Driving innovation in management accounting | December 2018

LE ARNING LEADER Frances Howat on BP’s finance skills upgrade Trust, opportunity, prosperity: 100 years and beyond

Celebrating 100 years

Join us at our Centenary Ball on 6 June 2019. Book now at CIMAglobal.com/ball100

2019 is going to be a special year as CIMA celebrates its 100th birthday. It is a great time to reflect on our heritage, but also, more importantly, to focus on the future of the profession. This coming year will see the introduction of some great new initiatives and insight into the future of finance. Building on 100 years of heritage, we are in an excellent position to support and enable our members and students to ‘go beyond’ in this digital future.

#CIMA100

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1809-5872_2_CIMA Centenary Ad_CMYK_V8.indd 1 16/10/2018 14:43 CONTENTS

Longer summaries of this issue’s most in-depth articles can be found on page 64.

14 REBOOTING THE 14 CLASSROOM 12 Learning for finance staff at global energy company BP has been transformed in innova- tive ways.

20 KEYS TO RISK OVERSIGHT The development of key risk indicators can help organisa- tions focus limited resources on the most important priorities.

26 YOU’VE SEEN SOMETHING IMPROPER. WHAT’S NEXT? Speaking up about misconduct in the workplace requires 34 BENEFITS AND RISKS courage and support. Experts OF AUTOMATING 5 THE VIEW FROM THE offer tips on approaching CUSTOMER SERVICE 38 PRESIDENT difficult conversations. Automation is taking over CIMA President Steven customer service. What do Swientozielskyj, FCMA, CGMA, 30 ETHICAL organisations need to know to reflects at the midpoint of his IMPLICATIONS OF prepare? year in office. ARTIFICIAL INTELLIGENCE 38 USING PREDICTIVE 6 THE VOICE OF THE Executives must consider ANALYTICS IN PROFESSION ethical matters related to AI EMPLOYEE RETENTION Mark Peterson, executive and machine learning, such as Human resources departments vice-president–Advocacy, algorithm bias and societal are turning to data to help cut discusses the Association’s impact. attrition costs. work to impact public policy affecting the profession.

10 INFO ROUNDUP News, insights, and intelligence.

12 SHARE THE ROAD Businesses that rent shared bicycles and scooters are transforming transportation in cities around the world. 30

26 34 ON THE COVER: PHOTO BY FIONA HANSON/AP IMAGES;PHOTO ON THIS BY B&M PAGE, NOSKOWSKI/ISTOCK; TOP RIGHT: PHOTO BY MIKE BLAKE/REUTERS; IMAGE BY OTTO STEININGER/IKON COUNTERCLOCKWISE IMAGES; IMAGE FROM TOP BY IMAGENAVI/GETTY LEFT: PHOTO BY FIONA HANSON/AP IMAGES; IMAGES; IMAGE BY METAMORWORKS/ISTOCK

December 2018 I FM MAGAZINE I 3 42 8 FINANCIAL 46 ERM’S LINKS REPORTING ERRORS TO FINANCIAL — AND HOW TO FIX THEM PERFORMANCE Are your company’s financial Enterprise risk management reports accurate and under- can play a role in avoiding standable? This article shows share price volatility and how to find out. improving cost and strategy 60 initiatives.

42 50 BEWARE THE 53 SPONSORED REPORT: 62 INSTITUTE NEWS PITFALLS OF THE OPEN THE 2019 RESOURCE Get updates on issues affecting OFFICE GUIDE the profession and your These four tactics can counter Take a look at events and membership. the loss of productivity that trends that will mark the year research links to open office ahead, and find resources that 66 HOW TO SET GOALS plans. can help you be successful YOU CAN KEEP IN 2019 amidst the changes. Six powerful ways to make and keep resolutions in the year 60 WHEN YOU’VE ahead. CHOSEN THE WRONG JOB Follow this advice if you’ve begun a new role but find it is 50 not what you thought it would be.

CIMA HONORARY OFFICERS United Kingdom The Helicon, One South Place. London EC2M 2RB Steven Swientozielskyj, FCMA, CGMA Amal Ratnayake, FCMA, CGMA Tel.: +44 (0)20 8849 2251 President, CIMA Deputy President, CIMA United States David Stanford, FCMA, CGMA Nick Jackson, FCMA, CGMA 220 Leigh Farm Road, Durham, NC 27707-8110 Immediate Past President, CIMA Vice-President, CIMA Tel.: +1 919-402-4500 www.aicpa-cima.com

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4 I FM MAGAZINE I December 2018 THE VIEW FROM THE PRESIDENT

STEVEN SWIENTOZIELSKYJ, FCMA, CGMA

am approaching the businesses and communities. Imidpoint of my year as CIMA has a clear duty to CIMA president, and it’s a equip members — and good time to reflect and learn students — for the future. In from those first few months. many ways, this is most Why reflect? The Chinese important for those mid- teacher and philosopher career — those who are not Confucius said it is a way to “digital natives”. Their current learn. He said: “By three skillset and knowledge will methods we may learn not last their careers, so it is wisdom: first, by reflection, crucial they develop their which is noblest; second, by skills around empathy, imitation, which is easiest; emotional intelligence, and and third, by experience, A time to reflect creativity. These skills are which is the bitterest.” difficult to replicate in I agree with this approach. machine-learning technolo- Whether or not we have a ‘CIMA has a clear duty gies and are increasingly formal leadership role, each of to equip members — becoming finance profes- us can step back to evaluate our sionals’ core skills, which are strengths, weaknesses, and and students — for the future.’ used to advise and influence behaviours. It is also useful to decision-makers. develop a habit of continually assessing and reviewing As management accountants work more closely our assumptions. This links to the idea of a growth with machines — in a process of augmented mindset that Carol Dweck, Ph.D., of Stanford Univer- intelligence — complex problem-solving also moves sity developed in the late 1980s. A growth mindset up the scale of importance. In the workplace of means being open to giving and receiving feedback tomorrow, this — along with our ability to collaborate and having a “zest for teaching and learning”. and partner — will distinguish us and increase our Having reflected, I can say that these first six employability. months have been exciting and demanding in equal I have also reflected on the considerable power of measure. I had prepared for the year and given relationships within our Institute and within our thought to what could be my contribution to our Association — between our two founding bodies, Institute at this important stage in our history. I was CIMA and the American Institute of CPAs. We have always clear that members and students were to be made considerable progress since the Association my main focus but that there are critical stakeholders was created two years ago, but there is more to do. I we also need to influence. am committed to enhancing that progress over the I have also learned lessons to take forward to the next six months. next six months. As someone who is fundamentally In my next column in print, in February 2019, I very hands-on and a shaper of businesses, I have will reflect on CIMA’s centenary. It will be a huge learned to act more in a chairman’s role. This has privilege to be president in our centenary year. I look been a challenging transition — where I have had to forward to meeting many of you as we celebrate and unlearn and then relearn new skills. move forward into the next 100 years, where we will As I have travelled to meet members and students respect our heritage and embrace our future. in several countries, I continue to be humbled by Finally, please get in touch at Steve.Swientozielskyj@ individual stories of commitment and advocacy for aicpa-cima.com if you would like to comment on any our profession, and their part in transforming of these issues. PHOTOS BY ANTHONY UPTON/AP IMAGES

December 2018 I FM MAGAZINE I 5 THE VIEW FROM MARK PETERSON, EXECUTIVE VICE-PRESIDENT — ADVOCACY THE ASSOCIATION OF INTERNATIONAL CERTIFIED PROFESSIONAL ACCOUNTANTS The voice of the profession

‘All of our members are experiencing a proliferation of issues and pace of change that will not slow.’

ur Association contained the most significant provides a unique changes to the US tax code since opportunity to be a 1986. We contributed to the debate leading voice of the and helped shape the outcome. Oprofession — to Now, we are actively working to advocate for both ensure clear and swift guidance on management and public implementation. Needless to say, accounting throughout the world, this tax law’s impact extends well reaffirming confidence in the beyond the US. Multinationals and profession and upholding the other countries are working out public interest. how to respond to the reduction of The UK’s Kingman review, the US corporate tax rate. which is examining the role, Making sure our members are powers, and governance of the reskilled and young people coming Financial Reporting Council — the through have the right skills is a UK’s independent regulatory body massive current public policy for auditors, accountants, and discussion, and we are actively actuaries — is a prime example. participating in it. UK apprentice- CIMA has participated in roundta- ships are one example of an area bles and submitted written evidence to students, and governments. We seek out where the public policy debate has moved the review, which is due to report at the opportunities to make sure our designa- forward and the profession is rising to end of this year. tions are recognised, either by statute or meet the skills gap. Within business, all of our members in practical ways. This is an issue that We also have an important role to play are experiencing a proliferation of issues surfaces high up in member surveys. For on cybersecurity. Consumers and and pace of change that will not slow. example, we are currently working to investors need assurance that the Regulators across the world are grappling ensure the continued recognition of our companies they buy from or invest in with many of the same challenges, qualifications in the European Union after have assessed and mitigated their including cybersecurity, cryptocurrencies, the UK leaves the EU. cybersecurity risks. The accountancy and evolving tax regimes within the global Beyond that, we have a translation role. profession is in a unique position to economy. We help make sense of these We need to use our management and provide such assurance. complex issues. Part of what we do is public accounting expertise to make what Businesses crave certainty — and our educate policymakers about policies’ are often highly technical subject areas profession is no different in that regard. real-world impact and, more generally, more understandable. We also need to The Association wants to prepare about what we do and how we do it. navigate what can sometimes be fractious members for the impact of volatility so The Association also has a broad and intense public policy debates. The that they can continue to serve their educational role in creating awareness of goal is to make certain we are contributing organisations, businesses, and clients, ACMA, FCMA, CGMA, and CPA amongst to solutions. For example, in the US, the and the public interest, more effectively stakeholders including employers, tax bill that passed in December 2017 than ever before. ■

6 I FM MAGAZINE I December 2018

Building reputation, delivering value

By Andrew Harding, FCMA, CGMA, Chief Executive–Management Accounting, Association of International Certified Professional Accountants

think it is fair to say that a generation ago it nearly 700,000 members and students, we are now would have been hard to predict the pace of advocating on behalf of members on a global scale I change we are now witnessing in today’s and are able to create resources to meet the evolving business world. However, this rapid, seismic needs of finance professionals. That said, we realise movement occurring around us is here to stay. It is there is always more to do. the new normal, and that will remain the case. One of the things we do to stay ahead is under- The digital age has led to a ripping up of the rule take research to ensure our members are set for the book, and businesses are having to adapt quickly. future. For example, we recently carried out a Very quickly. UK-wide study, Mind the Skills Gap, which showed They need to ensure they remain relevant now, how 8 million people face an uncertain future if they but also need to prepare to ensure they remain so in do not change their mindset towards gaining new the future. That is affecting their business models, skills and get to grips with what employers need for their priorities, their balance sheets, and, of course, the digital economy. their workforce needs. For our global research into the Future of And that is particularly relevant for finance Finance we consulted with more than 300 business professionals, who find they have to do so much and finance executives across 14 countries to define more now to ensure they stay at the top of their exactly what skills are required from finance game and, importantly, are ready for whatever the professionals for the next few decades and beyond. future throws at them. This was carried out with the intention of For this reason, I believe that our work at CIMA allowing us to further develop the CGMA Compe- is more relevant now than ever — for the entire tency Framework, syllabus, and learning for profession. members. It is our job to help equip you with the We regularly carry out research with our skills you need. members and listen to your feedback and questions We also want to increase your employability. It is at events. You tell us that the two most important important that employers know that if they take on things you want to see from us are value for money one of our members, they are taking on a rounded and an improved reputation for management and top-quality professional who has all the skills accountants. needed in today’s changing world and a mindset That is precisely why we are working hard to that allows them to constantly learn and adapt. maintain and enhance the recognition of the ACMA, We are also hands-on. Based in 41 offices around FCMA, and CGMA designations — we aim for these the world, Association staff and representatives are to be seen as the gold standard by employers working with employers to better understand their globally now and into the future. expectations and showcase the value our members And, as part of an accountancy association with bring to an organisation. And an international independent survey of more than 1,000 employers Financial Reporting Council’s Financial Reporting undertaken last year shows this is having a positive Lab Steering Group, which will help ensure we can eff ect. Amongst respondents familiar with the provide valuable feedback and ideas to this CGMA designation, 91% said it is valuable to their important organisation. We continue to have organisations, and more than three quarters, 76%, dialogues with many other regulators around the pay a premium to those who hold it. world. To ensure this remains the case, we have Media and social media engagement also plays a relaunched the online CGMA Store with a growing key role in our eff orts to build awareness of the portfolio of hundreds of CPD courses covering importance of CIMA members, their designations, everything from the basics through to cutting-edge and our work to drive the profession forward on accounting and technology resources on topics such accounting and business issues. as blockchain, artifi cial intelligence, and automa- Of course, there is always more we can do, and tion. there is work in progress to build an infrastructure We ensure that your member benefi ts include a that will be allow us to provide you a more person- range of free resources, like the daily CGMA alised member experience. Our goal is to put Advantage briefi ng and Human Intelligence Series. members at the heart of everything we do. We have launched guidance and tools in critical and We are committed to being there for you — emerging areas such as cybersecurity risk manage- helping you be the best you can — now and into the ment, integrated reporting, and sustainability future. reporting. In addition, we produce a stream of As this year draws to a close, I would like to wish thought leadership articles to ensure you stay up to each of you a festive end to 2018 and invite you to date and on top of emerging issues, topics, and celebrate with us our centenary year in 2019. work practices. We are also working more with employers and other stakeholders — from politicians to academics and regulators — to reinforce the value of being a For more on maximising your benefi ts as a CIMA member and the work CIMA is doing to lead the member, visit cimaglobal.com/yourbenefi ts. profession. I was recently invited to the UK

Andrew Harding, centre, listens to member feedback at an Ask the CEO event. PHOTOGRAPHY FORREST FORREST/STEVE STEVE BY PHOTO

Building reputation, delivering value - ROW-CIMA.indd 9 11/6/18 12:16 PM LEFT: IMAGE BY FILO/ISTOCK; RIGHT: IMAGE BY ILEXX/ISTOCK 10 — By Drew— By Adamek, an FM growth. springboards formore tion, andusethemas generation toimplementa- setbacks asideas movefrom the process. Embrace failure isanecessary partof concepts knowingthat innovation mean testing Experimentation and few “creativetypes”. the topdownorfromjusta effective, itcannotcomefrom idea generationtobe creativity andinnovation. That hesitationoftencutsoff of lookingfoolishorwrong. hesitate tospeakupoutoffear generating ideas,theymay If staffarenotusedto innovation: following tipsforencouraging Schoeniger providethe experts RitaMcGrath andGary processes andattitudes. with acombinationofspecific and encourage innovation departments shouldvalue more inventive. Finance professionals canbecome generation sothatfinance to nurtureandvalue idea Finance departmentsneed finance team from your Get ideas magazine senioreditor. I Test yourhypotheses. Involve everyone. For opentotheideaBe arc. Entrepreneurial mindset FMMAGAZINE I December 2018

a team effort Recruitingas In many cases, “you’ve already worked with In manycases,“you’vealreadyworked with other stakeholdersisagreatway tofindtalent. former co-workers,businesspartners, and community groupsandalumni groups. to tappersonalnetworks,including in recruitingefforts: focused ontheUS, itstipscanbeusedglobally. being fired.Whilethe Achievers whitepaper employees have a350%reduced chance of referral addsalayer ofscreening,such according tothereport.Andbecause average retentionrate of45%aftertwoyears, while employee-referredcandidateshave an from jobboardswon’tbearoundintwoyears, They alsostay longer:80%ofemployeeshired through traditional recruitmentmethods. far lesstohirethanthosewhoarefound programmes arehiredatahigherrate andcost candidates fromemployeereferral and engagementsolutions, foundthat y8hc5njn), aproviderofemployeerecognition A report byAchievers (available attinyurl.com/ your recruitmentteam.” utilise yourstafftobecomean extended armof Nottingham, England.“As abusiness, youcan Distinct Recruitment, arecruitmentagencyin size,” saidJamesCalder, chiefexecutive of challenge forany business, regardlessoftheir especially ifthathelpcomesfromwithin. welcome any helpfindingcandidates, human resource departmentsandrecruiters When itcomestofindingnewemployees, INFO ROUNDUP Engaging with Professional networks. Engaging with Personal connections. Encourage staffers Here’s howtogetyouremployeesinvolved This ultimatelyhelpsthebottomline. “Recruiting newemployeescanbeahuge the US. DawnWotapka,— By afreelance writer based in friendly internalcompetition. system thatismeasurableandvisible todrive offering perksforsolidreferrals via anonline who getshired.TheAchieversreportsuggested money forthoserecommendingacandidate workplace. many industrygroupsnotrelatedtoaspecific LinkedIn, whichfeatures great candidatesand media. Make sureyouusecareer-focused Include alinkthatletspeopleeasilyapply. company-wide messageabouttheopening. page. Becauseemailiseasilyshared,senda opening onajobsiteoryourcompany’scareer strategy includesmorethanpostingthe services andstaffingcompany. Professionals andLifeSciences, aUS-based HR said JodiChavez, presidentofRandstad they excel,andwhatthey’reseekinginajob,” professionally, whattheycareabout,where them andknowhowtheyoperate Incentives. Companies havelongoffered To sparkbuzz,encourage sharingonsocial Social networks. Make sureyourdigital For moreinformationortocompareyoursalary tobenchmarks, visitsalary.aicpaglobal.com. years, according tothe2018SalarySurveybyAssociationofInternationalCertified Professional Accountants. Although morethanhalfofCGMA designationholdersarehappywiththeirpay, almosthalfplantochangejobsinthenext two by the numbers Pay andjobsatisfaction people in the US who said people intheUSwhosaid The portion of employed The portionofemployed they worked remotely at least part of the time in least partofthetimein 2016, according to Full story, page50 a Gallupsurvey. 13% 48% 58% CGMA designationholders’ views 43% 43% 5%

employers award bonuses. expectedsalary for those whose Average bonusasapercentage of the next two years. Plan to changejobswithin into early 2019. Average increase salary expected current salary. Are satisfied withtheir ‘The decisionto speakupisnotjust moral andethical; — A.J.Brown, Ph.D.,professor ofpublicpolicyandlaw conversations it’s logical andpractical, too, whenoneconsiders Courageous the long-term interests oftheorganisation at Australia’s GriffithUniversity. and its stakeholders.’ Full story, page26 88% 57% 35% CIMA students’ views Plant Are satisfiedwiththeir o learn new skillsto o change jobs Plant December 2018 enhance theirprogression. in thenext two years. current salary. Portion of brands that Oracle Portion ofbrands thatOracle estimates will be using estimates willbeusing chatbots for customer chatbots for customer interactions by 2020, interactions by 2020, up from 36%in2016. Full story, page34 I FM MAGAZINE I 80% 80% 11

IMAGES BY APPLEUZR/ISTOCK Bicycles of various sharing services are piled up at a rubbish dump in Shanghai. Share the road

Bike and scooter sharing services are popping up in more cities.

By Kim Nilsen

Electric bikes of bike-sharing company eCooltra parked in Madrid.

A man rides a bike-sharing service Riders navigate the beaches of Santa Monica, bicycle near the Eiffel Tower in Paris. California, on Bird scooters and shared bikes. CLOCKWISE FROM CENTRE: PHOTO BY MIKE BLAKE/REUTERS; PHOTO BY MIKE BLAKE/REUTERS; PHOTO BY CHINA STRINGER NETWORK/REUTERS; PHOTO BY HENRY ROMERO/REUTERS; PHOTO BY LUCY NICHOLSON/REUTERS; PHOTO BY SERGIO PEREZ/REUTERS; PHOTO BY GONZALO FUENTES/REUTERS; PHOTO BY ALY SONG/REUTERS

Bird electric scooters Gliding along on a ride placed along Melrose share electric scooter in Avenue in Los Angeles. San Diego.

A man rides a Hellobike in Zhengzhou, Henan province, China. n a number of cities, Birds are swooping in and roosting on sidewalks. These Birds are of the Ielectric rather than avian species, and the scooters are but one brand of shared transportation. The global consulting firm Roland Berger put the number of shared bicycle schemes at 1,250 as of December 2017 and the worldwide fleet of cycles at 10 million. The industry has its chal- lenges, ranging from financial pressures and new market entrants to safety concerns, ill-fitting regulation, and vandalism of bikes and scooters. But for many, signing up for a share creates new options for covering short distances.

A Mobike employee displays the Mobike app near shared bikes parked in Mexico City. Rebooting the classroom

Frances Howat explains BP’s move to transform its finance learning operation.

By Oliver Rowe

lobal energy company BP has been working to reinvent learning for its employees. Frances Howat, ACMA, CGMA, BP’s head of capability development for finance, has been heavily involved with the change. Howat rejoined BP, where she had spent some of her early career, in 2013 after working at a learning consultancy running courses for clients such as Unilever, HP, GSK, and Shell. BP was then forming its “university”, which has simplified the talent and learning landscape for GBP people and pulls together tools and resources under one roof. BP University brought together many teams to form six academies that provide all of BP’s talent and learning solutions. Finance itself is included within one of the six — the Functions Academy. “By bringing all the organisations together, we’ve created synergies that allow us to invest more wisely in creating bigger programmes of activity rather than the more fragmented approach before,” she said. The company also invested in a new platform — the first point of contact for people to discover the learning resources available to them. Within it, a learning management system allows staff to plan learning and book courses, view their learning records, and, for managers, keep track of their team’s learning. It also simplified the talent management process across BP and put it online, making it more accessible for line managers and HR, including replacing its previous personal development plan with My Profile — a BP version of a LinkedIn profile for every employee. function. learning inthefinance helps standardise CGMA, says technology Frances Howat, ACMA,

PHOTO BY FIONA HANSON/AP IMAGES BP created the game Fuel Station Ville to help induct new members of its global business services group who may not have previously worked in the oil industry. Players can earn virtual rewards, as well as real rewards such as a team breakfast.

Digital has also been embraced to launch This includes moving people virtually or D, then you can get better engagement,” BP apps and portals supporting on-the-job into breakout rooms, running exercises, Howat said. learning, accessible anywhere and at and then debriefing the exercises in a A further benefit of this type of anytime from mobile devices. plenary session “just like you would in an learning, Howat highlighted, is standardi- BP has modernised further by moving ordinary face-to-face classroom”. Virtual sation: “Virtual classrooms can take a lot to virtual, instructor-led training using the whiteboards, a classroom’s chat facility, of investment to get right, ensuring that Adobe Connect platform. Aside from the and the ability to vote anonymously are classroom design is really well thought cost savings to be made, this overcomes also advantages. “People might feel a little through and engaging, and gives lots of the problem of lengthy travel time for bit timid about putting forward their view, opportunities for interaction. With a members of small finance teams, but if they’re anonymously voting A, B, C, virtual platform, you have more control of co-located within the different businesses. quality and can standardise on this Through working with virtual optimal classroom design across all classrooms at her position prior to BP, learning sessions.” Howat really began to understand that Some BP engineering staff and technology could be used very powerfully contractors use augmented reality when in learning. “If it’s well designed and well carrying out repairs to equipment, and delivered,” she explained, “you can this technology is used in training actually replicate all of the benefits of the engineers in several parts of the business. face-to-face classroom in a live, interac- For example, the use of a simulated tive experience.” drilling rig environment allows engineers IMAGE COURTESY OF BP OF COURTESY IMAGE

16 I FM MAGAZINE I December 2018 ‘No one takes a training course to learn how to use Facebook. Similarly, to safely practise replacing rig equipment, multiple times, before they have to you don’t actually need a training course perform the task in a real-life situation in the middle of an ocean with swell and to learn a new expenses system.’ high winds. Frances Howat, ACMA, CGMA, BP’s head of capability development for finance Gamification Finance, instead, is using a gamification approach. BP’s global business services (GBS) organisation is based in five centres and includes a large team based in have “very radical consequences for BP wouldn’t hire — you know, we might Budapest, Hungary. Looking for a fast way and our financial statements. So, the core choose to hire maybe a data scientist here to induct new joiners who may not have of that has to be through formal learning.” or there — but the core of our strategy is to previously worked in the oil industry, a She explained the importance of develop those skills with our people.” game — Fuel Station Ville — has been networking — the 20%. “I think it’s also Part of this strategy has been to created for GBS’s largely Millennial important to look externally from the introduce a four- to six-week “digital boot workforce. The game, which dishes out organisation that you work in. So, outside camp” of virtual courses across finance, for virtual rewards to individuals, as well as of your immediate team, outside of your first-stage leaders in their early to real rewards such as team breakfasts, won own company — and I suppose … mid-careers, with an opportunity for some a silver award in the UK’s 2017 Learning something I learned from stepping out to further develop data science skills. Technologies Awards. from BP and taking a role at Comet [the There is also, she said, an important BP, Howat explained, also makes former UK-based electrical retailer] was business partnering role for finance extensive use of podcasts and video that I had become very internally focused. professionals “to upskill others in the (several recently around agile project meth- And now, I deliberately look for external organisation about the commercial odology) and also encourages user-gener- networks to engage with.” realities”. ated content in the learning space. She explained: “It’s now partly Howat said informal learning as set out Tech focus recovered, but when the oil price in the 70:20:10 paradigm is crucial with an Along with the shared service centres, declined, it led to a reduction in the estimated 70% of skills learned on the job, recent change within BP has been digitally operating cash flow out of our upstream 20% through networking with others, and led. Howat explained that robotic process businesses. And one of the roles of the only 10% through formal learning. automation, already in place in many of finance teams was to make sure that Howat then explained the ratio in BP’s accounting processes, means “you their nonfinance counterparts under- terms of a car-driving metaphor. “What need fewer people and fewer human stood the implications of working capital makes you a really proficient driver is the resources, and can shift the focus of and cash.” fact that you’ve had real-life practice. … human resources to business partnering For example, engineers may like to We’ve all had the instances where and data analytics”. keep a large inventory of all the parts they somebody has suddenly pulled out in She added: “Increasingly, we’ve got the might need, but this can be financially front of us in a way we weren’t expecting, ability … to create huge data lakes, and unhelpful, Howat said, adding: “In an and you learn that, actually, you’ve got to we’ve got the tools to analyse [them]. I environment where the oil price is low, BP anticipate things. think it allows us to really add value as still needs cash to pay dividends, and we “So, I think learning in business is finance professionals.” Learning is need cash to fund future investments …. actually very similar, but classroom concentrated on three main areas of tech: So, where we have opportunities, we want learning is very important, and in a blockchain, data visualisation, and the free cash to be able to do that.” discipline like finance, when we need to artificial intelligence, which is already learn technical topics, there’s a real role being used to do some finance fore- Stretching staff for professional qualifications like CIMA casting. BP employees can self-nominate for and also for keeping ourselves updated.” Howat explained: “There’s an opportu- stretch projects that are completed in A recent example of this has been the nity to either build these skills or buy tandem with their day jobs. These are learning programme for IFRS 16, Leases. them in from outside, and the core of our “real-life” strategic projects, each Howat said that the implementation of strategy is to build the skills from within sponsored by a senior leadership team the lease accounting standard is going to our team. So, it’s not to say that we member, Howat explained.

December 2018 I FM MAGAZINE I 17 Fuel Station Ville, which was created for BP global business services organisation’s largely Millennial workforce, won a silver award in the UK’s 2017 Learning Technologies Awards.

taking into account the way people now use social learning, like with Facebook, Twitter, and YouTube. And we’re reacting to employees’ needs for options and more personalised, self-directed, on-demand learning, when and how they want it. “In a fast-moving and digitally advancing world, we continue to question what the best way is to use the learner’s time to embed a particular skill or capability and continue to offer people learning options.” She gave an example of BP’s internal conversation about training needed to introduce a new expenses system. She said: “No one takes a training course to learn how to use Facebook. Similarly, you don’t actually need a training course to learn a new expenses system. You need the logon ID, and … if there is some new terminology, you might need a glossary, or if there’s any process changes. You watch a two-minute video outlining the changes, and then away you go, learning by doing, at your own pace, with the backup of support resources if needed.” Referring to Excel, she suggested more powerful options to formal learning might be peer or online learning. “Say you wanted to create a lookup table for the first time. You might ask a colleague to show you a model they’ve built using lookups. Or you might watch a short video on creating lookup tables or data tables versus lookup tables, “We apply a diversity and inclusion finance staff will learn in the future — say, or ask for help via one of the BP Yammer lens, so ensure a good gender mix, but in 2030. groups. Then just learn by doing. With a also look for a good global mix. Partici- Recognising that apps used today growingly diverse and digitally savvy pants work on six-month projects that were unknown ten years ago, she workforce, it’s all about creating the most address real business challenges and feed ventured: “I think that, outside of work, valuable and intuitive learning options directly into BP’s thinking and future we’ve already become accustomed to for people, anytime, anywhere, in the focus. It’s a unique way for employees to learning in radically new ways, and it’s ways they need.” develop whilst helping shape BP’s ongoing happened incredibly fast. So, we’re strategy, thinking, and perspective. They Oliver Rowe is external affairs content develop as part of a global team and get manager for FM magazine. To comment on great exposure to people and other parts this article or to suggest an idea for another of the business.” article, contact him at Oliver.Rowe@ The final question for Howat is how aicpa-cima.com. n IMAGE COURTESY OF BP OF COURTESY IMAGE

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1807-2839_CIMA MyJobs Ad_A_FM_V5.indd 1 30/08/2018 13:16 onitoring the risk of management frameworks. Developing ment associated with the calculation of a fraud through KRIs is crucial to the success of any risk ’s operational risk capital charge in measurement and management programme, as KRIs enable the banking industry. reporting is a key organisations to predict potential risk KRIs also are becoming more component in fraud events. When properly designed and frequently used beyond the financial Mrisk management. It effectively communicated, KRIs are useful industry. Recognising their usefulness, allows management in identifying areas where additional organisations in other sectors, such as to focus limited resources on the areas of controls or other mitigation is needed. energy and even not-for-profit, have been highest risk to the organisation. Alternatively, KRIs may drive risk developing KRIs. The proliferation of A quantitative approach to fraud acceptance decisions. cyber events has also led to the use of management through the use of fraud risk While the development of a fraud risk cybersecurity KRIs as a measure to assess appetite and key risk indicators (KRIs) is a appetite statement and fraud KRIs is not a and manage this risk. natural step in the evolution of fraud legal requirement, for most financial A leading guideline issued by the management programmes. institutions around the world the use of Committee of Sponsoring Organizations KRIs have become an indispensable KRIs as a management tool is common. of the Treadway Commission (COSO), tool used in many operational risk For example, the use of KRIs is a require- Enterprise Risk Management — Integrated

20 I FM MAGAZINE I December 2018 Keys to fraud risk oversight

Organisations seeking to optimise their fraud management efforts could benefit from establishing a fraud risk appetite statement and developing a set of key risk indicators, or KRIs.

By Dalit Stern

Framework Executive Summary, states that a risk appetite statement should articulate Sample fraud risk appetite statement “[t]he amount of risk, on a broad level, an entity is willing to accept in pursuit of Organisation A has a low appetite for operational risk. The organisation makes value. It reflects the entity’s risk manage- resources available to control operational risks to acceptable levels. We ment philosophy and, in turn, influences recognise that it is impossible to eliminate some of the risks inherent in some the entity’s culture and operating style.” of our activities, as acceptance of some risk is often necessary to foster Further, a fraud risk appetite statement innovation and efficiencies within business practices. provides the necessary framework for • Internal fraud: The organisation has no appetite for any fraud perpetrated those elements of fraud risk that the by its staff. The organisation takes all allegations of suspected fraud or organisation deems significant to require corruption very seriously and responds fully, fairly, and timely as set out in monitoring and reporting on. Many the Code of Conduct. organisations follow the categories stated • External fraud: The organisation has a low appetite for fraud and abuse by the guidelines issued by the Basel incidents that are generated by fraudulent and abusive practices by vendors Committee on Banking Supervision, and suppliers. Consultative Document Operational Risk PHOTO BY BILL OXFORD/ISTOCK BILL BY PHOTO

December 2018 I FM MAGAZINE I 21 Process of developing KRIs

Determine Monitor at set Define risk Set up KRI outcomes of KRI frequency and drivers thresholds breach remediate risks

(Basel II). They may differentiate in their public perceptions and outcomes cyberattacks and their impact on fraud fraud risk appetite statements between the associated with fraud events, along with losses. This is especially critical in today’s following: the acceptance that elimination of fraud is environment for companies in the ● ●● Internal fraud: Any acts of fraud associated with cost and decreased client financial industry. committed internally in an organ- experience (see the box, “Sample Fraud For example, the monitoring of isation that go against its interest, Risk Appetite Statement”). customer online account activity (using resulting from intent to defraud, tax the web, mobile, and other emerging noncompliance, misappropriation Methodology for developing channels) may generate useful informa- of assets, , bribes, deliberate fraud KRIs tion regarding anomalies in data login and of positions, and theft. To enable monitoring and accountability, password reset patterns. Increases in these ●●● External fraud: Activities commit- the development of an initial setup of parameters above certain thresholds ted by third parties, which include fraud KRIs requires establishing an should be assessed. Similarly, the number theft, fraud, and breaching understanding of multiple factors. First or percentage of customer calls to the system security, such as hacking or and foremost is obtaining and analysing customer care department to report acquiring unauthorised information. past fraud experience (loss history). It is or the number or percentage An effective fraud risk appetite also useful to conduct a review of of accounts opened online may serve as a statement includes both qualitative and root-cause analyses to identify triggers leading KRI to account takeover fraud. quantitative components. Fraud KRIs are affecting past and potential fraud losses. Using the number or percentage of the quantitative portion of the statement, Because KRIs are designed to assist in complaints from customers may be providing measurement of risk drivers. projecting the risk of fraud going forward beneficial in detecting early signs of The primary objective of a KRI is to provide (“Leading” KRIs), it is not enough to look potential fraud. An increase in the number an early warning to identify adverse back. The process also requires a careful and type of customer complaints may potential events. When adequately evaluation of known and emerging fraud indicate an increase in operational errors constructed, KRIs help detect and prevent schemes and fraud trends (see the chart or intentional mistakes that are driving a specific fraud exposure to a business, to “Process of Developing KRIs”). complaints. An increase in voluntary staff an activity, or to a particular type of client. The increasingly intertwined landscape turnover may prove upon further analysis A fraud appetite statement should of external fraud and requires to serve as a potential warning sign for carefully weigh intraorganisational establishing an understanding of the fraud and could be used as a fraud KRI. sensitivities to risk drivers of fraud and to nature and methods driving the latest A projection of fraud losses would not

Fraud risk drivers and data elements

Risk drivers KRI data elements may be Type of fraud (identified following a root-cause analysis) produced by: Internal fraud: Fraud or • Unethical and disgruntled employees, employees • Human resources, talent corruption perpetrated by hired without background checks acquisition employees • Third party that conducts exit interviews • Internal investigations External fraud: Fraudulent • Vendors or suppliers that are involved in noncore • Procurement group and abusive practices by activities and are newly contracted with the • Third party that administers vendors and suppliers organisation hotline • Vendors or suppliers that were contracted outside corporate procurement (and, hence, may be unfamiliar with compliance expectations)

22 I FM MAGAZINE I December 2018 Fraud KRIs: Reporting cadence

Type of fraud KRI before threshold established Cadence Internal fraud: Fraud or • Percentage of employees in specific functions hired without Quarterly corruption perpetrated by background checks employees • Number of internal fraud events and amount associated with Biannually them (loss events used as a proxy) External fraud: Fraudulent • Percentage of noncore contracts without fully completed Quarterly and abusive practices by ethics questionnaires vendors and suppliers • Percentage of calls to corporate hotline involving procurement Monthly and other vendor/supplier issues

KRI thresholds

KRI value Potential action Type of fraud KRI Thresholds current plan Internal Percentage of employees X>31% 30%>X>1% X=0% X=12% Stop nonessential fraud: Fraud in specific functions hiring until the KRI or corruption hired without background turns “green” perpetrated checks by employees External Percentage of noncore X>20% 19%>X>10% 10%>X>0% X=29% Finance fraud: contracts without department to Fraudulent fully completed ethics transfer 4–6 full- and abusive questionnaire time-equivalent practices by resources to assist vendors and Procurement suppliers in achieving corporate objective of “yellow” threshold

be complete without a consideration of number or percentage of customers Note that in the absence of such data, changes to business operations. When impacted by cyberattacks may be useful as the use of proxies to fraud risk drivers is a evaluating the potential for fraud, it is cybercrime KRIs. practical solution. “Lagging” risk indica- imperative to take into account factors In addition, it is crucial to review tors may be used if neither is available. such as a pending acquisition of a new changes to key anti-fraud controls. Another important set of decisions business or an expansion to new markets Introduction of a sophisticated fraud involves determining how often fraud or new territories. These business strategies monitoring system that is designed to KRIs are measured and reported (eg, create new opportunities, as well as new supplement or replace manual controls is monthly, quarterly, or annually). A study risks, that should be assessed in terms of expected to reduce the number and conducted by the North American CRO their impact on the projected number of amount of fraud losses and will require a Council found that a majority of chief risk fraud events and the financial cost of the reduction in the weight given to fraud officers (60%) monitor and report on risk fraud. These may change the risk profile in losses recorded in the period prior to the appetite quarterly. Other companies a manner that skews prior-period fraud introduction of such a system. report monthly, biannually, or at a figures and existing fraud KRIs. Good KRIs should be determined frequency that varies by the nature of the Similarly, the outsourcing of key following an analysis to determine fraud particular risk. It is important to notice activities or the implementation of major risk drivers. Once KRIs have been defined, that fraud events may not follow regular IT initiatives might also impact the risk it is necessary to establish clear responsi- patterns of seasonality or business profile and, hence, fraud KRIs. As cyber- bility regarding the sources used in the operation cycles. Hence, a monitoring continues to evolve with increas- reporting of a particular KRI. Often, period that is too short may result in ingly sophisticated criminal actors and elements used to calculate KRIs include skewed fraud KRIs, and escalations may more data breach events, it is reasonable to factors that are maintained by different be unwarranted. assume that the number and velocity of groups, and some activities may be split Taking all the elements discussed external fraudulent actions will increase. between corporate functions and lines of above into account, a set of KRIs may be Therefore, the number or percentage of business (see the chart “Fraud Risk Drivers agreed as shown in the chart “Fraud KRIs: investigations into cyberattacks or the and Data Elements”). Reporting Cadence”.

December 2018 I FM MAGAZINE I 23 Establishing fraud KRI thresholds tional failures, fraud risk is invariably a one-person finance department who is After the initial construction of fraud tied to organisational and personal responsible for risk management, may be KRIs, the next step is developing attitudes, especially when fraud cases able to develop a few key fraud risk appropriate thresholds. It is recom- affect a corporation’s reputation. indicators and then continue to build mended to assess historical experience Business leaders will have different upon their programme. Small companies averages and compare these to industry perspectives regarding what fraud can take the following steps: benchmarks, if any exist. The use of risk could and should be tolerated in ●●● When organisational resources are industry benchmarks may be critical an organisation. Often, business unit limited, start with a limited number when historical losses are not a good heads who are responsible for cus- of fraud KRIs and allow time to in- predictor of future fraud-loss experience. tomer service or for the introduction form and educate stakeholders. Don’t There are several sources to choose from, of new products and services may be afraid to use estimates, make as- including consortiums, trade associa- view the risk of external fraud differ- sumptions, and change over time as tions, and private vendors that maintain ently than those responsible for fraud more information is made available. operational loss databases — and operations or their colleagues in risk ●●● To effectively manage time, it is use- publicly available events that may be management. Even within functional ful to establish stakeholders’ buy-in used to supplement them. units, attitudes may change over time early. The party responsible for devel- Perhaps most importantly, estab- as a reflection of changes in leader- oping fraud KRIs needs to reach out lishing effective KRIs requires deter- ship and strategy or in response to across business lines. mining thresholds based on the severity law enforcement or a regulatory ac- ●●● Setting up KRIs at a level that is too of a KRI breach (see the chart “KRI tion. In those cases, appetite and KRIs low or thresholds that are too narrow Thresholds.”). will have to change accordingly. will result in these being breached Another critical decision involves the ●●● Assessing root cause: Although and will cause unnecessary strain to determination of the appropriate actual fraud loss figures are often relationships with business partners. measures required if the threshold is easy to obtain, the exact root cause breached. This should be done in a of fraud may not be easily deter- Maintaining your anti-fraud toolkit manner corresponding to the severity of mined. Fraud events may often be Fraud risk appetite and fraud KRIs are the KRI breach. Measures to consider the outcome of a number of control powerful tools. Combined with effective include management reporting, breakdowns. Projecting the risk of fraud governance procedures, fraud risk escalation protocols, and governance fraud may be subject to a wide range appetite and KRIs could be used as a routines. In considering the actions of views, and identifying the root strategic tool that will effect a change in resulting from KRI threshold breaches, cause of fraud loss resulting from an awareness and drive action regarding the organisations should specify the external attack on a company’s online mitigation of fraud risk. governance body to which the breach is systems can be tricky. Perpetrators Fraud risk management professionals reported, the reporting manner, the may be able to exploit vulnerabili- may assist management and lead the seniority of the individuals involved in ties in cybersecurity and business thought process to establish acceptable the reporting of issues, the nature of the operations. The development of levels of fraud and misconduct loss. resulting action plans, and the organisa- certain types of KRIs may require Further, by monitoring fraud KRIs, fraud tional and personnel ramifications. The close partnerships amongst internal risk managers can effectively support combination of these responses may stakeholders. business management by articulating and drive actions to fraud mitigation and risk ●●● Data availability: Development of aligning the expectations of various acceptance in the organisation. fraud KRIs may also be challenged stakeholders in the organisation. by the limitations of information Challenges with fraud KRIs systems, which require knowledge of Dalit Stern, CPA (Israel), CFE, MBA, is a As useful as fraud appetite and KRIs may both losses and operational factors. senior director in the Enterprise Risk be, their initial setup and ongoing Further, in light of its very nature, Management group of TIAA Financial monitoring may take longer than fraud risk may be managed in a Services. She holds a certificate in Cybersecu- expected. Reaching a consensus decentralised way (such as across rity: Management of Risk in the Information regarding fraud risk appetite and the the various lines of business and Age, issued by Harvard’s Office of Vice ensuing KRIs may require multiple geographies). This almost invariably Provost. The views expressed in this article discussions to bridge perceptions means that mining data or allocating are the views of the author and do not amongst business leaders, risk fraud losses across business units in necessarily reflect the views or policies of managers, and fraud professionals the organisation might be subject to TIAA. To comment on this article or to regarding the exact nature and amount many discussions. suggest an idea for another article, contact associated with the risk of fraud and Jeff Drew, anFM magazine senior editor, at misconduct that are worth monitoring. Tips for smaller companies [email protected]. ■ Some of the most common challenges Developing good KRIs does not neces- include the following: sarily require a big risk management ●●● Attitudes and organisational team, big budget, and lots of personnel. changes: Perhaps more than the Small companies with limited risk risk associated with other opera- management resources, or even a CFO in

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4806 Benevolent FM Ad October 2018 ARTWORK.indd 1 12/10/2018 12:16

You’ve seen something improper. What’s next?

These expert tips can help finance professionals have courageous conversations in the workplace.

By John Lehmann-Haupt

he workplace can be fraught with have been perceived and characterised very financial management professional can uncomfortable situations. Even negatively,” said Sandy Boucher, a fraud and be as many as four links at once, being not in the best managed companies, corruption investigator and whistle-blower only well placed to identify when problems can arise. Co-workers systems practitioner at Grant Thornton LLP something is going wrong, but also having can behave unethically, in Canada. “That’s beginning to change. access to critical information, possibly criminally, or recklessly. With high-profile cases like the Panama with official responsibility to take action, TA workplace transgression creates a Papers, people are seeing that when you and, at the CFO level, with influence over dilemma for witnesses. Do you speak up blow the whistle on something bad, that’s a the whole organisational response.” and damage your position, the company, good thing.” Conversations around inappropriate or a co-worker? Or do you stay silent and Finance professionals can potentially workplace behaviour can require an let the problem persist? play a different role in confronting extra level of courage, whether it be Research has shown that amongst malfeasance than other members of an sexual harassment, negligence, , employees who observe workplace organisation. or impropriety. Whatever the level or misconduct, about 56% remain silent, “Most other types of employees are just issue at hand, here are a few tips on whether for fear of reprisal or through one link in the chain,” said A.J. Brown, developing the bravery to confront those reluctance to go against the group. Ph.D., professor of public policy and law at tough conversations when you see “It’s clear that over time, whistle-blowers Australia’s Griffith University. “The something amiss. IMAGE BY OTTO STEININGER/IKON IMAGES STEININGER/IKON OTTO BY IMAGE

December 2018 I FM MAGAZINE I 27 Fuel your courage with preparation Be the one to speak up; be an ally to companies offer forums and procedures and self-education the one speaking up for dealing with difficult situations. Being courageous in the face of challenging Difficult situations can be an opportunity Operating within a prescribed systemic conversations requires that you clearly for finance managers to help others mechanism can help bolster your courage understand the situation and the conse- within the company. We’re social by taking the guesswork out of the quences before speaking up. That means creatures, and it’s a positive, powerful part procedure. taking the time to research company of being human to call on others. Look for The good news is that companies policies, the law, and the stakeholders others who may be motivated to confront increasingly appreciate the value of involved to ensure you are on a solid the difficult situation but also feel scared whistle-blower programmes, and factual footing. Having the facts on your or isolated. Be open about your fears and independent organisations have emerged side will go a long way in boosting your express compassion with others. around the world to provide guidance and courage, as confronting difficult situations “In my experience, people who witness support for whistle-blowers. can often have unseen considerations. misconduct think they’re the only ones to “Well-trained financial management notice, and it’s never the case,” Addison Support and resources professionals need to understand that said. “Social science research shows that Addison’s work with SpeakOut SpeakUp. they live and work in a complex political having just one additional person in a (speakout-speakup.org) is grounded in the environment, recognising the reality of meeting, even if he or she doesn’t speak, social psychology and cognitive behav- who may have an interest in wrongdoing can diffuse the disproportionate influ- ioural research of Philip Zimbardo, not being disclosed,” said Brown. ence of a person in power, and the person professor emeritus, and Lynne A well-researched knowledge base will in power is much more likely to own up to Henderson, Ph.D., at Stanford University. also help others understand your any misconduct than if you go it alone.” Henderson is now chief curriculum motivations for speaking up and make Actively supporting others who speak officer at Courageous Leadership clear that you don’t have ulterior motives. up also helps create an environment of (thecourage2lead.com), a US-based “It’s also important to realise that the open communication within the service that empowers people to act decision to speak up is not just moral and workspace. wisely, ethically, and courageously in ethical; it’s logical and practical, too, when challenging workplace situations. one considers the long-term interests of Appraise the situation through the In the UK, Protect, formerly Public the organisation and its stakeholders,” lenses of self, situation, and systems Concern at Work, (pcaw.org.uk) advises Brown added. Our behaviour is influenced by our individuals with whistle-blowing context, and we need to consider the dilemmas, supports organisations with Be invested in the conversation, not whole constellation. Understanding your their whistle-blowing arrangements, and the expected outcome role, and the larger goals of the organisa- informs public policy while working for When you approach someone to discuss a tion, can empower you to take responsi- legislative change. In Canada, the Centre suspected ethical lapse, you have only a bility for the continued wellbeing of the for Free Expression Whistleblowing few seconds for the person you’re company, even if you feel insignificant in Initiative (tinyurl.com/ybo49hph) was speaking to either to become defensive the organisational chart. formed in March 2017 to play a similar and shut you down or to engage in “How do you see yourself, and what are role, with Sandy Boucher of Grant listening further, said Wendy Addison, a the leverages you can give yourself to have Thornton as a member of its steering former whistle-blower who is the founder a courageous conversation?” Addison committee. and CEO of SpeakOut SpeakUp Ltd., a said. “What are the situational influences? In Australia, A.J. Brown is the lead consultancy that helps people foster The certificates on your manager’s wall researcher for Whistling While They courage in the workplace. Approach the and the trophies on the shelf can make Work 2 (whistlingwhiletheywork.edu.au). conversation with an open mind and an you feel less powerful, diluting your While not providing support for indi- intention to hear the other person out. ability to speak up.” vidual whistle-blowers, the project is a “People often go into these conversa- It helps to remember that you are not globally recognised effort to help tions angry and stressed, and expecting alone within the company either. Many organisations evaluate their polices and that the person they’re talking to is going cultures and to improve governance and to do something about the situation, regulation standards. Brown is also a which is often not the case,” Addison said. board member of Transparency Interna- “To reel that back, invest your courage in tional (transparency.org), which includes the dialogue, in asking questions; that’s advocacy, public awareness, and research where listening up comes in.” around whistle-blowing as part of its Active listening, instead of taking global portfolio. charge or making demands, allows others the freedom to express themselves in John Lehmann-Haupt is a freelance writer more constructive ways. Oftentimes, based in the US. To comment on this article difficult conversations are fraught with or to suggest an idea for another article, history and tangled relationships, and contact Drew Adamek, an FM magazine people need the space to explain how they senior editor, at Andrew.Adamek@ see their role, even if you don’t agree. aicpa-cima.com. ■

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23090-344 CPD Collection Ad.indd 1 9/11/17 9:04 AM Ethical implications of artificial intelligence

AI presents a new set of ethical challenges for business leaders whose deployment of mechanisation may have profound effects on the workforce and society.

By Jeff Drew, Ken Tysiac, and Samantha White

n the race to adopt rapidly developing technologies, voice-enabled assistants such as Apple’s Siri or the Google organisations run the risk of overlooking potential Assistant, among myriad other uses. In the accounting space, ethical implications. And that could produce unwel- the many potential applications of AI include real-time auditing come results, especially in artificial intelligence (AI) and analysis of company financials. systems that employ machine learning. Data is the fuel that powers machine learning. But what Machine learning is a subset of AI in which computer happens if the data fed to the machine are flawed or the Isystems are taught to learn on their own. Algorithms algorithm that guides the learning isn’t properly configured to allow the computer to analyse data to detect patterns assess the data it’s receiving? Things could go very wrong and gain knowledge or abilities without having to be specifically remarkably quickly. programmed. It is this type of technology that empowers Microsoft learned this lesson in 2016 when the company

30 I FM MAGAZINE I December 2018 IMAGES BY BAI IMAGENAVI/GETTY IMAGES nology officer Robin Grosset. ‘If you are creating an AI to automate “The algorithms give weighted scores to features of transactions for subsequent driving a car, you want your AI to learn from human review in order to identify the risk of irregular circumstances,” he said. good drivers and not from bad drivers.’ This transparency is essential to avoid the “black box” problem, in which a Robin Grosset, the chief technology officer at MindBridge Analytics computer or other system produces results but provides little to no explana- tion for how those results were produced. In the case of machine learning, the greater the complexity of an algorithm, designed a chatbot called Tay to interact The report proposes a framework the more difficult it is for users to with Twitter users. A group of those users outlining ten core values and principles understand why the machine has made a took advantage of a flaw in Tay’s algorithm for the use of AI in business. These are certain decision. to corrupt it with racist and otherwise intended to “minimise the risk of ethical “Almost all concerns that relate to offensive ideas. Within 24 hours of lapses due to an improper use of AI ‘improperly set up AI’ can be solved by the launch, the chatbot had said the Holo- technologies”. The values are: AI explaining its thinking,” Grosset said. caust was “made up”, expressed support ●●● Accuracy. “If the human counterpart of the AI can for genocide, and had to be taken offline. ●●● Respect of privacy. understand why something is flagged, With regulatory and legal frameworks ●●● Transparency. then they can make better informed struggling to keep pace with the rapid ●●● Interpretability. decisions. Human judgement is still a key pace of technological change, public ●●● Fairness. component of a balanced AI system.” demand is growing for greater transpar- ●●● Integrity. ency as to how these tools and technolo- ●●● Control. Avoiding bias in the data gies are being used. The UK’s Institute of ●●● Impact. Another challenge is to avoid bias in the Business Ethics (IBE) recently issued a ●●● Accountability. algorithm and in the dataset the algorithm briefing urging organisations to examine ●●● Learning. uses for learning. the risks, impacts, and side effects that AI One way of mitigating bias is to use might have for their business and their Avoiding the ‘black box’ problem combinations of learning types, including stakeholders, as well as wider society. Companies applying AI to the finance unsupervised learning, Grosset said. Tackling the issues requires these diverse function face the challenge of designing “Supervised learning is based on label groups to work together. (See the box, “10 algorithms that produce unbiased results data, and often the labels themselves Questions to Ask About Adopting or Using and are not too complex for users to create bias,” he said. “Humans essentially AI”, for key considerations listed in the IBE understand how they work and make bring their own biases to machine- report.) decisions. learning scenarios. By contrast, unsuper- The research identifies a number of MindBridge Analytics, based in Ottawa, vised learning has no labels and challenges facing business leaders. These Canada, develops computer-aided audit essentially will find what is in the data include: tech powered by AI. The product uses a without any bias. ●●● What degree of control can we (as hybrid of advanced algorithmic tech- “The key piece of advice here is to an organisation) retain over our ma- niques to enhance a human auditor’s curate the data that is used as input to a chines’ decision-making processes? ability to detect and address unusual system to ensure the signals in the data ●●● How can we ensure that the systems financial circumstances. support the training objectives. For act in line with the organisation’s A key aspect of the MindBridge example, if you are creating an AI to core values? application is that it explains why certain automate driving a car, you want your AI ●●● Since biased algorithms can lead to a transactions have been highlighted and to learn from good drivers and not from discriminatory impact, how can we then leaves final decision-making bad drivers,” Grosset said. ensure fairness and accuracy? authority to a human, said chief tech- MindBridge’s testing process includes The report also encourages compa- validation testing for algorithm intent, nies to “improve their communications with regression testing. The process around AI, so that people feel that they involves synthetic and real data. are part of its development and not its Amy Vetter, CPA/CITP, CGMA, author of passive recipients or even victims”. For the book Integrative Advisory Services: this to be achieved, “[e]mployees and Expanding Your Accounting Services Beyond other stakeholders need to be empow- the Cloud and CEO of The B3 Method ered to take personal responsibility for Institute, advises organisations to seek the consequences of their use of AI, and alternative perspectives from profes- they need to be provided with the skills sionals who do the work today that may to do so”. be automated in the future.

32 I FM MAGAZINE I December 2018 “It’s important to include them in the discussion and decision-making about 10 questions to ask how to incorporate prospective uses of AI into future workflow of the firm and what about adopting or skills the staff will need so the appropriate using AI training and goal setting is incorporated into any implementation plan,” she said. 1. What is the purpose of our job, and what AI do we need to At MindBridge, the chief information achieve it? security officer and chief technology officer are responsible for key aspects of 2. Do we understand how these systems work? Are we in control technical use of AI and related privacy of this technology? issues. The staff also includes research 3. What are the risks of its usage? Who benefits and who carries scientists who focus on privacy- the risks related to the adoption of the new technology? preserving algorithm design. 4. Who bears the costs for it? Would it be considered fair if it became widely known? Implications for society 5. What are the ethical dimensions, and what values are at stake? AI provides a difficult set of ethical 6. What might be the unexpected consequences? questions for society as well. One 7. Do we have other options that are less risky? question centres on the preservation of 8. What is the governance process for introducing AI? the workforce. In the accounting 9. Who is responsible for AI? Because machines are not moral agents, who is profession, for example, AI can extract data from thousands of lease contracts to responsible for the outcome of the decision-making process of an artificial enable faster implementation of new agent? lease accounting standards. 10. How is the impact of AI to be monitored? This can enable the people who would have handled data extraction to perform Source: IBE Business Ethics Briefing, “Business Ethics & Artificial Intelligence”. more complicated accounting tasks and perhaps even contribute to strategy. This can be a positive development as those people perform more meaningful work. a management sciences teaching and from customer-facing positions. But if the people whose tasks are research institute. “And if they’re not While businesses attempt to solve replaced by AI lose their jobs rather than there anymore, then the system their own AI-related ethical issues, the being promoted to higher-level work, the becomes unstable. There isn’t anyone to public sector also will have a role to play. implications for society can be ominous. sell stuff to.” Regulators obviously will have a say in If people who perform repetitive tasks Ghez said it’s understandable that busi- whether self-driving vehicles will be across multiple professions and indus- nesses will look at AI as a way to cut costs. permitted on the roads. That will be the tries all lose their jobs instead of being But he said it’s also imperative for easy part. It will be more challenging to promoted, implementation of AI could business leaders to be more imaginative consider other issues such as workforce leave many people without options for with their human resources now, utilising preservation and how to protect segments work and damage their lives and the more effectively the things that people of the population that may be disadvan- economy. can do — and machines can’t do. The taged by biases in algorithms. The trucking and haulage industry human skills of using intuition and The technology may be here now, but alone could experience enormous job building relationships with customers the ethical rules for managing AI will take losses if self-driving vehicles replace might be differentiators for businesses time to develop. human drivers. In 2016, more than 3.3 whose competitors may take automation “It opens up a whole wide range of million drivers were employed in trucking to an extreme and perhaps frustrate questions that the private sector is not in the US and an additional 318,700 heavy customers with chatbots and other going to feel very comfortable to answer goods vehicle drivers were working in the applications that remove a personal touch immediately altogether,” Ghez said. “I UK, according to the US Bureau of Labor think it’s going to require a multidiscipli- Statistics and the UK Department for nary effort and bridges to be built to figure Transport. out how to go to win-win situations.” “That creates an ethical problem without a shadow of a doubt, but also a Jeff Drew is anFM magazine senior editor; pragmatic problem because these Ken Tysiac is FM magazine’s editorial populations [people who perform tasks director; and Samantha White is a writer that can be automated] were in the heart and editor based in the UK. To comment on of the economic system,” said Jeremy this article or to suggest an idea for another Ghez, affiliate professor of economics article, contact Jeff Drew at Jeff.Drew@ and international affairs at HEC Paris — aicpa-cima.com. ■

December 2018 I FM MAGAZINE I 33 Benefits and risks of automating customer service Introducing new technologies to the customer experience requires careful consideration.

By Russ Banham e have all called a incumbent upon finance executives to will be using chatbots for customer company or examine the options carefully. interactions by 2020, up substantially from contacted its the 36% using them in 2016. online customer Range of offerings There are other ways that technology is service with a Chatbots are “speaking and thinking” changing how consumers interact with quick question virtual customer service assistants that service centres, and vice versa. A case in W only to wait ad reply to customer queries and concerns in point are Q&As that list questions that infinitum for the appropriate live or virtual texts much like the way Siri responds in NLP software indicates are related to a representative to chime in. The need for voice when asked questions. Providers of consumer’s particular problem. Multiple improvement has long been evident. As chatbots use artificial intelligence (AI) — answers are presented, from which the with other manual processes, automation in this case natural language processing consumer selects the most appropriate can ease the tedium, improving consumer (NLP) — to discern the meaning of a one. A similar automation tool entails experiences to the company’s benefit. question or statement to provide the most more detailed correspondence via Many CFOs are finding that new thoughtful answer. back-and-forth text messaging, in which customer service automation technology Some chatbots converse in multiple the NLP software interprets the context of can pare the costs of employing live languages, interpreting contextual nuances each of the consumer’s comments and people at contact centres responding to and the meaning of cultural idioms, selects an appropriate response. consumer queries and complaints. As making voice chatbots a useful tool for call “There’s definitely a need for these different technologies evolve, it is centres. Oracle projects that 80% of brands sophisticated chatbots within the call IMAGE BY METAMORWORKS/ISTOCK BY IMAGE centre industry,” said Shane Nolan, problems. “In many cases today, if they downsides. Aside from the initial senior vice-president of technology, have a specific problem that needs to be expense, chatbots can cause implementa- consumer, and business services at IDA fixed now, the company puts them tion headaches and may fail to perform as Ireland, a government agency promoting through an obstacle course,” Kelly said. planned. Choosing the right solution is foreign direct investment in Ireland, “The customer becomes infuriated, complicated. “Some providers have a including customer contact centres. spreading their dismay to friends and tendency to put the words ‘AI’ and “There are customer segments brought colleagues, trashing the organisation’s ‘chatbot’ together in a sentence when up on messaging apps, text-based reputation and brand value.” often there really isn’t much in the way of interactions, and prescripted customer Chatbots obviate this possibility, AI going on,” Kelly warned. journeys for which these technologies assuming they work as intended. The tools are still new, with some work perfectly.” Customers are served more quickly at less kinks to be ironed out. Chatbots can Nolan said the amount of research and cost to the business. “Call centres are backfire disastrously, evidenced when development going into the AI behind the becoming quite expensive, and there is a Microsoft unveiled a Twitter chatbot in robotics is “pretty huge”, citing leaps in need for automation,” said Keith Strier, 2016 called Tay. The company’s goal in smarter and more powerful NLP technolo- EY’s global and Americas advisory leader encouraging customers to chat by texting gies. “The market at the moment is for AI. with Tay was to connect young people in ripening,” he said. Aside from the salary of each call “casual and playful conversation”, centre service agent, it costs a minimum Microsoft stated. Within hours, Tay’s More than servicing customers of $4,000 to hire the person and another conversations had become extremely Automating customer service using $4,800 to train them, according to a fascist, racist, and misogynistic. Tay’s chatbots also offers opportunities for blogpost from IBM’s AI division and replacement chatbot is called Zo and is cross-selling, brand building, and platform, known as Watson. Attrition is designed to avoid discussions on politics, nurturing a closer relationship with high in the sector, resulting in spending race, and religion. customers. Kevin Kelly, founder and these amounts again and again. Strier said CFOs intrigued by the president of New York-based digital Alternatively, chatbots that are benefits of chatbots should not dive in advertising agency Bigbuzz Marketing programmed with industry and domain headfirst. Rather they should consider an Group, provided the example of a chatbot knowledge are “hired” and “trained” once. end-to-end customer service experience, helping a consumer electronics company Chatbots also are available 24/7/365, involving messaging apps, prescripted customer determine which laptop is right “speak” several languages, provide a level customer interactions, traditional call for them. of relative reliability, and are never tired centre personnel, and the experimental “The chatbot can be designed to ask or sick. And they’ll never get frustrated or use of chatbots to assist customers at questions like ‘What do you do for a angry with a customer. different junctures in the service journey. living?’, ‘How much are you looking to The cost of building a chatbot ranges “AI does not necessarily make this a better spend?’, ‘Do you have any kids?’, and ‘Will from $30,000 to $150,000, according to solution than other alternatives,” he said. you be the only one using the device?’,” business-to-business marketing firm 21 “It all depends on the problem the Kelly explained. “The chatbot becomes Handshake. Despite the high upfront customer is trying to solve.” another media touch point to express the expense, Juniper Research estimated that In many cases, human beings will still differentiating value of the brand. This is a chatbots across all businesses will save prefer another human being to provide much more personal experience than companies $8 billion a year by 2022. assistance when needed most. According emailing over a list of FAQs [frequently to the Chatbot Consumer Report, a 2016 asked questions].” Other side of the coin survey of people using a chatbot to receive It’s also arguably a better way for a Like anything else that appears almost too service, 71% said the robot had failed to consumer to find answers to their good to be true, chatbots have their adequately respond to their problems. The bottom line is this: Just because chatbots are available doesn’t mean companies should rush out to buy or 4 tips for venturing into chatbots build them. Yes, they will likely optimise the customer experience at less cost than Chrissy Jones, a manager in Communications & Member Engagement for the current service solutions. But sitting on Association of International Certified Professional Accountants, offers this advice the fence has its benefits. As Strier pointed for finance professionals who are helping their companies find and use customer out, “When it comes to traditional ways of service technology: responding to customer concerns, you • Do your research. How will a chatbot meet your customers’ needs? What can’t just go from 100% human interac- problem are you solving? Before you incur the expense of implementing tions to zero overnight.” one, you’ll want to ensure it will be used. •• Find a great partner. New chatbot software and implementation providers Russ Banham is a freelance writer based in are popping up every day. Look for a few that suit your particular needs. the US. To comment on this article or to ••• Teach your bot. If you spend the time in the beginning testing your bot, suggest an idea for another article, contact you’ll have an easier time maintaining it after you go live. Drew Adamek, an FM magazine senior editor, •••• Have fun. Bots are new and exciting and should be approached in that spirit. at [email protected] ■

36 I FM MAGAZINE I December 2018 Skill up, Stand out and Succeed – with an IFRS Certificate

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© 2017 The Chartered Institute of Management Accountants. All rights reserved.

4690 November FM Magazine ad ARTWORK.indd 1 13/11/2017 15:45

Using predictive analytics in employee retention

This technique can help managers reduce attrition costs.

By Shilpa Pai Mizar

he future of human of employee turnover and increase quantifies the likelihood of an employee’s resources is changing. retention. leaving the organisation within a certain Like the rest of the Investment in building a people period of time. business world, chief analytics capability need not be big at Predictive analytics also identifies human resource first, and businesses can benefit greatly hidden connections between key factors officers (CHROs) and from it. “Our research shows that the contributing to employee turnover. The Ttheir teams are financial costs associated with attrition main predictor variables normally studied beginning to find that can range anywhere between 13% and include pay, promotion, performance they need to focus on building a robust 23% of annual compensation depending reviews, time spent at work, commute analytics capability to best prepare for the on the function/level of the employees distance, and relationship with a manager. data-driven world. under the scope of the study. In our (See the chart, “Factors Contributing to “CHROs have said that they feel experience, a focused attrition analytics Voluntary Turnover”, for a breakdown of [pressured] as the only ones not bringing predictive model can help lower this risk key reasons for attrition at a sample data to the table. The business is by 5% to 8% annually,” said Neeraj organisation.) Organisations also use expecting HR to have similar numbers to Tandon, director for workforce analytics external data such as labour market indica- marketing, though maybe not finance or and planning, Asia-Pacific, at Willis tors and the current economic scenario as operations,” observed Andrew Marritt, Towers Watson, in Gurgaon, India. causative variables while formulating CEO of OrganizationView, a people hypotheses and building models for analytics practice based in St Moritz, What’s new retention. HR teams and managers use the Switzerland. According to Marritt, the Traditional HR analytics are descriptive in findings from the modelling to better data-centric modern HR leader needs to nature and examine employee data across design timely interventions to help retain know not only what has happened, but different dimensions such as department employees. what is likely to happen. and demographics to identify past patterns Deloitte estimates that about 8% of A key HR concern for businesses is within metrics like turnover and retention. global businesses leverage predictive employee retention. There are significant Conclusions are then used to formulate analytics for talent management, and financial and intangible costs associated talent policies. Descriptive analytics, the ones that do tend to be larger. with losing loyal and high-performing however, cannot predict future outcomes According to Brian Kropp, group vice employees. Investments need to be made at an individual employee level. president at Gartner, organisations that to find, hire, and train their replacements. Predictive analytics does this by going develop this capability tend to be in There could also be a negative impact on a step further and using the evidence sectors that are intellectual property the stakeholders they worked with from descriptive analytics as inputs for dependent such as financial services, regularly such as suppliers, colleagues, advanced techniques like statistical healthcare, and fast-moving consumer and customers. Some companies are modelling and machine learning. These goods. Globally, businesses in all major starting to look to predictive analytics to methodologies provide forward-looking economies are working towards increase their ability to mitigate the risk measures such as flight risk, which acquiring this competence. PHOTO BY B&M NOSKOWSKI/ISTOCK B&M BY PHOTO

December 2018 I FM MAGAZINE I 39 Factors contributing to voluntary turnover

An ADP Research Institute white paper examined the factors leading to voluntary turnover at a sample company. The graphic below breaks down the reasons cited. By collecting and analysing the factors that contribute to turnover, companies can institute policies and procedures to address concerns. In this example, management may want to focus its retention efforts on industry veterans who have not been with the company for very long or look at implementing more lenient telecommuting rules to ease attrition.

Number of salary increases

Management vs. nonmanagement position Employee’s tenure in current company as a percentage of 4.2% 4.4% Annual compensation to total total experience experience ratio 5.1% 29.4% 5.8% Work location state

7.3% Commute time

7.5% Time in current role

18.7% 8.1%

Sample company’s 9.4% Employee experience turnover rate

Commute distance

Source: ADP Research Institute white paper, Revelations From Workforce Turnover Study.

Cost versus benefits predictive analytics capabilities are also and accurate data streams is, and will Organisations looking to develop available at different price points. remain, a challenge for people analytics. competence in predictive analytics have However, experts warn that internal teams As the research indicates, most big several options. Consulting organisations should make sure that the human capital organisations have five to seven systems offer expertise towards building this management systems offered integrate of record for their human resources data. capability. For businesses looking to set with data systems within the organisa- This means that information often used up internal capabilities for smaller capital tion. The systems should not overpromise in predictive modelling is inaccurate or outlay, many choose to employ or train and underdeliver in terms of features and unavailable, a serious stumbling block. in-house data scientists who may turn to tools, and vendors should provide the “As statisticians, we do deploy multiple inexpensive software such as IBM SPSS or guidance to use them insightfully. data treatments to improve the quality of free open-source software known as R for data. However, often data on some their initial modelling. Data-based challenges important variable are incomplete, and as External vendors that set up human According to Bersin by Deloitte, an HR a result we ignore these variables. Some of capital management systems with research organisation, setting up clean these variables could be important to

40 I FM MAGAZINE I December 2018 predict the outputs. Hence, it’s important that organisations continuously focus on ‘Data should be just another voice data quality improvement,” Tandon said. Companies should run specific data at the table. Decisions have to be quality programs to make the data fit for modelling. These programs would be of made by humans.’ greater effectiveness if they were directed at key variables that predict output Andrew Marritt, CEO of OrganizationView, a people analytics practice variables such as attrition rather than across the entire dataset, he added.

Building a good model Besides clean, accurate data streams, a few Central governing teams (often greater financial impact, the organisation further steps can be taken to ensure that comprising business and HR team focused on this rather than overall predictive retention models are a robust members) monitor and track interventions attrition. tool for decision-making. For one, taken by line managers to reduce attrition studying the workforce in clusters of risk for employees identified as a high flight The near horizon employees with similar characteristics risk. This also helps organisations bring Companies are experiencing a massive and reasons for leaving the organisation is some level of consistency in interventions change in the data they have about essential for building models that lead to to control attrition, Tandon added. customers, and the same change is coming targeted and effective retention strategies, to what they know about employees, according to Tandon. Targeted approaches according to Kropp. Organisations that Model building also goes through Once these checks and balances are in figure this out and get there faster will multiple iterations to ensure it fits the data place, a data-driven approach that retain a higher-quality workforce. It will be optimally, which includes choosing or includes predictive analytics is seen to the single most successful differentiating eliminating causative variables scientifi- bring greater transparency and balance to factor on that front, and a must-have for cally, and testing the model on an existing decision-making. “There have been businesses that cross a thousand dataset to gauge how accurately it predicts instances where decisions were made by employees, he added. actual outcomes. With the acknowledge- those who were the most vocal. This will Over the last three years, Gartner has ment that numbers do not tell the entire be harder in a world where data is needed also seen a significant increase in the story, intuition is also factored into to support decisions,” observed Marritt. number of organisations that collect models. “There is a good reason people are The key causative variables that employee data in unconventional ways, intuitive; they have got experience,” emerge during modelling will also help such as social media activity, speed of explained Marritt on how this contributes organisations craft more effective keystrokes, mood recognition, email text to the model’s effectiveness. retention strategies. If commute distance and frequency, and wearable microphones. However, a degree of inaccuracy is emerges as a major driver, for example, Organisations are attempting to under- associated with predictive modelling, and greater efforts can be directed towards stand employee behaviour and experience this is where HR and managers play an options such as remote working. If a through these experiments, and some of important role. “Data should just be limited training budget is available, it can them will be input into models, which will another voice at the table. Decisions have be used to provide inputs for those increasingly graduate from predicting to be made by humans,” said Marritt, on employee segments that have a high flight risk and quality of hire, which are how these tools can influence employees’ flight risk. While HR and managers have relatively easy to measure, to hard-to- working lives. It is always better to roll up always designed these interventions, a define variables such as employee the data and use them at an aggregated forward-looking, rigorous technique engagement and performance, Kropp said. level such as teams, rather than at an enables them to direct time and money On the maturity front, while only a individual level, because the implications towards these efforts with greater small percentage of organisations of making an incorrect decision are precision and with greater confidence in surveyed by Deloitte currently have the considerable, he added. the outcome. capability for people analytics, in a more Last but not least, as with any new Furthermore, finding unexpected recent survey 69% of businesses say they initiative, organisations must recognise patterns in the data can help design are integrating data to build a people that adequate coaching and oversight retention strategies that make strong analytics database. The analytics function mechanisms should be in place to help business sense. Marritt’s team at Organi- will also grow into a multidisciplinary users leverage the technique correctly and zationView, for instance, found that high team that will solve business-critical thoughtfully. According to Tandon, work pressure was a key cause for attrition problems to drive business results. managers are being trained on the key at a certain financial services organisa- objectives of developing attrition models tion. However, it was more so for low to Shilpa Pai Mizar is a freelance writer based in and coached on how to use the informa- midlevel performers while top performers the UK. To comment on this article or to tion to prevent high-performing actually thrived under high pressure and suggest an idea for another article, contact employees from leaving, without creating were more likely to leave in its absence. Drew Adamek, an FM magazine senior editor, a bias against the identified individuals. Since high-performer attrition had a at [email protected]. n

December 2018 I FM MAGAZINE I 41 financial reporting errors — 8 and how to fix them The best accounting software available won’t produce the best financial reports if the reporting process is flawed. Here are some pitfalls to avoid.

By J. Carlton Collins, CPA

he financial reporting process is reports produced on a daily, weekly, and considered by many to be the monthly basis? single most important function of ●●● Are those reports distributed in a timely fash- an accounting system. However, ion to the appropriate personnel (either on even the best accounting system paper or digitally)? can’t overcome a flawed financial ●●● Do the appropriate personnel know how to Treporting process. read the reports and understand how to use the To help you determine if your information contained within those reports? financial reporting process has a problem, start by ●●● Do these personnel take time to read the reports answering these five questions: and use the information and insights derived ●●● Does your accounting or enterprise resource accordingly to better perform their jobs? planning system produce accurate monthly Answering “no” to one or more of these questions financial reports on a timely basis, ideally by indicates that work is needed to shore up your the tenth day of the following month? reporting processes. Following is a list of common ●●● Are all appropriate financial and informational mistakes companies make related to their financial

42 I FM MAGAZINE I December 2018 IMAGE BY GRUNDINI/IKON IMAGES and informational reporting functions, Displaying percentage calculations and suggestions for avoiding those mistakes in the future. While some of these steps may seem basic, many companies struggle with them, and all companies should double-check to ensure they are handling them correctly.

1. Financial reports lack comparative data Some companies may produce only single-column reports, which are less informative than multi-column reports due to the absence of comparative data. The inclusion of prior-year amounts, prior-month amounts, or budgeted amounts makes it easier for the reader to ascertain whether current amounts utilities expense. In this simplified 4. Financial statements don’t reflect exceed, or fall short of, expectations. example, the calculated differences show reality Solution: Be sure to include compara- that the actual salaries expense exceeded On occasion, I ask my small business tive data in your financial statements the budgeted amount by $12,000, while clients’ bookkeepers whether the and informational reports. Rather than the utilities expenses exceeded the financial statements are accurate. Almost squeezing every possible comparative budgeted amount by only $2,800. In this always those bookkeepers respond “yes”. figure into a single report, which might situation, a casual reviewer might focus However, if I pick out specific amounts result in too much information, consider on the larger salaries difference and from those same financial statements issuing multiple reports instead. For downplay (or overlook) the excessive utili- (such as an accounts receivable amount of example, you might produce two income ties expenditures. However, the $38,200, an inventory amount of $123,450, statements — one comparing actual percentage difference calculations for or a cash in bank amount of $86,560) and amounts to budget amounts and the these same amounts reveal that the then ask if those individual figures are other comparing actual amounts to salaries expense is over budget (or 100% correct, on occasion, those same prior-year amounts. unfavourable) by 19%, while the utilities bookkeepers respond, “No, those expense is over budget (or unfavourable) amounts are off a bit,” and they then 2. Financial reports lack calculated by 100%. These additional percentage proceed to provide explanations similar to differences calculations make the utilities overruns the following example: “Our customer, While the inclusion of comparison far more difficult to overlook. The table Mr. Thomas, received some broken items, columns (as mentioned above) is a step “Displaying Percentage Calculations” so he’s returning about $6,000 in in the right direction, the absence of shows these expense amounts, including merchandise; therefore, accounts difference calculations forces the reader the calculated differences and percentage receivable should actually be closer to to calculate those differences mentally or differences. Notice how the (12,000) and $32,200, not $38,200. Further, the owner with a calculator — both methods of -100% difference amounts are easier to hasn’t cashed his owner draw checks for which are time-consuming and more detect (or catch), as opposed to reviewing the past three months and doesn’t plan to prone to error. The more efficient the actual and budget columns only. cash them. Therefore, the bank checking approach is to provide readers with Solution: When producing financial account balance should be closer to calculated column differences so they reports containing comparison data, $116,560.” can focus more on studying the data, and include percentage differences with the My point is that in some cases less on the arithmetic. calculated differences so the reader can bookkeepers (and usually others in the Solution: When producing financial more easily catch overruns that may not organisation) think it’s acceptable if the reports containing comparison data, be as noticeable when analysed purely on financial reports don’t reflect reality, so include calculated differences so the calculated differences. long as the relevant personnel are aware reader can more easily digest the data. of the report’s discrepancies. Unfortu- nately, many small business bookkeepers 3. Financial reports lack calculated are not trained in proper revenue and percentage differences expense recognition principles, and as a Where difference calculations can be result, they don’t always produce accurate informative, percentage differences can financial reports. This type of situation be equally or more informative. For results in inaccurate financial reporting, example, assume that the budgeted and which, in turn, leads to management actual amounts are $62,000 and $74,000, potentially making important financial respectively, for salaries expense and decisions based on the data contained in $2,800 and $5,600, respectively, for those inaccurate reports.

44 I FM MAGAZINE I December 2018 Solution: Bookkeepers, managers, and Days inventory outstanding company officials should be trained in proper accounting methods, including proper revenue and expense recognition. In addition, consideration should be given to training these personnel in common auditing procedures to help them better understand the goals of producing financial reports that most accurately reflect reality. Until such training is completed, proper third-party review procedures should be established to ensure that an accountant who has the right experience reviews the company’s reports.

5. Failure to read/study/scrutinise financial statements The process of producing financial reports Solution: As significant deviations are 8. Failure to prepare perpetual is almost pointless if no one bothers to identified and corrected in the system, cash flow forecasts read or study those reports. Further, it’s management should implement Because cash flow is such a vital part of a also rather pointless for personnel to read corrective measures to ensure that the company’s operations, cash flow forecasts or study those reports if they aren’t going discrepancies don’t recur. should be prepared and updated periodi- to investigate significant deviations or cally (either monthly or quarterly, for suspected problems or errors. 7. Failure to calculate and analyse example). To prepare a proper cash flow Solution: Everyone who receives financial ratios forecast, companies must first prepare a financial statements or informational Analysing one’s balance sheet ratios can seasonalised monthly income statement reports should: help ferret out troubling trends that may budget and a projected monthly balance ●●● Be trained in how to read and under- otherwise go unnoticed. For example, if sheet. Projected balance sheets can be stand those reports. your number of days in accounts calculated using data from the seasonalised ●●● Take time to read and study those receivable grows from 26 to 28 to 34 over a monthly income statement budget in reports in a timely manner. three-month period, it could be a sign that combination with historical balance sheet ●●● Identify discrepancies (in the report’s some of your customers have impending ratios (assuming those balance sheet ratios data, amounts, or balances), if any, cash flow problems, or perhaps it means are consistent enough for such purposes). that deviate significantly from expec- that your accounts receivable staff are Once completed, the cash flow report tations. falling behind on their collection responsi- should be updated each month to reflect ●●● Attempt to determine the cause of bilities. As a second example, if your actual values for the most recent month (or those discrepancies and address calculated days in inventory grows quarter), and the remaining projected cash them to everyone’s satisfaction. significantly over a few months, it could flow values should be adjusted accordingly, ●●● If discrepancies cannot be explained, indicate that your purchasing staff are if necessary. Using a proper cash flow escalate those discrepancies or data over-ordering merchandise or, perhaps, forecast report, companies can better anomalies to someone who can ade- that your production operations are manage cash investments to maximise quately address them. slowing down. Depending upon your investment earnings, plan for sizeable industry, there are myriad balance sheet expenditures, or anticipate cash shortfalls 6. Failure to revise procedures to ratios and calculations that, when early enough to enable company officials to prevent discrepancies from recurring compared to prior months or industry obtain working capital loans to help Often companies that identify an error or standards, might suggest problems that weather low cash flow periods. discrepancy appropriately take time to need management’s attention. Solution: Be sure to prepare seasonal- adjust or correct the books but then fail to Solution: Attach charts plotting ised income statements, projected balance implement or revise their accounting relevant balance sheet and income sheets, and projected cash flow forecasts, procedures to prevent the error or statement ratio calculations to your and then update the cash flow forecast discrepancy from happening again. For monthly financial statements and reports monthly, as necessary. example, if a discrepancy results from to help readers fully understand the improper processing of a complicated results of operations, as shown in the J. Carlton Collins, CPA, is an accounting customer deposit, the error should be chart “Days Inventory Outstanding”. systems consultant, a continuing corrected in the accounting system, and a professional development conference second party should be assigned to review presenter, and an FM magazine contrib- all complicated customer deposit uting editor. To comment on this article or transactions in the future until the to suggest an idea for another article, bookkeeper who made the error is contact Jeff Drew, anFM magazine senior deemed proficient in this activity. editor, at [email protected]. ■

December 2018 I FM MAGAZINE I 45 ERM’s

Cost comparisons, strategic decisions, and share price volatility are 3 areas in which enterprise risk management can help CFOs in decision-making. By Al Decker and Donna Galer links to financial performance

FOs are often asked to look at the expense levels of organisational units labelled as cost centres. These are units that do not directly touch the customer or produce a product. Enterprise risk management (ERM) is generally considered a cost centre. And like most cost centres, it needs to juxtapose the cost of C what it does with the value it provides. Working with the CFO and finance function, the chief risk officer (CRO), or someone with equivalent responsibilities, can develop metrics to measure its value to the organisation. IMAGE BY LIZZIE ROBERTS/IKON IMAGES IMAGES ROBERTS/IKON LIZZIE BY IMAGE Before-and-after cost comparisons If the organisation measures the total cost The value ERM provides can be of risk (TCOR) before it implements ERM, it can then measure TCOR after ERM measured in terms of costs the implementation. If it did not measure the TCOR beforehand, it can look at various company saves. TCOR components before and after for which data exist. For example: ●●● Cost of insurance programme, in- cluding premiums and fees paid for requiring the target to locate and contract between higher risk maturity and purchased insurance; with new sources of the raw food before improved market performance, profita- ●●● Cost of paid deductibles, self-insured the deal is complete, negotiates a better bility, and organisational resiliency,” the retentions; buyout price due to the risk, or scuttles report said. “These findings continue to ●●● Cost of insurance reinstatements the acquisition, the acquirer will have emphasise the importance of a robust, after certain losses; saved itself major time and expense. integrated, and holistic risk management ●●● Cost of lost productivity due to acci- Those savings should accrue to ERM. programme.” dents and injuries; or Share prices can go up or down for ●●● Cost of replacing people, plants, Share price effect many reasons. Thus, it is hard to pinpoint or equipment due to hazards not Share price volatility generally occurs one factor that helps or hurts. A number insured. when a public or listed company has a of studies have tried to link the practice of If a robust ERM process has enabled history of events that either causes it to ERM to stock performance. One of the the company to save on any of these costs, take an unexpected loss in its accounts or earliest such studies, conducted by rating then the savings are part of ERM’s value. It damages its reputation. Some sectors have agency Standard & Poor’s, linked actual is important to remember that the value volatility built into the very nature of the share performance to the effect of ERM. ERM provides can also be measured in sector itself, of course; but to the extent “Standard & Poor’s has found that ERM terms of the costs or expenses the that some companies within the sector scores correlate with companies’ stock company can save before actual expenses have more volatility than others, there performance,” the report said. “Although occur. must be some differentiating factor. ERM average stock prices declined among all can be that differentiating factor. ERM is public multiline insurers in 2008, Avoiding a strategic loss designed to reduce surprises, especially companies with more advanced ERM The CRO could identify a significant risk negative ones, and to reduce losses in programmes experienced smaller stock while creating or executing some general. Fewer surprises and fewer losses price reductions.” Insurers were, not component of the company’s strategy; for equate to less share price volatility. surprisingly, one of the first industries to example, deciding on a geographic In 2016, global insurance broker Aon adopt ERM to better manage risk — expansion or doing due diligence for an reported on the effect of a mature ERM underwriting and general business risk. acquisition. If the risk is addressed before process on share price volatility (based on Another way that a company can it arises, the avoidance of the cost of that Aon’s risk maturity model scores). The measure the value of its ERM relative to risk should be considered as value added report noted a “strong statistical correla- share price is to plot its own share price by ERM. tion between risk maturity and reduced and share price volatility before and after Consider a situation in which the CRO, stock price volatility. This further adoption of a robust ERM process. through the ERM process, identifies a validates the findings that advanced risk Although ERM may not be the only supply chain risk that the acquisition management practices are one of the causation of such movement, there is target, a snack food company, has not factors that smooth out volatility in an reason to assume some linkage. To the disclosed. The risk has flown under the organisation’s stock price,” the report said. extent that the result is positive, that can radar of the due-diligence team. Suppose “… [D]uring periods of plunging equity be considered value from ERM. that the acquisition target has almost all sentiment, robust risk management Some organisations may not feel the the raw food material for its top-selling practices are essential to an organisation’s need to measure the value of ERM because product coming from a location that has performance.” it makes such good business sense. But in been suffering from flooding. The The same study also said researchers today’s data-rich and analytically oriented flooding creates uncertainty about the observed direct correlations between environment, measuring value will likely quality and quantity of the raw food enhanced risk management practices and be the path most taken. material as well as other uncertainties. improved performance in the financial Suppose further that there has been markets. “Working with annual financial Al Decker and Donna Galer are authors of some reputational damage to the results from more than 300 publicly two books on enterprise risk management, acquisition target relating to its payment traded companies around the world, our including Enterprise Risk Management: practices to food growers, which the CRO research has found continued correlation Straight to the Value. To comment on this identifies when looking into the supply article or to suggest an idea for another chain risk. article, contact Neil Amato, an FM Assuming the potential acquirer, the magazine senior editor, at Neil.Amato@ CRO’s company, mitigates the risk by aicpa-cima.com. ●■

48 I FM MAGAZINE I December 2018 Business Planning Cloud Software for people who plan At Adaptive Insights, we make planning easy. Get financial agility in a fast-moving world.

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CIMA magazine ad-200x266mm.indd 1 10/23/18 11:55 AM Beware the pitfalls of the open office

These 4 tactics can counter the drawbacks of an open office, which a new study links to reduced productivity.

By Samiha Khanna

n open office may prompt Create physical boundaries employees to interact less as Employees can wear headphones to listen they attempt to preserve to music or use noise-cancelling tech- privacy and personal space, a nology to drown out ambient noise, said study from Harvard Business Jamie Gruman, Ph.D., psychologist and ASchool suggested. professor at the College of Business and In studies of two Fortune 500 compa- Economics at the University of Guelph in nies, researchers tracked employees’ Ontario, Canada, and co-author of Boost: activities for 15 days while their offices The Science of Recharging Yourself in an Age were transformed to an open floor plan. of Unrelenting Demands. Placing tall plants They found that employees spoke less around their desk or cubicle can also help with colleagues, with their face-to-face employees block their line of sight from interactions dropping by about 70%, and and make them feel more that they relied more on electronic secluded, he said. Employees can also communication such as instant install a gadget such as a Busylight that messaging and email. indicates somebody is present but busy or A confidential internal review at one create a small sign for their desk to company also revealed that productivity indicate they’re focused on a task and had declined after the move to an open don’t want to be disturbed. “Just because floor plan, the researchers wrote. colleagues can see you doesn’t mean This and previous studies have you’re available to chat,” Gruman said. suggested open offices are filled with distractions, such as background Take breaks conversations, that can be overstimu- It’s important to make an effort to lating and detract from productivity, and recapture the privacy and solitude that are even increase the number of sick days breached in an open office, Gruman said. employees use. Taking short breaks during the day to So, what if your organisation is one of catch some quiet moments, he said, thousands that, like trendsetters Google perhaps using a lunch break for a long and Facebook, have already invested in an walk, can help employees focus when open design? Researchers have some they return to work. suggestions on how to avoid the pitfalls of an open office: Work remotely “If working from home is an option, exploit it,” Gruman said. He and other experts suggested this as a solution to the

50 I FM MAGAZINE I December 2018 distractions of the open office, as range of spaces for different tasks, technology has made it easier than ever to including small and large spaces for work remotely. According to a Gallup teams to meet, more private spaces for survey of employed people in the US, 43% individual work, private spaces for phone said they worked remotely at least part of calls, and more, said Gemma Irving, Ph.D., the time in 2016. Data collected by the EU a lecturer in strategy at the University of agency Eurofound suggested that in the 28 Queensland Business School in Australia. EU countries, the percentage of employed Solutions such as these “better balance people working remotely at least part of openness and privacy and give employees employees to a new space is not enough the time in 2015 ranged from 37% in more control over where they work”, she to improve collaboration,” she said. Denmark to 7% in Italy. The UK came in said. “Employees need incentives or reasons to fourth with 26%. Many companies offer As a whole, organisations may need to work together. Organisations need to telecommuting and other flexible work explore more combinations of open-plan, think carefully about what type of collabo- options, one reason being that research flexible, and private spaces to suit ration they want to promote and the has found it can help keep employees employees’ needs, she said. They must spaces that suit.” satisfied and reduce turnover. consider the times when working in a group is productive and fosters collabora- Samiha Khanna is a freelance writer based in Consider activity-based work areas tion, such as in a war-room-type environ- the US. To comment on this article or to Rather than assigning employees to desks, ment during a deadline project, but also suggest an idea for another article, contact some organisations have moved to what tasks benefit from solitude. “It is Sabine Vollmer, an FM magazine senior activity-based working, which creates a becoming clear that simply moving editor, at [email protected]. ■

This 2014 photo of Net-a-Porter’s London head office shows an example of an open seating plan. PHOTO BY ANTHONY WELLER/VIEW PICTURES/GETTY IMAGES PICTURES/GETTY WELLER/VIEW ANTHONY BY PHOTO File Edit View Review Data XBRL Windows

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he year 2019 is going to be brilliant. The implementation of the new standard, as well as the months ahead will bring successes and dis- accounting post-implementation? coveries. It will also require new skills, includ- ■■ Are leases currently being tracked outside the finan- ing a talent for handling change and complex- cial reporting systems (manually or by spreadsheet)? ity. Equipping yourself with information can If yes, is that process sustainable? Thelp make the journey a bit more enjoyable. Recommended reading: Preparing for the New To help you prepare, we’ve looked ahead and com- Leases Accounting Standard: A Tool for Audit Commit- piled a quick guide to some of the key issues facing tees is available at www.thecaq.org/preparing-leases- finance. Let’s get started. accounting-standard-tool-audit-committees.

NEW CHAPTER FOR LEASE ACCOUNTING BREXIT HITS THE BOTTOM LINE Businesses across the globe are working to implement UK businesses expect Brexit to hit their bottom line in new accounting standards designed to provide investors 2019, with more than a third (35%) forecasting a de- with more transparency about organisations’ assets and crease in profits. liabilities related to leases. The survey of 1,496 CIMA members from the UK IFRS 16, Leases, takes effect on 1 January 2019, and taken in October showed that more than a quarter (27%) the US Financial Accounting Standards Board’s Account- expected profits to be flat in 2019 as a result of Brexit, ing Standards Update No. 2016-02, Leases, is effective with only 5% forecasting an increase. for public companies in 2019 and private companies in When asked about the impact Brexit is having on their 2020. 2019 forecasts: The IFRS and US GAAP standards differ, but both ■■ More than half (58%) said their business has fore- bring lessee obligations onto the balance sheet. Perhaps casted an increase in costs, with half (49%) expecting the biggest implementation issue for companies has costs to rise by between 1% and 10%. been identifying all of the many lease agreements that ■■ Two-fifths (42%) said they are being less ambitious exist in their organisations and extracting from those with their 2019 revenue forecasts due to Brexit. agreements the data necessary to perform this new ac- Furthermore, 14% expect to spend more than £1 counting. million on Brexit planning, while a third (33%) expect Another challenge has been the effect that lease ob- Brexit to have a continued impact on finances beyond ligations have on debt covenants. In some cases these 2020. debt covenants have had to be re-examined by organ- While the majority of UK businesses have taken isations and their lenders due to the lease obligations’ some steps to prepare for Brexit, some, but not most, downward effect on balance sheets. have undertaken a full risk assessment on the impact Earlier this year, the Center for Audit Quality, a Brexit could have on their business. The three other US-based public policy organisation affiliated with the main steps businesses have taken to prepare for Brexit American Institute of CPAs, released a tool to help audit include: committees with oversight of lease accounting changes ■■ Changed or adjusted key relationships with suppliers. and duties. The bulk of its advice is useful globally. The ■■ Invested more in automation to improve efficiency. tool provides audit committees with a host of questions ■■ Stockpiled goods from overseas so they can serve UK to ask. Here is a sampling of the report’s questions, customers post-Brexit. which are likely to spark meaningful discussion of the Recommended reading: The CGMA white paper, lease accounting transition and its challenges: Business Models Concepts, can help business leaders ■■ Is the company on track for successful implementa- develop the ability to identify, understand, and mitigate tion? risks and advance key business decisions for the long ■■ How is the company preparing investors and credi- term. It’s available at www.cgma.org/resources/reports/ tors to understand the impact on the company and its business-models-concepts-cgma-white-paper.html. financial reporting? The UK government has published materials to ■■ Are new processes and controls being developed to help with planning and preparation for Brexit, including address the accuracy of the adoption of the standard information at www.gov.uk/government/brexit, as well as and the ongoing accounting it requires? considerations for scenarios under which the UK would ■■ If third-party resources are being used for imple- leave the EU next year without a Brexit deal. These are mentation, have sufficient internal resources been available at www.gov.uk/government/collections/how-to- engaged in the process to take ownership of the prepare-if-the-uk-leaves-the-eu-with-no-deal.

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EXPLORING AUTOMATION AND THE RESKILLING from the World Economic Forum is at www3.weforum. IMPERATIVE org/docs/WEF_Future_of_Jobs_2018.pdf. Determining how to harness the power of automation will occupy significant time in the months ahead. Finance MAKING TAX DIGITAL has the highest potential to benefit from automation Under Making Tax Digital (MTD), the UK government’s among all business functions studied, and accounting initiative to increase the efficiency of its tax administra- has the highest degree of work that can be automated, tion, as of 1 April 2019, most businesses with taxable according to research that involved almost 2,000 occu- turnover above the VAT registration threshold (currently pations in Australia, Canada, the UK, and the US. £85,000) will be required to use the MTD service for Eighty per cent of finance tasks hold potential for recordkeeping and will be required to use software to automation, and 97% of accounting tasks can be au- submit VAT returns. tomated, according to the 2018 EY study, The Future Only businesses with taxable turnover that has never Workplace: How to Automate Intelligently. Financial re- exceeded the VAT registration threshold will be exempt porting and controls, at 94%, came third in tasks fit to be from MTD. HM Revenue and Customs (HMRC) advises automated. In contrast, only 41% of legal functions, 24% that businesses should watch their taxable turnover, of marketing, and 12% of “learning and development” especially if it might be close to the threshold, which, tasks were found to be good targets for automation. once exceeded, permanently triggers the need for MTD Within the many finance function roles, EY “identi- participation. fied a considerable amount of hours spent on repetitive VAT taxable turnover is the total value of everything a tasks that are, importantly, rules-based”, said Michael business sells that is not exempt from VAT, HMRC said. Bertolino, global leader, People Advisory Services, for Certain complex entities, such as not-for-profits, EY in the UK. have been given a six-month deferral and will be “Wherever there is the necessity to apply a set of subject to MTD requirements starting in October 2019. rules without interpreting those in any way, there is A pilot project is currently underway to test the MTD scope to automate or explore other technological sup- service for income tax. port,” Bertolino said. Recommended reading: HMRC maintains an The World Economic Forum paper The Future of overview page at www.gov.uk/government/publications/ Jobs Report 2018 highlights important forces that will making-tax-digital/overview-of-making-tax-digital and a affect businesses and their workers, underscoring the list of software suppliers that have products for send- imperative to hone new skills. According to the WEF ing VAT returns and income tax updates under MTD at report, “by 2022, no less than 54% of all employees will www.gov.uk/guidance/software-for-sending-income-tax- require significant re- and upskilling. Of these, about updates. 35% are expected to require additional training of up to six months, 9% will require reskilling lasting six to 12 GLOBAL IMPLICATIONS OF THE US TAX CUTS AND months, while 10% will require additional skills training JOBS ACT of more than a year.” In December 2017, the US Congress enacted tax Recommended reading: The CGMA Future of reform legislation, known as the Tax Cuts and Jobs Act, Finance briefing paperChanging Technology and that mostly took effect in 2018. The act’s many changes Finance explores technologies finance teams should be to the US tax code include a much lower corporate tax aware of and reintroduces the CGMA horizon scanner, rate, changes to credits and deductions, and a move to a tool that can be helpful in predicting when new dis- a territorial system for corporations that have overseas rupting technologies will impact your organisation and earnings. its finance function. Find the paper at www.cgma.org/ The act replaced the former graduated corporate resources/reports/changing-technology-and-finance. tax rate, which taxed income over $10 million at 35%, html. The companion briefing,Changing Competencies with a flat rate of 21%. The new tax rate took effect and Mindsets, explores how technological automation is 1 January 2018. The act also repealed the corporate shifting the competency skillset required by finance pro- alternative minimum tax. fessionals. It is available at www.cgma.org/resources/ US corporations with foreign income saw many reports/changing-competencies-and-mindsets.html. changes, including replacing the former system under Additional Future of Finance work is coming in early which the US taxed a corporation on its worldwide 2019 from the Association of International Certified Pro- income (although foreign earnings were not taxed until fessional Accountants. The Future of Jobs Report 2018 they were repatriated to the US).

56 I FM MAGAZINE I December 2018

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Dividends-received deduction: The act ac- columnist Liam Bastick was pleased with what he complished the change from a system that taxes had seen in October of the functionality available in worldwide income by providing a 100% deduction preview status to Office Insider participants. for the foreign-source portion of dividends received Bastick said the first wave of changes, unveiled 24 from “specified 10% owned foreign corporations” by September for members of the Office Insider pro- domestic corporations that are US shareholders of gramme, includes a new array calculation (Dynamic those foreign corporations within the meaning of US Array), seven new functions, and two new error mes- tax Code Sec. 951(b). Congress indicated that the sages. term “dividend received” is intended to be interpreted Microsoft announced Ideas, which the company broadly, consistent with the meaning of the phras- calls Excel’s AI-powered “insights service”. A Micro- es “amount received as dividends” and “dividends soft article on the functionality describes it as the received” under US tax Code Secs. 243 and 245, ability to “click a cell in a data range, and then click respectively. the Ideas button on the Home tab. Ideas in Excel Deemed repatriation: The act generally requires will analyse your data, and return interesting visuals that, for the last tax year beginning before 1 January about it in a task pane.” 2018, any US shareholder of a specified foreign corpo- Exact dates of availability of new functionality ration must include in income its pro rata share of the around the globe are unclear. Microsoft appears to accumulated post-1986 deferred foreign income of the be eager to convert users to the annual subscription corporation. For purposes of this provision, a specified model, Bastick said. Thus, many new features will foreign corporation is any foreign corporation in which eventually be made available to Office365 subscrib- a US person owns a 10% voting interest. It excludes ers but not to those who buy stand-alone Office 2019 passive foreign investment companies that are not modules. also controlled foreign corporations. The increased Recommended reading: We’ve collected Excel tax liability generally may be paid over an eight-year how-tos and other articles from FM magazine at period. Special rules are provided for S corporations www.fm-magazine.com/topics/microsoft-excel.html. and real estate investment trusts (REITs). Foreign intangible income: The act provided do- ADDITIONAL RESOURCES mestic C corporations (that are not regulated invest- ■■ China’s wide-ranging Belt and Road Initiative will ment companies or REITs) with a reduced tax rate on have massive implications. For an overview, re- “foreign-derived intangible income” (FDII) and “global search, and other information from the World Bank intangible low-taxed income” (GILTI). FDII is the por- on the transportation infrastructure effort, go to tion of a domestic corporation’s intangible income that www.worldbank.org/en/topic/regional-integration/ is derived from serving foreign markets, using a for- brief/belt-and-road-initiative. mula in US tax Code Sec. 250. GILTI is defined in US ■■ The European Union’s new privacy law called tax Code Sec. 951A, and the US tax agency recently the General Data Protection Regulation came proposed regulations addressing how corporations into force on 25 May, and if you’re not familiar include GILTI in their income. with it, now’s the time to read up and ensure The effective tax rate on FDII will be 13.125% in compliance, since GDPR’s reach extends tax years beginning after 2017 and before 2026 and beyond the EU. A seven-point primer from the 16.406% after 2025. The effective tax rate on GILTI European Commission is helpful. It is available will be 10.5% in tax years beginning after 2017 and at ec.europa.eu/commission/sites/beta- before 2026 and 13.125% after 2025. political/files/data-protection-factsheet- Recommended reading: The US Internal Rev- business-7-steps_en.pdf. enue Service maintains a webpage for international ■■ The United Nations Sustainable Development taxpayers and businesses on which it posts Tax Cuts Goals were created in partnership with businesses and Jobs Act updates and resources. Find it at and a range of stakeholders as part of a commit- www.irs.gov/newsroom/international-taxpayers-and- ment by world leaders towards global prosperity businesses. and peace by 2030. For a CGMA report on the role accountants can play in advancing the goals, EXCEL EVOLVES visit www.cgma.org/resources/reports/the-role-of- Microsoft has announced a major overhaul of its the-accountant-in-implementing-the-sustainable- calculation engine, and Excel MVP and FM magazine development-goals.html. ■

58 I FM MAGAZINE I December 2018

When you’ve chosen the wrong job

You have several paths to take when it becomes evident that the job you have started is not the right fit.

By Rhymer Rigby ou start in a new position, full of Remember that it is much easier energy and enthu- siasm. But soon you to find a job when you already realise something is wrong. And then, as have a job. the weeks pass, a horrible realisation dawns. This isn’t the Y great new job you thought it was. In fact, your old job is starting to look pretty job is somewhat different to your If you really hate the job and cannot good and you’re in a role that is expectations, and the commute is change it, you should leave completely wrong for you. So, how do you maddening, you might ask if you can “Unchangeables” include areas such as deal with this situation? work from home two days a week and if it company culture. If you are used to a is possible to dial up certain parts of the nurturing, supportive workplace but Give it time, but not too much time role and dial down others. The company discover the new business is a cut-throat, Although you may have your suspicions may be entirely amenable to these take-no-prisoners outfit, you are unlikely after a few weeks, you owe it to both your suggestions — and you should not to be able to change this. What’s more, employer and yourself to spend a month approach these discussions in an working somewhere you genuinely hate or so in the role. Many jobs can seem adversarial frame of mind. can have a negative effect on your overwhelming and baffling while you’re personal life and your mental health. In settling in. However, depending on where Consider asking for support this case, you should go as quickly as you you are working (both company and Particularly if you have not moved jobs for reasonably can, considering factors such country), your job may have a probation a while, you might be having trouble as your reputation and your financial period, where it is easy to quit with little making the transition. Could a coach or position. notice. If you do decide to leave, you want mentor help? Other options include to do so before this period passes. talking things through with your manager When you interview with other once a week or asking if the company has companies, be honest Ask yourself what is wrong other opportunities. (Don’t forget the Explain that you are looking to leave your Is the role not what you were led to organisation will have spent a great deal present role because you now realise it expect? Or have you discovered that what of money and/or time recruiting you and isn’t the job for you. Don’t criticise the looked exciting on paper is unpleasant in will not want to lose you.) You might also company. Just give an honest, fair account reality? Or is it something else? Does the ask for an extension of your probation or of what happened. You may even be able company have a culture you don’t fit into? induction period. Show that you are trying to frame it as a positive thing. Is it your boss? Is it the commute? to make it work. Brainstorm all the problems you have Avoid short-termism with the job and make a list. If you’re thinking of quitting, look at If you have short stints with multiple your CV employers, you will have more of a Assess what may have changed We all make mistakes and, if this is your problem. However, there are ways around and why first short stint at a company, it won’t be a this. You could spend a year or so doing If the job has changed between your problem. However, if this will be your contract-based work or consulting. As accepting the offer and starting employ- third role that has lasted three months, it well as cleaning up your CV, this will give ment, think about why this might have may look like you are the problem. In this you an opportunity to try different roles happened. It could have nothing to do situation, you might consider toughing it and find out which suits you best. These with the company. For example, the out for a year. After this, you can it may also be a route into a permanent role. market for your services may have very differently — for instance, as a move changed. Remember, too, that jobs evolve to plug a gap in your experience. Don’t repeat the mistake all the time. If the role has changed in four Remember, too, that it is much easier to Whenever you next apply for a permanent months, it might change again in another find a job when you already have a job — job, do your homework and ensure that it four months. Moreover, if this takes you because you look far more desirable to really is the job for you. This is not a out of your comfort zone, that’s a good would-be employers. mistake you want to make again. thing. We learn by doing things that are unfamiliar. Rhymer Rigby is an FM magazine contrib- utor and the author of The Careerist: Over Talk to the company 100 Ways to Get Ahead at Work. To Both of you have a vested interest in an comment on this article or to suggest an idea amicable solution — and ideally one for another article, contact Neil Amato, where you remain at the business. See if an FM magazine senior editor, at Neil. you can work it out. If, for example, the [email protected]. ■ IMAGE BY HJALMEIDA/ISTOCK BY IMAGE

December 2018 I FM MAGAZINE I 61 INSTITUTE NEWS

Nominations and elections to the 2019–2020 Association regional boards

he Association of International the AICPA) and are also members of the member profile is updated no later than TCertified Professional Accountants’ Association. They also include students Friday 1 February 2019. You may update Nominations Committee will convene in studying to become an ACMA and/or your email address by logging in to your early March and nominate members for receive the CGMA designation, and account at cimaglobal.com its regional board terms for June 2019– employers. As a member of CIMA or the All individuals interested in serving as May 2020. Each regional board consists of AICPA and the Association, you are entitled either a nominated or elected member approximately ten seats — seven of which to a vote on the elected positions to the will be reviewed by the Nominations are nominated and three of which are applicable regional board. These include: Committee in March 2019 based on input determined by an elections process. ●●● Africa from the incoming regional board chair. Regional boards provide management ●●● The Americas All approved members who do not fill a accounting insights and input on local ●●● Australasia “nominated” seat will stand for one of the marketplace trends and offer the ●●● Europe “elected” seats. perspectives of CIMA and American ●●● MESANA You may obtain nomination forms by Institute of CPAs (AICPA) members in ●●● North Asia emailing VolunteerServices@aicpa-cima. management accounting as well as those ●●● South East Asia com. Forms be must be received at of students, employers, and key regional ●●● United Kingdom [email protected] by stakeholders. Following the launch of the Elections for the 2019–2020 regional 5pm GMT on Friday 1 February 2019. Association in January 2017, the regional board seats will be conducted via We will acknowledge receipt of the boards now report to the MA board of the electronic ballot only; ballots will be form promptly. If interested members do Association, and their new terms of emailed to members. No paper ballots not receive a confirmation, please contact reference are posted on cimaglobal.com. will be sent out for this election. If you [email protected] Members of the regional boards are would like to vote in the election, please before the closing date to actively seek members of their founding body (CIMA or ensure your email address on your confirmation. IMAGE BY JAKARIN2521/ISTOCK BY IMAGE

62 I FM MAGAZINE I December 2018 CIMA Benevolent Fund Resources for members hank you to everyone who donated to the CIMA Benevolent in practice TFund in the past year. Please continue with this generosity. If you have not yet donated to the Benevolent Fund, we hope embers in practice are chartered global management that you will start to do so by making the £2 donation when Maccountants in professional practice, providing accounting paying your 2019 CIMA subscription. services to businesses, but not as direct employees of those The Benevolent Fund is a charity set up and funded by CIMA businesses. If you are thinking of setting up members specifically to help members and their families who as a member in practice, the course “Self are experiencing hard times. Employed the CIMA Route”, which is run in different areas of the UK, will be useful. Details of these and other events are available at cimaglobal.com/mipevents. A members in practice conference is held annually in the UK in June — the date for 2019 is to be confirmed. Further information and resources for members in practice are available at tinyurl.com/ y6vp27em. Elections to CIMA Council 2019 s the terms of office of the Council members in the following CIMA electoral constituencies (EC) expire at the end of the CIMA Annual AGeneral Meeting in June 2019, elections will be held in February 2019. Nominations for candidates (fellows) to fill the vacancies must be made by six or more members (three of whom must be fellows) whose registered addresses are in the constituencies concerned.

Electoral constituency Current member EC1 Central London and North Thames J Owen EC2 South West England and South Wales D Johnson EC3 East Midlands and East Anglia M Lowney EC3 East Midlands and East Anglia S Stapleford* EC4 West Midlands N Jessett EC5 North East England N Davison EC6 North West England and North Wales J Graham EC8 Northern Ireland P Barr EC9 Republic of Ireland L Connaughton EC10 East, West, Central & Southern Africa D Don-Pierrot EC11 Central Southern England P Ash EC12 South East England L Taylor EC14 South Asia R Edirisinghe EC15 North Asia A Goddard EC16 South East Asia F Chan EC17 Europe, North Africa & Middle East H Parker* EC18 The Americas M Saxton * Members not eligible to stand again, having served on Council for nine or more years.

Nomination forms for candidates for election and other information are available to download at tinyurl.com/yapo6yoh. They may also be obtained from CIMA’s Corporate Affairs department by emailing [email protected]. Please read the rules carefully before completing the form. The nomination must be received on the prescribed form by 1pm GMT on Thursday 10 January 2019 and should be clearly marked for the attention of the Corporate Affairs manager. A scanned or a faxed copy of a signed and completed form is acceptable. The Corporate Affairs department will acknowledge receipt of the nomination form promptly, either through an automated process or by individual acknowledgement. It is, however, the candidate’s responsibility to ensure that his or her form has been received. To avoid uncertainty, it is recommended that, if candidates do not receive such confirmation, they contact the Corporate Affairs department by emailing [email protected] BEFORE the closing date, to actively seek confirmation. If there is more than one candidate for a vacancy, a ballot will be conducted. The Corporate Affairs team will contact you if an election is required. TOP RIGHT: PHOTO BY RAKICN/ISTOCK; BOTTOM: IMAGE BY D3DAMON/ISTOCK BY IMAGE BOTTOM: RAKICN/ISTOCK; BY PHOTO RIGHT: TOP

December 2018 I FM MAGAZINE I 63 EXECUTIVE SUMMARIES

Rebooting the classroom By Oliver Rowe Page 14 BP has transformed its learning for finance staff. This interview with Frances Howat, ACMA, CGMA, BP’s head of capability development for finance, reveals the steps the company has taken to expand training, including creating a “university”, virtual classrooms, apps, and other mobile-friendly resources. There has also been a focus on growing internal talent and on blockchain, data visualisation, and artificial intelli- gence. Augmented reality, award-winning gamification, and user-generated content also have roles in the global energy company’s digitally led learning revolution.

Keys to fraud risk oversight By Dalit Stern Page 20 The creation of a fraud risk appetite statement and the development of key risk indicators, or KRIs, can help organisations better allocate their resources to deal more effectively with fraud. This article explains the key elements of a fraud risk appetite statement and provides a detailed and practical guide to the process of research, creation, and implementation needed to produce KRIs that work even for smaller organisations.

Ethical implications of artificial intelligence By Jeff Drew, Ken Tysiac, and Samantha White Page 30 Much has been written about the potential of artificial intelligence to transform business operations. Computer systems that can learn on their own have the potential to perform many tasks with exponentially more speed than humans. But executives need to consider more than business applications when deciding how to deploy systems that rely on AI and machine learning. This article explores ethical concerns, such as algorithm bias and societal impact, that leaders should take into account. FROM TOP: PHOTO BY FIONA HANSON/AP IMAGES; PHOTO BY BILL OXFORD/ISTOCK; IMAGE BY IMAGENAVI/GETTY IMAGES

64 I FM MAGAZINE I December 2018 Using predictive analytics in employee retention By Shilpa Pai Mizar Page 38 Companies aiming to reduce employee attrition costs are turning to predictive analytics to mitigate turnover risks and develop employee retention strategies. The initial investment in the technology needn’t be significant and can quickly produce marked results, according to some consultants. Predictive analytics can uncover hidden factors contributing to turnover and allow HR to develop targeted, responsive policies. Although this technology is in limited use, it’s likely that many companies will be using it in the near future. The biggest challenge in making sure data streams are of high quality.

8 financial reporting errors — and how to fix them By J. Carlton Collins, CPA Page 42 Are your company’s financial reports accurate and easy to understand? Are they efficiently and effectively produced? A series of five questions can help you deter- mine if your financial reporting process has room for improvement. If the answer is no to any of these questions, then you may have several common financial reporting mistakes that need correcting. This article walks you through those persistent problems and examines solutions to getting your financial reporting process back on the right track.

Statement of Ownership, Management, and Other Securities: None Published Nearest to Filing Date: 119,380 Copies of Single Issue Published Nearest to Filing Circulation 12. Tax Status. The purpose, function, and nonprofit d. Free or Nominal Rate Distribution (By Mail and Date: 123,770 (Required by 39 U.S.C. 3685) status of this organization and the exempt status Outside the Mail) i. Percent Paid (15c divided by 15f times 100). Avg. 1. Publication Title: FM (Financial Management) for federal income tax purposes: Has Not Changed (1) Free or Nominal Rate Outside-County Copies No. Copies Each Issue During Preceding 12 Months: 2. Publication Number: 396 During Preceding 12 Months included on PS Form 3541: None 100%; Copies of Single Issue Published Nearest to 3. Filing Date: October 1, 2018 13. Publication Title: FM (Financial Management) (2) Free or Nominal Rate In-County Copies Included Filing Date: 100% 4. Issue Frequency: 6 Times per Year 14. Issue Date for Circulation Data Below: Vol. 1, on PS Form 3541: None 16. Electronic Copy Circulation 5. Number of Issues Published Annually: 6 No. 3, June 2018 (3) Free or Nominal Rate Copies Mailed at Other a. Paid Electronic Copies: None 6. Annual Subscription Price: Member $30 US, Non- 15. Extent and Nature of Circulation Classes Through the USPS (e.g., First-Class Mail): b. Total Paid Print Copies (Line 15c) + Paid member: $60 US a. Total Number of Copies (Net press run). Avg. No. None Electronic Copies (Line 16a): None 7. Complete Mailing Address of Known Office of Copies Each Issue During Preceding 12 Months: (4) Free or Nominal Rate Distribution Outside the c. Total Print Distribution (Line 15f) + Paid Publication: Association of International Certified 127,152; Copies of Single Issue Published Nearest to Mail (Carriers or other means): None Electronic Copies (Line 16a): None Professional Accountants, 220 Leigh Farm Rd., Filing Date: 123,770 e. Total Free or Nominal Rate Distribution (Sum of d. Percent Paid (Both Print & Electronic Copies) Durham, NC 27707-8110; Contact Person: Kathleen b. Paid Circulation (By Mail and Outside the Mail) 15d (1), (2), (3) and (4)) (16b divided by 16c × 100): None Johnson, 919.402.4109 (1) Mailed Outside-County Paid Subscriptions Stated Avg. No. Copies Each Issue During Preceding 12 17. Publication of Statement of Ownership. If the 8. Complete Mailing Address of Headquarters or on PS Form 3541 Months: 0 publication is a general publication, publication of General Business Office of Publisher: Association of Avg. No. Copies Each Issue During Preceding 12 Copies of Single Issue Published Nearest to Filing this statement is required. Will be printed in the International Certified Professional Accountants, 220 Months: 122,624 Date: 0 December 2018 issue of this publication. Leigh Farm Rd., Durham, NC 27707-8110 Copies of Single Issue Published Nearest to Filing f. Total Distribution (Sum of 15c and 15e). Avg. No. 18. Signature and Title of Editor, Publisher, Business 9. Full Names and Complete Mailing Addresses of Date: 119,380 Copies Each Issue During Preceding 12 Months: Manager, or Owner Publisher, Editor, and Managing Editor. Publisher: (2) Mailed In-County Paid Subscriptions Stated on 122,624; Copies of Single Issue Published Nearest to Kathleen Johnson, Senior Manager, Operational Kim Nilsen; AICPA, 220 Leigh Farm Rd., Durham, PS Form 3541: None Filing Date: 119,380 Analysis & Initiatives Mgmt. NC 27707-8110; Editor: None; (3) Paid Distribution Outside the Mails Including g. Copies not Distributed (See Instructions to Date: September 21, 2018 Managing Editor: Rocky S. Rosen, AICPA, 220 Leigh Sales Through Dealers and Carriers, Street Vendors, Publishers #4 (page #3)) I certify that all information furnished on this form Farm Rd., Durham, NC 27707-8110 Counter Sales, and Other Paid Distribution Outside Avg. No. Copies Each Issue During Preceding 12 is true and complete. I understand that anyone 10. Owner: Association of International Certified USPS®: None Months: 4,728 who furnishes false or misleading information on Professional Accountants, 220 Leigh Farm Rd., (4) Paid Distribution by Other Classes of Mail Copies of Single Issue Published Nearest to Filing this form or who omits material or information Durham, NC 27707-8110 Through the USPS (e.g., First-Class Mail®): None Date: 4,390 requested on the form may be subject to criminal 11. Known Bondholders, Mortgagees, and Other c. Total Paid Distribution [Sum of 15b (1), (2), h. Total (Sum of 15f and g) sanctions (including fines and imprisonment) and/or Security Holders Owning or Holding 1 Percent or (3), and (4)]. Avg. No. Copies Each Issue During Avg. No. Copies Each Issue During Preceding 12 civil sanctions (including civil penalties).

FROM TOP: PHOTO BY B&M NOSKOWSKI/ISTOCK; IMAGE BY GRUNDINI/IKON IMAGES GRUNDINI/IKON BY IMAGE FROM NOSKOWSKI/ISTOCK; B&M BY TOP: PHOTO More of Total Amount of Bonds, Mortgages, or Preceding 12 Months: 122,624; Copies of Single Issue Months: 127,152

December 2018 I FM MAGAZINE I 65 How to set goals you can keep in 2019

he close of one year and ushering in of the next, be it on 31 December or with February’s Lunar New Year celebrations, Toften prompts people to set resolutions. Here are some ways to set goals and keep them on track: • Choose no more than three goals and write them down. • Make them measurable, manageable, and motivational. • Break them into small, achievable chunks. • Be as specific as you can about what you want to achieve, and why. • Make sure they reflect what you want to achieve, not what you think you should be achieving. • Change them if they turn out not to be right for you. Life is what happens when you’re making plans, so goals shouldn’t be set in stone.

—By Jackie Fitzgerald, FCMA, CGMA, a professional coach and owner of Alquimia Coaching & Development of Harwell, Oxfordshire, in the UK.

Fireworks light up the Berlin skyline from the landmark Fernsehturm TV tower as the German capital celebrates the arrival of the new year on 1 January 2018. PHOTO BY ODD ANDERSEN/AFP/GETTY IMAGES ANDERSEN/AFP/GETTY ODD BY PHOTO I am valued

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