employees time by eliminating searching through paperwork, reduces bottlenecks and mailing expenses. This final advantage may give the added benefit of contributing to any corporate initiatives to reduce reliance on paper and go green.

Benefits of solid financials

Companies with robust financial systems, reporting processes and controls reap plenty of tangible benefits.

They provide valuable insights into the financial wherewithal of an organization and help them remain compliant to laws and regulations. They identify trends, which help business leaders make better financially related decisions based on past, current and future spending. And they improve debt management and cash flow, both of which are crucial to a company’s financial fitness.

Further, financial reporting systems help companies maintain their liabilities such as business loans, outstanding credit lines and other spending. Overall, they help accounting and finance personnel better understand the overall performance of a business.

Protecting your company from financial and reputational risk is critical to survival. A strong financial system including solid internal controls — or the lack thereof — can make or break a business. Financial reporting is not just important, it’s a legal requirement. Failure to keep running company financial systems smoothly could have negative ramifications that include, but are not limited to, financial and reputational loss.

So, take a step back and perform a review of your finance function. Is there room for improvement? By doing things like updating and/or using your ERP system’s full capabilities, moving to the cloud and investing in an end-to-end spend management solution can help keep companies on the right financial path and set them up for success.