Risk Management in Finance & Accounting (F&A) with Digital Adoption

Estimated reading time: 3 mins

• F&A risk management has to be a proactive strategy for business sustenance.
• F&A is a sensitive area. Digital adoption is important for risk management.
• Forensic and Credit risk management with digital technologies significantly mitigates other risks. 

Enterprise Finance & Accounting (F&A) setups function in integrated business environments and larger customer and vendor ecosystems. In case one business section is compromised to risk, a possibility exists of a risk avalanche. Digital landscapes and regulatory compliances alleviate the risk to a significant extent. However, continuous vigil and dashboard monitoring are essential in dynamic business environments. Identifying these risks and proactively addressing them is the best approach. 

Finance & Accounting – Major risk areas 

Some of the major risk areas that require proactive monitoring for raising flags and immediate resolution are – 

• Forensic risk: Money laundering, fraud, and malpractice risks are on the rise. They pose a significant threat to operations, brand value, and business sustenance. These issues need to be addressed proactively rather than reactively and eliminated at the inception point.
• Credit risk: Overshooting contractual obligations, high debtor days, and write-offs substantially affect the business performance. Such interruptions in cash flows pose an existential threat to organizations.
• Data risk: Data leak at rest and in transit is dangerous to the business. They result in GDPR issues on one side and fraud perpetration on the other side. GDPR compliance and data encryption for data in transit have to be addressed on an ongoing basis.
• Technology risk: Legacy systems though critical to the business, are susceptible to cyberattacks and endanger the IT ecosystem, especially if they are outside the patch support and software degradation timeline. They also lack the scalability of storage/operations. Legacy modernization is an appropriate approach.
• Business continuity risk: Tightly coupled process architectures hinder seamless operations. A disruption in one process node stalls the entire operations. Transitioning to a microservices-based modular approach localizes the disruptions without affecting the system operations.

Proactive digital risk management in F&A

F&A Risk Management has to be a proactive strategy. A digital process architecture enables continuous monitoring of the risk areas on an ongoing basis.

A holistic governance framework to identify the risk areas and address them through digital transformation is crucial. 

F&A is a sensitive area. Digital transformation to primarily address Forensic risk and Credit risk essentially addresses the remaining risks of Data, Technology, and Business Continuity. 

Forensic risk management and mitigation 

Advanced surveillance and analytical tools powered by AI/ML algorithms are capable of identifying and flagging the entities within multiple degrees of separation and transactions involving these entities, in real-time. The tools are capable of sieving false positives with a high degree of accuracy. Digital tools, such as Fircosoft and SafeWatch, seamlessly integrate with the F&A IT estate. These tools work best as Cloud adjuncts that help leverage their scope and scale across wider work areas and customer/vendor ecosystems. 

Credit risk management and mitigation

Assessing the creditworthiness of customers and partners before a transaction is a best business practice. AI/ML-powered bots crawl through the business data, global lists, and worldwide web to extract the credit scores and relevant details other than those provided by these entities or their bankers. Deploying such advanced AI/ML tools in the F&A systems or the CFO back-office automation integrated solutions gives a major business advantage in dynamic markets. 

Technology, Business Continuity, and Data risk management 

Legacy Application Modernization over the Cloud resolves risks associated with lack of patch and software support to critical business applications. This effort enables businesses to bring their legacy applications in mainstream F&A architectures, integrate, and scale-up towards Hyperautomation using RPA/API connector integrations.

Cloud Native environments inherently support microservices architectures. Their modular approach enables businesses to localize and isolate the system outages to specific modules without hampering the overall application function. In general, Cloud Native environments offer the much-required resilience to day-to-day digital operations and business continuity support.

Modern digital architectures support data encryption at all nodes as the data moves in and out of the organization. An overarching governance team that oversees enterprise-level GDPR best practices' implementation is in a better position to mitigate data leak elimination and data misuse. 

Simply put 

Digital adoption enables the CFO back-office / F&A section and the organization, at large, with proactive risk management at multiple levels. Forensic risk and Credit risk are the most vulnerable and risky areas to handle in any organization. Data, Technology, and Business Continuity vulnerabilities are also some of the major areas that threaten business sustenance. Digital Transformation is the first step toward risk mitigation at multiple levels in agile business environments.  

Next reading

• Finance & Accounts – Intelligent Automation Success Stories
• Successfully tread the risk & compliance management tightrope with RPA