Financial governance and compliance: why is it so important?
Thought Leadership //15-01-2021

Financial governance and compliance: why is it so important?

by Andrew Pearson, SME Product Manager

What is financial compliance?

Although the details of financial compliance can seem complicated, the idea behind it is simple – it’s about following the rules.

At its most extreme, it’s making sure there’s no fraud in your business, you’re not evading tax and you’re not a vehicle for money-laundering.

But the benefits of financial compliance are not just about showing the authorities that you’re not up to anything shady. Having the right policies in place can give you peace of mind, too.

When it comes to making sure you are financially compliant, you’ll find it easier to manage if you already practise good financial governance.

So, what is financial governance?

Again, the concept of financial governance is straightforward. It relates to how your business manages its financial information. It includes how you monitor cashflow, look after data and stay on top of the information you are required to disclose.

You need to know what information you should have, be able to monitor and retrieve it when you need it, and be able to analyse and present your finances easily when necessary.

Having the right processes in place can take a lot of the pain out of financial governance.

What is good financial governance?

When you are at home managing your personal finances, you will find it easier to be on top of things if you have a filing system in place rather than stuffing all your receipts and bank statements into a tatty shoebox. Not only does it make things easier when you come to fill in your tax forms, you’re also likely to have more of an idea of your financial situation at any given time.

It’s the same in the world of business. Having the right financial governance system in place helps you stay on top of things.

Good financial governance:

  • results in accountability – if there’s a problem within a process, it’s easy to see where things are going wrong and why
  • helps identify risks easily and quickly – whether it’s a supply issue, a bad creditor or poor internal controls
  • helps focus minds on the organisation’s business plan

Failing to maintain adequate levels of financial governance can cause problems a lot more serious than simply finding yourself in a bit of a muddle.

Poor governance can lead to:

  • wrong decisions being made
  • operational and accounting mistakes
  • reduced customer and investor confidence
  • cashflow problems
  • fraud
  • regulatory sanctions

So, you need to make sure your business has the right policies and processes in place to enable adequate financial governance. The processes should be overseen at a senior level, and everyone within the business should be aware of them, realise why they are important, understand how to implement them and know the internal reporting structure.

The corporate world is littered with examples of organisations that failed because they had poor financial governance – whether it was down to lax data management, internal audits, data tracking or cashflow monitoring.

You should be able to check on all these aspects of your financial performance at the click of a button, giving you the confidence that you are always on top of things. The days of waiting for the quarterly audits to be printed out are long gone.

And the good news is that if you follow financial governance best practice, you’ll be well placed to meet your financial compliance obligations.

Why is financial compliance important?

If you fail to follow the rules, the repercussions can be severe. As well as putting your business at risk, bans and – as a last resort – prison terms are on the table. But it won’t come to any of this if you have a Compliance Officer in place to stay on top of things.

What is a Financial Compliance Officer?

You need to be able to show that you have a rigid financial compliance system built into your business.

Risk can never be eliminated but – as with health and safety, for example – it’s about recognising that risk, working to minimise it and having procedures in place to address problems and notify regulators if things go wrong.

Having a dedicated person in charge of financial compliance is key to this. You wouldn’t make recruitment or facilities management an ‘add-on’ alongside someone’s other day job, and you shouldn’t do this with financial compliance, either.

Certain sectors, such as the finance industry, have long had dedicated Compliance Officers, but other sectors should also look to having similar positions within their businesses.

Your Compliance Officer should be up to date with the ever-changing rules and regulations, carry out regular risk assessments, be au fait with data management (again, including being on top of the fast-changing data-management laws) and carry out regular audits, both internal and external.

How has financial compliance changed?

Financial compliance should not be a tick-box exercise or an afterthought. Compliance should be an active process within your business. It’s not about waiting to be asked by the regulator. You should be able to prove to anyone (and to yourself) at any given time that you are properly financially complaint.

Allow your compliance team to come to you with suggestions and recommendations rather than turning to them only when you have a specific need. Make it the norm that your Compliance Officer plays a full role in the day-to-day development of your business.

Whether it’s greater scrutiny from stakeholders following previous financial problems, a review of existing relationships from current partners as they prepare to operate differently in a post-pandemic world, or tougher rules imposed by regulators, the onus on businesses to make sure they are fully compliant is only getting tougher.

So, what next?

Financial governance and compliance should form a key part of your business, but it’s not something that needs to be scary. The good news is that our financial management solution, Advanced Financials, adheres to UK compliance and legislation guidelines and is regularly updated with the latest financial legislation such as GDPR, Making Tax Digital and Brexit, to make it a whole load easier for finance teams.

Like what you’ve seen? Read more financial management guidance, blogs and insights.

Financial Management Thought Leadership
Andrew Pearson

Andrew Pearson


SME Product Manager

Joined with our Acquisition of Exchequer Accounting Software back in 2016, Andrew is product manager for our SME solutions ensuring that our roadmaps are representative of market requirements. Andrew has over 15 years of experience working with finance and ERP software from a technical, development and support capacity.

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