blackline - dallas chapter of the iia...managing regulatory risk to increase cost of compliance,...

Trust is in the Balance™

BLACKLINERisks & Compliance


2001 2002

20062002

20112004



2016

20172015

2018 2019

?Trust is in the Balance™


WHY?


I simply do not know where the money is or why the accounts have not been reconciled to date.Jon Corzine, former MF Global CEO

in his recent testimony in Washington D.C. following the company’s demise

LACK OF PROCESS AND CONTROLS


There are people who look at the rules and find ways to structure around them. The more complex the rules, the more opportunitiesAndrew Fastow, former CFO, Enron

InTheBlack 2018

GAME THE PROCESS AND CONTROLS



Asset Misappropriation

Corruption

Financial Statement Fraud

$125K

$200K

$975K

Financial Fraud: Median Losses

Report to the Nations on Occupational Fraud and Abuse, 2016 Global Fraud Study, ACFE


Financial Statement Fraud Drill Down

Flaws in Documentation. Reviews. Controls. Analysis

Report to the Nations on Occupational Fraud and Abuse, 2016 Global Fraud Study, ACFE

0% 10% 20% 30% 40% 50% 60%

Altered JEs

Deleted transactions in the accounting system

Deleted electronic documents or files

Altered account reconciliations

Destroyed physical documents

Created fraudulent journal entries

Altered account balances

Altered electronic documents

Altered transactions in the accounting system

Created fraudulent TXs in the accounting system

Altered physical documents

Created fraudulent physical documents


↑ 80%-90%

What it All Adds Up To:

Internal Control Weaknesses and Financial Reporting Fraud, American Accounting Association, August 2017

Higher incidence of fraud in companies

with material weaknesses


90% of spreadsheets

have errors, but

90% think they are

error free

70% organizations say

they still use tools like

Excel and Word for

SOX and IC

10XMore relative spend

on compliance and

controls at bottom

quartile

FEI, ACCA, APQC

Lack of Process and Efficiency

More Risk of Error. Less Time for Analysis and Oversight.


IT COULDN’T

HAPPEN HERE


1 We have a single, up-to-date RCM, PBC and Close Checklist

2 We have clear owners, approvers, and change management

3 Our reconciliations are complete, with strong flux analysis

Audience Poll


Audience Poll

4 We have a low volume of JEs and correcting entries

5 Our processes aren’t dependent on spreadsheets

6 Our intercompany processes are centralized


Real Risks.Narrowing Margin.

of finance

professionals

confident that they

could identify errors

of said it takes over 10

days to identify

errors and make

adjustments

had worked for

a company which

has gone through

a restatement

see the

acceptable margin of

error with accounts

decreasing

22% 65% 39%<50%

BlackLine Survey of 1,100 finance professionals, Conducted by Censuswide, November 2018


REGULATORY

LANDSCAPE TIGHTENING


70%of firms are expecting the focus on

managing regulatory risk to increase

Cost of Compliance, Thomson Reuters, 2017

Trust is in the Balance™Trust is in the Balance™

The SEC has been closely scrutinizing the gatekeepers of financial reporting, continuing to hold accountants, auditors, and audit committees accountable in appropriate circumstancesMary Jo White, former SEC Chair



Recent SEC Cases:

▪ Actions focused on companies lacking internal controls

▪ Failure of individuals to comply with existing controls

▪ “Quality” controls at accounting firms


Accelerated filers accounted for a significantly

greater share (68%) of all comment letters in

2017 than they did in 2011 (26%)


PCAOB OK’s Biggest Change in Audit Report in 70 Years

▪ “Critical Audit Matters” in audit report

▪ Lays bare information about the most challenging,

subjective, or complex aspects of the audit itself


Recently updated COSO framework adds

a layer of strategic enterprise risk

management. Organizations should use

accounting automation to reallocate

resources to strategic planning

Shifting RiskA wave of regulatory change is placing pressure

on accounting and reporting processes:

▪ BEPS tax compliance

▪ PCAOB 2410 IC audit

▪ ASC 842 / IFRS 16 - Leases

▪ ASC 606 / IFRS 15 - Revenue

More Regulations

Changing Landscape


WHERE COULD YOU

HAVE EXPOSURE?


Typical Signs

Manual processes

Paper-based

Opacity

Decentralized

Lack of detail

Manual checks


1. Knowledge

2. Standardization

3. Controls

4. Flux process

5. Frequency

Typical Account Reconciliations Gaps

6. Balance sheet analysis

7. Tasks

8. Spreadsheets

9. Policies and procedures

10.Completeness



1. Volume

2. Correcting entries

3. Preparers and reviewers

4. Validation

Typical Journal Entries Issues

5. Controls

6. Supporting detail

7. Top side journals

8. Testing



“The primary risk of improper ICA is financial misstatements,

which can impact the company’s reputation, stock price, and

shareholder value. Insufficient ICA transparency and control

provide the opportunity for misappropriation of assets, allowing

for unscrupulous professionals to hide assets flowing out of the

organization to fictitious vendors or accounts.”

Intercompany

Deloitte


FEI, ACCA, APQC

Usual Intercompany Process

Disparate systems

Manual regulatory reporting

Intercompany settlements

Transfer pricing

Opaque legal agreements


Top IC Challenges

9%

12%

13%

18%

18%

19%

26%

28%

32%

50%

54%

0% 10% 20% 30% 40% 50% 60%

Limited knowledge of IC-related regulations

Resources don't have IC skillset

Inadequate transfer pricing

Dependency on core personnel

Incomplete transactions

Unclear accountability for IC

Lack of clear policies or enforcement

Lack of visibility into the detail

Drain on resources at period end

Disparate systems

Manually intensive process

EY BlackLine Audience Survey: Accounting & Finance’s New Year’s Resolution: Improved Intercompany Accounting, December 2018


WHERE SHOULD YOU FOCUS?


“Companies have invested heavily in the front-end of a financial

process, promoting efficient and effective transaction processing

through unified policies, procedures, and systems. In the past, this

same focus has not been given to the last mile of finance, resulting in

manual and error-prone processes.”

Gartner


27%

34%

41%

45%

58%

80%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Enhance risk management capabilities

Increase focus on cyber and IT controls

Build on talent and skills

Strengthen relationships across SOX owners

Ensure compliance with SOX and other regulations

Improve efficiency of SOX function

Complying Efficiently and Reliably is a Priority

The State of SOX/Internal Controls, FEI, January 2017


Poor, 8%

Below Average35%

Average36%

Above Average12%

Effective9%

Current State of Risk and Control Technology

Clearsulting and BlackLine Webinar Audience Poll, Utilizing Technology to Improve the Control Environment, April 2018


Lack of centralization extends audit cycles and costs

27%

Weak version control causing duplication of effort and work

20%

Incomplete visibility and reporting on status of issue/remediation

processes34%

Inability to spread out work to control owner/entities

19%

Significant Gaps

Clearsulting and BlackLine Webinar Audience Poll, Utilizing Technology to Improve the Control Environment, April 2018


“We needed to lessen our daily workload and our need for

control activity. As a company that focuses on continuous

improvement, we were constantly saying, ‘there has to be a

better way.’”

Allison Combs, Controller



▪ Automate

▪ JEs

▪ Reconciliations

▪ Intercompany

▪ More data analysis

▪ More risk analysis

Use Automation to Refocus Team

Automate

▪ Task flows

▪ Approval routing

▪ More account analysis

▪ More reporting

Staff accountants Management


Systematize Your Control Environment


“We don’t want our countries to be able to change

processes to fit their preferences. We want both control and

standardization, which is critical to ensuring a squeaky-clean

balance sheet.”

Mark Koolis

Power Segment, Assistant Controller



Revaluate Your Intercompany Processes


Rethink Accounting ProcessesContinuous Accounting

▪ Remove the end of period “crunch”

▪ Continuously process TX’s

▪ Reconciling and alerting

▪ Automating throughout the period

▪ Utilizing robotics and rules

Robotic Process Automation can

route, automate and schedule

50-70 percent of tasks

— Intelligent process

automation: McKinsey

March 2017


Centralize

RCM and

PBC

Review JE

processes

Account

analysis

Continuous

accounting/

monitoring

Consider

auditor

self-service

Establish IC

CoE

RPA your

reconciliations

Connect

controls

and evidence

Version and

change

control

Approval

and review

workflows

Ten Best

Practices to

Consider


Thank You

blackline - dallas chapter of the iia...managing regulatory risk to increase cost of compliance,...

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