FINANCIAL CONTROLLERSHIP

Financial Controllership is a management function that supervises the accounting

and financial reporting of an organization. It is responsible in the implementation and
monitoring of internal controls.

What are Risks?

For all businesses there are risks that exist and that need to be identified and
addressed in order to prevent or minimize losses.

 Risk is the threat that an event, action, or non-action will adversely affect an
organization ability to achieve its business objectives and execute its
strategies successfully.
 Risk is measured in terms of consequences and likelihood.

The following process is used for assessing risks: identifying risks, sourcing risks
and measuring risks. Overall, you should focus on the high risks affecting your
operations.

 Identifying Risks
 Sourcing Risks
 Prioritizing Risks

Considerations

 Evaluate the nature and types of errors and omissions that could occur, i.e.,
what can go wrong
 Consider significant risks (errors and omissions) that are common in the
industry or have been experienced in prior years
 Information Technology risks (i.e. - access, backups, security, data integrity)
 Volume, size, complexity and homogeneity of the individual transactions
processed through a given account or group of accounts (revenue,
receivables)
 Susceptibility to error or omission as well as manipulation or loss
 Robustness versus subjectiveness of the processes for determining
significant estimates
 Extent of change in the business and its expected effect
 Other risks extending beyond potential material errors or omissions in the
financial statements

What are Internal Controls?

Management must control identified risks to help the Company:

 achieve its performance and profitability targets,
 prevent loss of resources,
 ensure reliable financial reporting, and
 ensure compliance with laws and regulations, avoiding damage to its
reputation and other consequences.

In summary, internal controls can help our company get where it wants to go, and
avoid pitfalls and surprises along the way.
DEFINITION OF INTERNAL CONTROL

Internal control is a process, effected by an entitys board of directors,

management and other personnel, designed to provide reasonable assurance
regarding the achievement of objectives in the following categories:

 Effectiveness and efficiency of operations

 Reliability of financial reporting
 Compliance with applicable laws and regulations

Control definition reflects certain fundamental concepts:

 Internal control is a process. It's a means to an end, not an end in itself

 Internal control is affected by people. It's not merely policy manuals and
forms, but people at every level of an organization.
 Internal control can be expected to provide only reasonable assurance, not
absolute assurance, to an entity's management and board.
Objectives of Internal Control

Internal controls are established to further strengthen:

 The reliability and integrity of information.
 Compliance with policies, plans, procedures, laws and regulations.
The safeguarding of assets.
 The economical and efficient use of resources.
 The accomplishment of established objectives and goals for operations or
programs.

Internal Control Myths and Facts

MYTHS:

Internal control starts with a strong set of policies and procedures.

Internal control: Thats why we have internal auditors!
Internal control is a finance thing.
Internal controls are essentially negative, like a list of thou-shalt-nots.
Internal controls take time away from our core activities of making products, selling,
and serving customers.

FACTS:

Internal control starts with a strong control environment.

While internal auditors play a key role in the system of control, management is the
primary owner of internal control.
Internal control is integral to every aspect of business.
Internal control makes the right things happen the first time.
Internal controls should be built into, not onto business processe
 As the head of an organization’s accounting team, the financial controller
plays an increasingly strategic role in making sure the company runs smoothly.
There are many opportunities for controllers to improve the efficiency of day-to-day
financial operations and enhance the business overall. New technologies help
companies streamline or eliminate manual tasks and create more accurate financial
forecasts, for example. At the same time, controllers face the challenge of hiring and
retaining talent that can help the company take advantage of these technologies to
transform the business. Here are six top goals for financial controllers in 2022.

What Is a Financial Controller?

A financial controller — sometimes called a “comptroller” — is a senior member of a

company’s financial leadership team. The financial controller heads the
organization’s accounting function and manages day-to-day financial operations.

Beyond those duties, the controller’s role varies, depending on the size and
complexity of the business. In smaller companies, the controller and CFO may be
the same person. As companies grow, mounting business complexity often requires
these roles to be divided, with the CFO spending more time on strategy, while the
financial controller focuses on day-to-day operations. In practice, at many
organizations, the financial controller is part accountant, part CFO and part
compliance officer. Financial controllers must be unassailably ethical, because any
ethical blemish could cast doubt on the company’s finances.

Financial controllers have a wide variety of responsibilities, including:

 Managing and streamlining accounting operations, including the financial

close.
 Preparing financial reports and analyzing financial data.
 Participating in the budgeting process.
 Developing plans for financial growth.
 Evaluating and managing risk and financial compliance.

6 Financial Controller Goals to Crush in 2022

Controllers have many opportunities to enhance the company’s finance and
accounting functions in 2022. They include applying technologies, such as robotic
process automation (RPA) and machine learning, to streamline accounting and
deliver improved data analysis, as well as ensuring that the company has technology
in place to support innovative new services. Equally important for many companies
will be hiring the right talent and managing a distributed finance team.
 1. Eliminate Manual Tasks with Robotic Process Automation (RPA)

There is an enormous opportunity to streamline business processes using

automation. In accounting and finance, nearly 90% of activities can potentially be
automated, according to finance leaders surveyed by Gartner. One example of an
area to focus on: accounting staff who often have to manually clean and combine
data from multiple systems before the information can be analyzed, which is not only
time-consuming but also ripe for the possibility of human error.

Robotic process automation (RPA) is easy-to-program software that enables

companies to automate basic, repeatable and sometimes tedious tasks. RPA can
help companies:

Shift staff from transactional, repeatable work to more mission-critical work.

Increase accuracy and productivity by eliminating or reducing manual activities.
Reduce staff costs.

2. Build Innovation-Friendly Financial Infrastructure

Many companies are accelerating their digital transformation to remain competitive

and add innovative services as they respond to challenging business conditions and
new market entrants. A critical aspect of the financial controller’s role is ensuring that
finance systems are prepared for these challenges, including support for new
services.

One real-world example is the restaurant industry’s rapid, large-scale adoption of off-
premises dining through online systems and third-party delivery services. What was
previously a loose process involving phone calls and manual order entry has evolved
into fully integrated online ordering, allowing restaurants to expand the number of
customers they can serve each day. As a result, off-premises dining has become a
potent revenue stream: Revenue from online food delivery in the U.S. is expected to
reach more than $32 billion by 2024, according to Statista.

Financial controllers are central to making sure the company’s finance systems and
processes will be capable of rapidly supporting new services, such as the one
described above, by planning automatic and accurate accounting for transactions
and providing financial reporting. Business software application suites that integrate
financial management with other functions, including ecommerce and inventory
management, can help businesses adapt rapidly.

3. Recruit and Nurture Top Talent

The finance team’s evolving role in the business means it’s more critical than ever
for financial controllers to make sure they have the right people on staff. While some
skills can be added by training existing staff, it may also be necessary to recruit new
talent in order to build a culture that enables the company’s digital transformation —
and it can be challenging to find candidates with in-demand digital skills in
technologies such as RPA.

Among the key skills financial controllers need to incorporate into their teams,
according to the American Institute of CPAs, are:

An understanding of transformative technology. A grasp of this important skill will

help the company take advantage of all types of transformative technology within the
business, from ecommerce to RPA and AI.
Data analysis and presentation. As routine tasks become automated, finance
specialists can spend more time analyzing the data and applying those insights to
the business’s goals.
Communication. Along with the ability to analyze data, finance specialists should be
prepared to share their insights with other people across the organization. Key skills
to achieve this include the ability to turn data sets into compelling stories, to
communicate these stories to others, to apply critical thinking and to ask the right
questions.
Agility and willingness to learn. New technologies will require a talent for reimagining
current processes — and a financial staff that is flexible and willing to learn new
procedures.

4. Apply AI and Machine Learning

AI and machine learning are powerful technologies that can be applied to many
aspects of the business, not just finance. These technologies are advancing rapidly,
and it’s imperative for financial controllers to understand where they can have the
biggest impact. Increasingly, AI and machine learning are being built into business
applications, making them available to businesses of all sizes. Areas where AI and
machine learning can be applied to finance include:

Transforming unstructured data, from paper-based and electronic invoices, purchase

orders and contracts, into machine-readable structured data to eliminate manual
effort and improve accuracy.
Financial forecasting. Machine learning makes it possible to analyze enormous
amounts of information, including data from external sources, to create more
accurate financial forecasts. For example, companies can improve forecasts by
analyzing a combination of regional market data and historical sales information,
together with stock availability and weather data. The finance team might also
analyze customer payment history to improve cash-flow projections.
Identifying trends and risks. Machine learning can sift through volumes of market
research, news reports and other data to discover trends that may impact the
business.

5. Analyze the Impact of Cryptocurrencies and Decentralized Finance

While cryptocurrency is far from ubiquitous, thousands of companies now accept

cryptocurrencies as payment or invest in them. It’s becoming increasingly important
for financial controllers to understand how to account for cryptocurrency holdings
and transactions, as well as their impact on taxes. They may also need to make sure
the company’s systems can track and report the value of cryptocurrency transactions
and investments. Important considerations include:

Establishing a strategy for recognizing transactions and capturing transaction-level

detail.
Incorporating documentation and processes to mitigate tax exposure.
Recording gain or loss in value when cryptocurrency is spent.
Measuring and reporting volatility in cryptocurrency value.
A related early-stage development to watch is the emergence of decentralized
finance (DeFi), which applies the blockchain technology underlying cryptocurrencies
to create new financial services that rely less on traditional intermediaries, such as
banks. Planned and existing services include lending, trading and smart contracts
that execute automatically when predetermined conditions are met.
 6. Facilitate Communication Among Distributed Teams

The rise of the remote workforce means financial controllers need to emphasize
facilitating communication across distributed finance teams — particularly since
nearly three out of four CFOs plan to shift at least some staff offsite, according to
Gartner. For remote workers, many of the intangible aspects of communication —
such as body language and hallway conversations — are either invisible or
unavailable. Ensuring that the finance team has the right communication tools — and
uses them in the right way — can help team members work together efficiently.

Videoconferencing tools and phone calls enable synchronous communication among

team members. This is useful for meetings, one-on-one communications and other
situations where real-time feedback and input is important to align participants on
issues and goals — such as discussion of new projects or initiatives.
Email and texts are useful where immediate response to communications is not
necessary — for example, when documents need to be distributed for reading before
a meeting.
Cloud-based applications make it easier for employees to work from anywhere with
real-time access to current information. These apps include not only cloud financial
management and ERP applications, but also online file repositories for shared
documents and project management tools.

A Financial Controller is a senior management role that overseas all functions

of an organization’s finance and accounting department. For smaller businesses, this
may even be an executive position.

A Financial Controller job description should call for high-level analytic skills,
brilliant management ability and at least five years’ experience.

Financial Controller duties and responsibilities of the job

As the role responsible for managing all finance and accounting operations, it’s
critical that a Financial Controller job description captures the breadth, diversity and
seniority of the role. A Financial Controller’s duties and responsibilities generally
include:

 Developing financial strategy, including risk minimization plans and

opportunity forecasting
 High-level financial reporting and analysis
 Regular budget consolidation
 Cash flow management
 Improving efficiencies and reducing costs across the business
 Stakeholder management
 Debt management and collection
 Preparing company tax and BAS statements
 Ensuring compliance with statutory law and financial regulations
 Developing financial reviews and providing investment advice
 Payroll processing
  Working closely with management or executive teams to share reports and
analysis findings
 Well-developed leadership skills
 Mentoring

Financial Controller job qualifications and requirements

A Financial Controller job description should ask for one or several degrees and
extensive experience managing finance teams, preparing and analysing reports and
making improvements to fiscal tools and systems. Relevant qualifications are in the
fields of:

 Finance or Economics
 Accounting
 Business Administration
 Business Law

In addition to Bachelor or Masters level degrees, it would be beneficial for the job
description to describe candidates who have participated in a CPA (Certified Public
Accountants) or CA (Chartered Accountants) program. This globally recognized
program denotes high professional competency.

Finance Responsibility

Senior leaders of an organization are responsible for all aspects of its financial
health. They are charged with understanding the unit's financial situation and not
allowing unintended deficits to occur. They remain accountable for the resources
entrusted to them, including funding, facilities and staffing, even if they have
delegated budget and accounting responsibilities to their staff.

All funds must be spent in accordance with University policy, and operating
needs met within available budgets. The University does not budget separate funds
to cover deficits, so alternative sources must be provided if a deficit occurs, such as
department budgets or Deans reserves.

Units are responsible for internal financial management, and to develop

budgeting, financial reporting and management practices. Units are encouraged to
develop an oversight process that builds on best practices.

Develop an Annual Budget

 Develop reporting for financial division, programs and/or operating units, as

appropriate

 Require reporting for highly sensitive or high-risk areas.

 Develop Periodic Financial Reporting and Monitoring

 Should be reviewed at least quarterly (recommended monthly if possible)

 Should include a summary of all funding sources, expenditures and reserves

available for future use (excluding those already committed and budgeted for
current period)

 Should include all outstanding commitments to unit-wide programs,

individuals or capital projects.

 Provides management with information necessary to make strategic decisions

at any time during the year

Treasury Responsibility

In any financial institution, Treasury's primary role is to manage the balance

sheet most optimally by increasing revenues (Net Interest Income) at lower costs
while creating capital capacity within a wide set of constraints to maximize its P/L.
This is craftsmanship, done by understanding each balance sheet item, each
revenue -, cost - and capital driver, each constraint and all their interdependencies in
detail. This is no easy task, but data and technology become essential partners in
achieving results better, faster and more seamlessly. I will come back to this later as
it is a key pillar in any treasury transformation!

Treasury’s core responsibility is liquidity management; covering the disciplines

of centralized cash management, collateral management and asset management,
and funding and capital management. The disciplines are highly interdependent but
each requires its own particular set of parameters and constraints to be managed for
Treasury P/L and - risk to be optimized. Most important is to manage the liquidity risk
as this is the most lethal risk any financial institution faces (i.e. running out of cash).
Then interest rate risk, credit risk and funding/maturity gap risk. Regulation is of
cause the imperative.

From a Treasury perspective the above areas are defined like this:

Cash Management - The task of managing the institution's global cash flows across
currencies, intraday as well as future projected, making sure that all payment
obligations are settled and fulfilled.
Collateral Management - The task of eliminating unnecessary credit risk between
counterparties and clients by managing eligible collateral.
Asset Management - The task of having the right, actual and regulatory liquidity
buffers available and making the most P/L out of it.
Funding - The task of always having enough cash available for the institution to
serve its immediate obligations and other commitments and requirements on a
longer horizon.
Capital Management - The task of always having sufficient capital available to cover
internal - and regulatory requirements, and having a capacity for business and
revenue growth.
Each institution's risk appetite statement gives the above mandates and associated
constraints. The risk appetite statement is a subjective and dynamic strategy defining
the actual risk capacity and - appetite that the owners are willing to accept. It forms
the basis for any action taken in a bank, also for Treasury.

Treasury is the custodian of those resources, and thus it is Treasury's role to

intelligently link them to the client-side of the business by incentivizing the business
to drive the right activities across client types, product types and jurisdictions. It is
imperative for any financial institution to design, code and implement intelligent - and
dynamic pricing models. It will be key to optimize value generation of the institution’s
balance sheet.

Statement of Financial Position (Balance Sheet)

An accounting report that summarizes the financial status of a business at a

particular point in time.
Three main sections of a statement of financial position:
 Assets
 Liabilities
 Owner’s equity
The accounting equation is the basis of the statement of financial position.
Assets = Liabilities + Owner’s equity

T-form statement of financial position

Narrative form statement of financial position

Classification in the Statement of Financial Position

A classified statement of financial position separate both assets and liabilities into
those that are current and those that are non-current.
 The assets are usually classified according to their liquidity, which is how
quickly they are expected to be turned into cash or used up.
 Liabilities are classified on the basis of the urgency of repayment.

Current assets: Assets that are expected to be realized in cash or used up within
the next 12 months.

Current assets

 cash on hand,
 cash at bank,
 short-term investments,
 inventory, debtors.

Non-current assets: Assets that are acquired with the intention of controlling them
for a period of time greater than 12 months.

Non-current assets

 property,
 equipment,
 machinery,
 furniture,
 vehicles,
 long-term investments.

Current liabilities: obligations that will be satisfied within the next 12 months.

Current liabilities

 bank overdrafts,
 short-term loans,
 creditors.

Non-current liabilities: obligations that are deferred over a period greater than 12
months.

Non-current liabilities:

 long-term loans.

The classification of loans depends on the term of loans and the type of loan.
Term of loans:
 Short-term loan: current liability
 Long-term loan: non-current liability

Type of loans:

 Interest only loan: non-current liability as it does not involve an obligation due
within 12 months.
 Installment loan: two components.
 Current liability component: installment to be paid within 12 months.
 Non-current liability component: instalments outstanding for more than
12 months.

 Interest-only loan: the principal of the loan is repaid until the loan period
expires.

Advantage: borrower has time to repay the principal.

Disadvantage: borrower needs to be well-planned to repay the whole principal.

Installment loan: repayments are made throughout the life of the loan. These
installments are usually sated as a dollar amount per month or per quarter.

Advantage: avoid having to make one lump sum payment.

Disadvantage: borrower is under pressure to make periodic repayments.

Effect of financial transactions on the Statement of Financial Position

Net profit = Revenues - Expenses

Increase in net profit -> Increase in owner’s equity
Decrease in net profit ->Decrease in owner’s equity