Organisations battle with 'financial fault lines' as business climate changes

External pressures on businesses from mergers and acquisitions, organisational change, and regulatory compliance are causing 'fault lines' in financial processes that are exposing businesses to potential fraud, mistakes and inefficiencies.

According to new research into the financial practices of 300 global organisations, the greater the level of change experienced by companies, the higher the chances of financial error and risk exposure.

Independent research commissioned by ACL Services across the UK, North America and Germany surveyed 300 global companies.

It found that 52% of the companies surveyed had either merged, been acquired or undergone a departmental merger in the past 12 months.

Against this backdrop, key findings included:

* Financial systems undermined by change - 85% of businesses have undergone some level of change in their financial analysis applications over the past 12 months and almost half of respondents (47%) believe that their financial systems have been undermined by operational change within the business

* Struggling to control errors - One in three businesses are exposed to regular finance department errors and two thirds are seeking to improve the effectiveness of financial transaction analysis

* Finding a balance - 40% of respondents agree that finding a balance between optimal internal controls vs. over controlled systems that can't keep pace with the business is an ongoing struggle

Commenting on the survey results, Harald Will, President and CEO, ACL Services, said: "It appears that enterprise financial systems and processes are buckling under the pressure of constant change. Even seemingly simple changes to business structures, such as the merger of a department or a move to a shared services centre, can involve massive financial consolidation and upheaval. Constant change equals greater risk and businesses need to have much tighter systems and monitoring in place to manage both."

The potential financial pitfalls brought about by change are already being felt by businesses.

13% of companies admitted to experiencing financial loss due to poor risk management, 12% had been asked to improve their processes by regulators and 5% had already been fined for deficient compliance controls.

Perhaps as a response to this, one in three businesses stated that their approach to assessing risk had changed in the past 12 months.

Despite 59% of respondents agreeing that continuous auditing and monitoring of financial transactions across their organisation is an effective way to mitigate risk and improve accuracy, only 17% of businesses have continuous controls monitoring technology in place.

Harald Will added: "Small gaps and weaknesses create 'fault lines' that potentially destabilise an organization's financial systems.

And while businesses agree that continuous auditing is an effective strategy to mitigate these risks and bridge systems, they are still using ad hoc analysis in most cases.

As they try to cope with the impact of change, they must invest in early warning systems to continuously monitor the fault lines for fraud, mistakes and inefficiencies that can cost millions in losses as well as damage a company's reputation and value."