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Finance needs to be high performing!

Financial audit | Finance needs to be high performing! Dan Swanson

The finance function is a strategic one because it helps drive organizations to higher levels of performance by delivering information that enables key strategic decisions to be made. In addition to strategic planning, a well-run finance department supports sound financial management, organizational performance reporting, treasury-related activities, and financial reporting (among numerous other things). It tells you how many dollars are coming and going, and where they’re coming from and going to. Without that information, people are driving blindfolded, and the organization will have a difficult time building and then sustaining long-term value.

Finance, however, is more than just keeping track of the dollars; it’s also about ensuring that sources of funds are adequate and sustainable to fund the organization’s operational requirements and allow the organization to expand to meet the needs of the surrounding community. The Finance role and importance in many respects is truly exploding, e.g. enterprise risk management, financial forecasting and management of the balance sheet, tax, mergers and acquisitions, IT investment management, encouraging adoption of new technologies, and on and on.

At the end of the day, internal audits of finance should not be focused strictly on financial reporting. The many significant activities within the finance function should be regularly evaluated so that key opportunities for growth and organizational improvement can be identified and addressed.

Characteristics of a World-Class Finance Organization

Where do you start? Build an understanding and agreement on what is the role and purpose of the finance function, then obtain agreement on what the characteristics of a world-class finance function within your organization should look like. Based on research published by the Government Accountability Office (GAO), “the finance department” is best-defined in terms of the significant business outcomes it can produce—outcomes such as improved business analysis, innovative solutions to business problems, reduced operating costs, increased capability to perform ad-hoc analysis, and improved overall business performance.

Audit Finance to Improve Organizational Performance

An audit of the finance department should determine whether or not the function’s current services are appropriate, whether organizational performance is continuously being optimized, whether management and finance are working together, and whether finance is helping the enterprise recognize and respond to new business opportunities as they arise.

There are many issues worth exploring in an audit of finance; I discuss four of the important areas below. The audit team will need to complete a comprehensive audit plan to determine the correct focus and priorities for an internal audit of the finance function.

(1) Strategy Development
Does the finance function help management define, and agree upon, strategy? Does it help with implementation of that strategy, including management’s recognition of, and response to, new and emerging business opportunities?

(2) Budgeting
Do budgeting processes support the assignment of management accountability and monitoring of performance? The audit team should investigate whether the finance function helps top management with forward-looking analyses of the numbers and by forging strong ties between accounting information, budget formulation and capital investment, and strategic planning and implementation.

(3) Financial Systems and Processes
Are there appropriate systems, policies, procedures, and guidelines relating to financial management? How successful is the finance department in meeting business needs?

Has the finance team done everything necessary to get a grip on the organization’s preparedness and the organization’s financial needs? While everyone is trying to forecast the next disaster to “handle”, in my view, process improvement and constantly strengthening the company’s key capabilities is a vital long-term approach to improving resiliency and overall performance.

(4) Accounting
Do the financial practices of the organization meet generally-accepted and industry-accepted financial management standards? Compliance with accounting and auditing standards is important, and an internal audit of finance should usually include a review of the organization’s accounting policies and practices. Where departures in accounting policy or practice do arise—and sometimes an exception to common practice does make sense for a specific company—has that departure been explained and approved by the proper managers?

Organizations Must Proactively Improve Capabilities

An internal audit of finance should foremost identify key improvement opportunities. The audit should confirm long-term finance needs (aka financial management and treasury management) are identified and being addressed. Equally important, the audit should make sure the finance department can track all the dollars floating around the company. Is cash management and bookkeeping strong? What can be improved?

Lastly, the audit should investigate who is driving organizational capability improvement efforts and assess whether those efforts are working well. Finance is not only about internal control over financial reporting, nor is it only about quarterly and annual reporting; while these activities are important, they do not significantly affect long-term value creation. A good finance function is about much more than that. A good audit of the finance function is about much more than that, too. In closing, the two resources highlighted (see sidebar) provide numerous insights regarding world class financial management and every finance and audit professional should study them closely.

Is your finance function “world class”?

Dan Swanson is a 26-year internal audit veteran, who was formerly the Director of Professional Practices at the Institute of Internal Auditors. He is also the author of SWANSON on Internal Auditing: Raising the Bar. For your chance to win a copy of the book see below...


If you want to be in with a chance of winning a copy of Dan's book SWANSON on Internal Auditing: Raising the Bar, all you have to do is answer the question below:

What does the abbreviation GAO stand for?

Just send your answer to before Tuesday 15 November to be in with a chance of winning. Once the deadline has passed a winner will be selected at random and contacted within two working days.

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Tags: balance sheet management , business performance , business solutions , enterprise risk management , Finance , finance department audit , financial forecasting , financial management , GAO , Government Accountability Office , internal auditing , IT investment management , Mergers and Acquisitions , new technologies , reduce operating costs , tax management , treasury management
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