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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.

Independent research commissioned by ACL Services across the UK, North America and Germany surveyed 300 global companies. It found that 52 per cent of the companies surveyed had either merged, been acquired or undergone a departmental merger in the past 12 months.

Struggling to control errors 

The survey showed that 85 per cent of businesses have undergone some level of change in their financial analysis applications over the past 12 months and almost half of respondents (47 per cent) believe that their financial systems have been undermined by operational change within the business.

According to the survey results, firms are struggling to control errors, with one in three businesses exposed to regular finance department errors and two thirds are seeking to improve the effectiveness of financial transaction analysis. Finding a balance between optimal internal controls vs. over controlled systems that can't keep pace with the business is an ongoing struggle for 40 per cent of respondents.

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."

Continuous controls 

The potential financial pitfalls brought about by change are already being felt by businesses. Some 13 per cent of companies admitted to experiencing financial loss due to poor risk management, 12 per cent had been asked to improve their processes by regulators and 5 per cent 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 per cent 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 per cent 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."

The ACL survey was undertaken by Loudhouse Research, an independent B2B research consultancy, in July 2007. The survey methodology involved Computer Assisted Telephone Interviewing (CATI) with a total of 300 senior finance professionals from large organisations in the UK, Germany and Unites States. One hundred interviews were conducted in each region.

Overall, 39 per cent of respondents had turnovers over £500 million, 47 per cent between £250 million and £500 million and 12 per cent between £100-£250 million. Sectors covered included finance, IT/telecoms, retail, manufacturing, pharmaceuticals, utilities/energy, and business services.

Related links

• ACL Services