What happens when a CFO fails to listen to the CCO?

Michael Volkov

Chief financial officers are powerful players in the corporate governance landscape. CFOs play a critical role in the management and oversight of the company’s internal accounting controls.

In the US for instance Sarbanes-Oxley lifted the importance of CFOs and internal auditors as important gatekeepers. With that important role, CFOs and corporate leaders have to certify as to the accuracy of the company’s financial reports, subject to potential criminal consequences.

CFOs naturally sit as leaders of a huge fiefdom. But CFOs have to open up to other important corporate functions and collaborate. This requirement is very important when it comes to compliance. As compliance officers expand their roles and responsibilities, they inevitably come up against financial controls. Here, compliance officers work best with internal auditors. They are natural partners in the corporate mission’s management of financial expenditures. It is perhaps the most important internal relationship for a chief compliance officer.

CFOs are wedded to their singular mission – maintaining effective internal controls. They are vested in the design and implementation of effective internal controls. Underlying their internal controls is the concept of 'materiality'. CCOs have a different perspective – they are focused on financial misconduct involving non-material transactions, where such transactions involve misconduct such as theft, bribery, or other misconduct. CCOs also need to focus on compliance controls that implicate financial controls. For example, a company’s policies and procedures governing gifts, meals, entertainment expenses have to be closely monitored even though these expenditures may fall underneath the 'materiality' threshold. Just as important, CCOs have to attend to the company’s invoice-to-payment process in order to guard against bribery and other misuse in the payment of vendors, suppliers and third-party agents and distributors.

CCOs have to coordinate closely with CFOs in these important areas. But what happens when the CFO fails to listen or collaborate? CFOs are proud of their accounting controls. Sometimes they are not open to discussing their controls with their CCO counterparts. This is unfortunate. CCOs are not seeking to upset the company’s financial controls – by definition CCOs have a narrow, less than material, perspective. Yet, a defensive CFO may be unwilling to acknowledge issues with financial controls related to important compliance functions. When a CFO fails to listen or collaborate with the CCO, the company is losing a real opportunity to protect the company from financial and potential reputational harm. CFOs need to adjust their attitudes and collaborate with CCOs on these important issues. CFOs have to embrace such collaboration recognizing that the CCO is not threatening the CFO’s internal controls. To the contrary, the CCO is seeking to avoid potential misconduct that could eventually impact the materiality of the company’s controls. Corporate actors can sometimes cling to old silos of operation. Such a perspective reflects insecurity and a failure to embrace the internal coordination and collaboration to advance the corporate mission. CCOs face this challenge each day and have to develop political and interpersonal skills to bring corporate leaders together.Education and senior management support are critical to this objective. It is a simple fact of corporate behavior and it is up to corporate leaders to break down these old and frustrating attitudes.

This is taken from 'Corruption, Crime & Compliance', an excellent blog by Michael Volkov.