How Do You Handle Significant Financial Discrepancies in Company Accounts?
CFO Drive
How Do You Handle Significant Financial Discrepancies in Company Accounts?
When faced with a significant financial discrepancy, CFOs play a crucial role in steering their companies back on course. From implementing corrective actions to ensuring meticulous detail and robust controls, here are the top five strategies shared by financial leaders on resolving discrepancies and the valuable lessons they learned.
- Implement Corrective Actions and SOP Revisions
- Revamp Procedures for Accurate Decisions
- Forthright Communication and Preventive Measures
- Fix, Diagnose, and Ensure Accountability
- Meticulous Detail and Robust Controls
Implement Corrective Actions and SOP Revisions
First of all, it must not take place as there are monthly, quarterly, and pre-submission review processes. Now, if it took place due to ignorance/change in law/accounting standards or practices, figure out the root cause - ignorance of law or ignorance at work. Accept the fact that it is a mistake and find out remedial actions like corrections in entries by JV/audit entries and possible disclosures based on the time when it is discovered. Take help from auditors/consultant experts for proper treatment. Ensure proper disclosure to the concerned stakeholders. Implement a CAPA action plan to ensure it does not take place - revise SOP.
Revamp Procedures for Accurate Decisions
Stepping into a new role, I discovered weak inventory reconciliations leading to a significant financial discrepancy. Delayed reporting and impacted decisions highlighted the issue. We tackled it by defining the scope, over-communicating with leadership, and revamping procedures, especially around key controls. This experience solidified the importance of robust reconciliations for timely, accurate data driving better decision-making.
Forthright Communication and Preventive Measures
How to handle: 1. Be extremely forthright with the company's leadership team, Board, and Audit Committee in explaining the magnitude of the issue and clearly identifying what caused it, and 2. Have a game plan for correcting the issue and preventing similar mistakes from arising in the future.
Lessons learned: 1. You must have checks and balances in place with every person on your team and every process you have, and 2. People hide mistakes on the Balance Sheet, so if you don't spend enough of your time focusing on Balance Sheet reconciliations, a bad actor will have room to thrive.
Fix, Diagnose, and Ensure Accountability
Employees make mistakes—to err is human. However, finance roles at successful companies carry the extra burden of extreme accountability, and any external misrepresentation can lead to reputational and legal risks.
Over the course of my career, there have been numerous instances of financial discrepancies, and my answer is always the same. First, we fix the issue and reach out to any stakeholder that may have been affected by the error. Next, we diagnose the cause of the problem and introduce measures to ensure this issue—or any potentially related issues—do not happen again. Finally, the person or team responsible for the discrepancy must be held accountable, and repeated violations with high exposure cannot be tolerated.
Meticulous Detail and Robust Controls
In my role as a finance professional, I encountered a significant financial discrepancy in our company's accounts. I conducted a thorough investigation, identifying the source of the error, which was a misposted transaction. I collaborated with the accounting team to correct the mistakes and implemented new checks to prevent future occurrences. The key lesson I learned was the importance of meticulous attention to detail and robust internal controls. This experience underscored the value of teamwork and proactive measures in maintaining financial accuracy and integrity.
