Internal Controls during the Great Resignation
November 15, 2021
The labor market and workforce have undergone significant changes since the onset of the COVID-19 pandemic, creating new levels of uncertainty about staffing for businesses of all kinds. The Great Resignation makes it even more important than ever to be ready for sudden, unexpected turnover in key areas of your organization. If you are the controller, Chief Financial Officer, or business owner overseeing your accounting department, you should be asking yourself this essential question: Is your company prepared to experience a full or partial turnover of the accounting department and continue to maintain strong controls and operate effectively?
Whether your accounting function is comprised of a built-out infrastructure or a handful of legacy employees who carry out the bulk of tasks, sudden turnover could hamper the flow of your company’s transactions and day-to-day activities. We serve clients across various industries, and every year we see the impact that changes in the accounting team can have on the company. Occasionally, a controller who has been on the job for decades will retire or resign. There are times when several accounting personnel may leave suddenly and all at once. Maybe your company experiences turnover often, or maybe you do not anticipate changes to your team in the near future. No matter what your situation or past experience, the uncertainties of today’s labor market make it imperative that your organization be prepared for either a planned or unplanned disruption in its accounting department.
Sudden turnover in the accounting team can impact a company in substantial ways. Here are a few examples to indicate the seriousness of such disruptions:
- Accounting records may be left in disarray, leading to omissions or misstatements that prevent stakeholders from seeing timely or relevant financial information.
- Newly hired employees may receive little or no training, sacrificing institutional memory and operational efficiency.
- There may be a temporary lack of access to bank accounts when key people leave who may have been the only one(s) with authorization or access codes. Not only does this increase fraud risk with access not properly segregated, but it could have a significant impact on the ability of the organization to operate, for instance, by delaying the processing of payroll and/or payments to vendors.
- Lack of properly oriented staff could cause a delay in the timely completion of required financial statements, which could result in a violation of debt covenants or legal problems with investors.
These examples illustrate how a lack of planning and foresight in internal controls, especially for transitions, could negatively impact an organization. These issues can be avoided if the company has a thorough plan for turnover in place before any change of the guard. Bank account permissions are a key control that should be addressed in your company’s internal control processes, including your company’s transition plan for any role that has access to your company’s accounts.
We recommend that you develop a transition plan for each of the roles in your accounting function. A good plan should include a process for thoroughly vetting candidates for key roles and the steps needed to train new employees upon hire, including in situations where the departing employee isn’t available to conduct such training. Management both inside and outside the accounting department should be familiar with the qualifications that all key officers should possess to be a good fit in your organization, and the necessary qualifications should be well documented for ease of reference. If your controller or other important officer abruptly leaves, and your management group does not have an understanding of the skills and industry experience necessary to complete their work, you will struggle to find and deploy an effective successor.
In addition to these considerations, we recommend addressing the following questions in your transition plan:
- Has your accounting department adequately documented internal control processes and accounting tasks so that someone in management can train a new CFO or controller on the responsibilities of their job?
- Is there a manual or a guide that is up-to-date and details the steps to perform specialized accounting tasks, especially those that are infrequent?
- Are access management controls designed and implemented in such a way that former employees will have their account access removed immediately upon resignation or termination?
- Are the qualifications of each role documented for the hiring process?
- Who will perform the duties of the vacant role during the interim period prior to the hiring of a successor?
- Could your team benefit from cross training or job rotation, so that current employees may provide coverage in the event of absences?
- Who are relevant stakeholders that need to be informed of the turnover?
The professionals at Geffen Mesher have years of experience in evaluating and developing internal controls. If your organization would like assistance in improving current controls, we provide comprehensive internal control consulting services. For more information, contact the Geffen Mesher Forensic and Integrity Services Group.
International Fraud Awareness Week
November 14-20, 2021
Join the global effort to minimize the impact of fraud by promoting anti-fraud awareness and education.