Are Your Controls Still Effectively Managing Your Risks
Warren Buffett says “you only see who is swimming naked, when the tide goes out”. Today, business models are quickly changing, staff are working from home, service delivery is going online and the focus is on response and recovery from COVID-19. This is distracting attention away from existing operational and compliance risks.
Such disruption could be impacting the effectiveness of the controls designed for the “old world”. IT and data security, order accepting and processing, invoicing and cash receipting systems may be subject to substantial, fast paced change.
In these times, where staff are working from home or the number of staff have been reduced, can make businesses vulnerable to internal or external fraud. Its time to keep a strong spotlight on controls and check for weaknesses and gaps to manage the new risks. Ensure reconciliations, segregations and approvals remain strong. Be vigilant with reinforcing your culture and communicating expectations regarding compliance with procedures.
Don’t be caught naked – of good governance.. and keep safe!
Meeting your OHS Obligations Whilst Staff Work From Home
With government directives encouraging work from home arrangements, Directors and Executive need to ensure they meet their legal duty to implement monitoring frameworks to ensure staff’s remote workplaces are safe and without risks to health, including exposure to COVID-19.
For Boards, this means they need to seek confirmation from Management that reasonably practical compliance and risk management systems have been established to aid staff with setting up safe working environments. This may require Working From Home policies/guides be prepared to address the changes brought about by COVID-19. The policies/guides should address workstation set-up, good ergonomic practices, self-assessment checklists of physical and psychosocial risks, online communication processes, HR support and monitoring mechanisms including employee assistance programs, incident/injuries notifications protocols, attendance/timesheets/leave and other entitlements arrangements and any impacts from the Government’s JobKeeper payment scheme.
Management will need systems to regularly monitor how staff are coping, mentally, physically and psychologically. Consider risks such as family violence, kids home from school, isolation, IT Security and access to the internet/work files. Below are some useful relevant information links:
Remote working will have a significant impact on morale, productivity and mental health of workers. With no end date in sight, it is another emerging risk which needs to be appropriately controlled and reported on.
The longer the pandemic lasts, the more serious the focus needs to be on cashflow. Yarra Capital’s Managing Director, Dion Hershan, says his focus is on liquidity, i.e. can the company get to the medium term.
CFO’s need to be able to demonstrate how they can withstand a prolonged downturn – impact on forecast guidance/loan covenants/capital projects/operating expenditure/asset sales/restructuring programs or if they are in a position of strength – M&A opportunities.
To manage the emerging and recovery pandemic risks, financial models should scenario plan for crisis resolution, stabilisation and return to the next “normal”, taking into account different timeframes for each phase. This should identify liquidity stress points which will need addressing.
Cashflow is and will always be king. Longer-term financial analysis now may set your company up to make bold moves when the pending recovery is here. Do you have clarity on your liquidity risks?
Emerging Supply Chain Risks
In this corona environment, it is vital to regularly conduct risk assessments on critical services/critical assets to identify potential points of failure – people, process, systems, materials and suppliers. Frequent scenario analysis on production and supply logistics will illuminate points of vulnerability, allow you to prepare for worse-case scenario’s as well as set up for the recovery. Consider modelling contracted commitments, identifying risks such as:
– Obtain clarity on contracted product/services quantities, assess whether you have sufficient materials and appropriately skilled labour. Re-confirm with critical suppliers, their capabilities. Consider backup sourcing arrangements. Can substitute materials/ingredients be used that still meet quality & regulatory standards?
– Confirm you can you still deliver your product/service safely? With state border closures, quarantine zones and shipping constraints, can deadlines be met? Can timeframes be re-negotiated or alternative routes/delivery methods sourced?
Positive Test on Your Office Site – Are You Prepared to Act to Prevent Further Transmission?
Unfortunately, the coronavirus is spreading and it could impact your worksite/office. NAB in Docklands and Vodafone in Sydney evacuated their offices due to an employee testing positive. Are you prepared for closing the site/office and decontaminating it?
A number of my clients have developed site/office decontamination procedures – they detail site shut-down and employee notification protocols, identify internal clean teams and external cleaners, outline site entry delegations, clarify occupational hygiene cleaning techniques/chemicals/PPE and waste disposal. Also considered are start up processes, such as safety testing, cleaning sign-off and site re-opening delegations.
Decontamination procedures are critical in order to reduce the risk of transmission to other staff. Clarity around delegations, decontamination process and formal transparent sign-off can provide Executive/Boards with great comfort.
Cashflow Forecasting Critical to Business Viability
With the enforced shutdown of many small to medium sized businesses, the Government has positively announced cashflow assistance measures to help. Eligible employers can receive up to $50,000 of their employees’ salary and wages withheld, with the ATO delivering credits via activity statements from 28th April 2020. The eligible period covers activity statement for quarter 3 and 4 with additional $12,500 monthly payments for the July-September 2020 period. Full details and other business support measures can be found at: https://treasury.gov.au/coronavirus/businesses
To ensure you manage the risks of uncertain cashflows, we recommend building a financial model that enables you to scenario model different strategies.
How to Prepare for True Uncertainty
Given the rapidly evolving world we live in, where existing operating models are either being mandatorily shut down, or impacted by social distancing, it is vital to take time to review your strategies and risks. Focus on identifying your “Critical Services/ Critical Assets” and what could impact their continuity! Establish plans to manage these risks.
At the same time brainstorm alternative futures. Who would have thought a gin distillery could change to produce hand sanitiser and F1 teams would design and build ventilators. In a crisis there are opportunities.
Risk management and strategic agility will be essential to successfully surviving.
IT Working at Home Risks
Changing Working Models to Survive the Pandemic
With the tragedy of COVID-19 now a full blown unprecedented event, with no food on supermarket shelves, cancellation of international sporting events and no computer screens available to set up home offices, time for businesses to act agilely is now.
It will be important that organisations have a crisis management plan that is clear on the roles of the crisis management team and has a clear instructional response plan.
Hopefully you have implemented staff safety strategies, such as splitting teams and home rotations. Now urgency is required for modelling cashflows. Finance teams should be scenario planning to forecast what the future looks like and what cost containment is required. Identify critical services and critical assets and develop and implement Agile sustainable strategies.
The next industrial revolution is coming.