Continuous Control Monitoring

Continuous Control Monitoring – An Essential Tool for CFOs in a Post Pandemic World

All organisations are subject to financial fraud risk and in any given year where it is estimated that about 5 percent of an organisation’s revenue maybe lost to insider fraud. Even though fraud might seem unlikely, business managers need to realise it’s not an impossible event and the pandemic will only increase the risk. Some studies even state that the median loss from each instance of employee fraud is $140,000.

In the past 10+ years, we have seen rapid technological developments that allow employees to access and share data among different functional areas and enable businesses to generate financial information in real-time. Today, advanced analytics is the cornerstone of business strategy. These latest developments have altered how businesses operate and created several growth opportunities. It has also made traditional methods of audit risky, if not redundant.

CFOs must be extra cautious in these unprecedented times and put automated measures in place that keep a check on potentially fraudulent activities or costly errors.

Financial Fraud in a Pandemic

The risk to our health and wellbeing was not the only cause for concern in 2020. The COVID-19 virus also brought with it economic hardship and the predicted increase of internal financial fraud. COVID-19 has caused various industries to experience increased operational and financial pressure and for some, an unexpected or overwhelming boom. Companies have faced unpredicted rapid change. For some, this has been a severe loss in revenue, profits, market demands or in some cases, total closure of businesses. These economic needs may provide some employees with the motivation or justification to commit fraud, such as manipulating financial results, misrepresenting facts, assets, or using company information to misappropriate funds for personal benefit.

Financial fraud is not true only in case of the COVID-19 pandemic. In most crises, instances of fraud increase because of the events that startle the economy. Controls that existed on processes may be affected by new arrangements such as remote working, employer distraction and operational disruption. The result of fast new developments and changes at the workplace, may mean that many processes may have been left uncontrolled or inadequately managed. Controls, policies and procedures might be overlooked as organisations try to survive.

While most employees aren’t opportunistic, these are trying times that might change mindsets and force people to contemplate or resort to illegal means of profiteering. This is especially true for those whose personal circumstances have been negatively affected by fluctuations in the economy. People have lost jobs and businesses have shut down, creating financial pressure. Due to the global economic slowdown and recession, expected salary increases, loans or promotions may not be possible or significantly delayed. This loss of money might make a small minority feel “forced” to think about committing fraud because they have a “need” they cannot control. They will also “justify” why they deserve that money.

If fraudulent practices are left unchecked, it can lead to the downfall of organisations, cause irreparable losses, significant legal costs, damage the reputation of brands and lead to erosion of confidence in capital markets. There are ways in which CFOs can prepare themselves better to prevent such scenarios from arising altogether.

Continuous Control Monitoring in Finance

Many audit procedures that are used today remain manual, are infrequent in nature, and do not use automation and technology. The explosion of data brings with it several threats of data leakage, which can only be managed through the adoption of technological solutions (in combination with some manual checks). With rapid advancements in information technology, there is a massive amount of information out there that can be misappropriated for wrong reasons.

Auditing financial processes need a continuous approach and not a “once-in-a-year” strategy. Traditional auditing practices cannot keep up with the new technologies been introduced in finance and the risk hazards around it. It requires an approach that blends innovation, along with real-time access to financial information and automated fraud monitoring mechanisms.

One emerging technology that is gaining prominence is the use of Continuous Control Monitoring (CCM) to help monitor the businesses controls. Continuous Control Monitoring (CCM) can be defined as using automated tools to continuous monitoring of financial and business transactions to improve compliance and reduce audit costs, thus giving greater assurance.

Implementing CCM is like CCTV monitoring with artificial intelligence (AI) watching the videos 24/7/365. It allows organisations to increase the integration of data with AI and analytics systems. Investigators scan every transaction that occurs and follow up any suspicious activity. Continuous monitoring sets and creates a culture of awareness and helps put controls in place that are automated, independent and continuously monitored. This makes it harder and more difficult to perpetrate a fraud.

Ways to start with Continuous Control Monitoring

Here are a few ways in which CFOs can mitigate insider financial fraud risk in their business, keeping the pandemic’s effects in mind.

1. Update your current fraud risk assessment

Every company has an internal audit system in place. Even though it might seem to be leading anti-fraud programs, it should be updated. The pandemic has triggered many new financial fraud risks, and the new assessment should incorporate these new elements into it.

2. Identify your core risk areas

Use data analytics and visualisation techniques to predict areas that have the highest risks. There are fraud risk monitoring tools that can help identify areas that need immediate attention. Once the high-risk areas are visible, strategise ways to address each of them to reduce risks.

3. Update your current internal controls

The pandemic might have left certain internal controls, policies and procedures unchecked or ignored. Weakness in internal controls accounts for nearly half of insider fraud. It’s crucial to assess all your internal controls and align them with the new responses to COVID-19 such as remote work, supply chain adjustments or contact tracing. Remembering that the control belongs to the business not internal audit.

4. Instil a fraud fighting culture

Educate and alert your audit committee and team about the importance of responsibility and preparedness against fraud in such times. CFOs must set the proper tone during the crisis and lead by example for the rest of the stakeholders to follow suit.

The Way Forward

Being prepared in a time like this will pay off in the future. Companies with a dedicated fraud program in place spend 42 percent less on response and 17 percent less on remediation costs. Prompt investigation through CCM can help discover frauds before they do any damage or lead to a spiral of consequences like financial losses or damage to reputation.

In PwC’s latest Global Economic and Fraud Survey, nearly 40 percent of companies planned to spend more on fraud prevention over the next two years. These companies also plan to focus on technologies that can make fraud management more efficient and effective. The sooner CFOs deal with ways to prevent fraud, the better they will be able to future-proof their businesses against further shocks.

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Gavin Steinberg

Gavin is the CEO of Satori Group. He is a passionate and accomplished executive with a history in Data Analytics and Budgeting, Forecasting and Financial Consolidation. Gavin has over 20 years of experience in these areas, in a career spanning across his native South Africa to Sydney. Gavin’s passion is helping companies to see the value that can be achieved through automation, understanding their data and bringing this to life through visual communication and re-assurance.
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