Accountants have become critical to the survival of businesses and their reputations during Covid-19

The opportunity for fraudulent activity to flourish as finance departments operate remotely with less oversight in these extraordinary Covid-19 times is inevitable. Government loans and financial support have been given out with little or no accountability to businesses that are struggling with the change in their trading environment and as a consequence businesses find themselves in financial need. 

There is already evidence of corporations handing back furlough grants as HMRC offers a 90-day amnesty, but without rapid data-driven insight and risk stratification, businesses may not know the extent of their exposure. Indeed many businesses face the daunting prospect of repaying loans at the same time as paying deferred VAT early next year in a far from certain trading environment. Stuart Cobbe, Director of Growth, Europe, MindBridge explains that the role of the accountant has now become critical to businesses and their reputations. 

Unlocking transparency

The Covid-19 landscape is fluid and ever-changing, and businesses require accurate visibility of all aspects of their business in order to plan effectively for the future and to understand their financial position. As the economy continues to recover to a new ‘normal’, companies need to focus on the next 6 months. How many ‘zombie’ businesses are only operating due to deferred VAT payments? How many companies will fail when they cannot repay loans? The role of the accountant is vital in unlocking this transparency to provide data-driven, actionable insights.

After all, there are many questions around how government financing has been used, from grants to loans, furlough payments to VAT deferments. As of the 20th September, the total cost of furlough claims has reached a staggering almost £40 billion, despite 30,000 applications being rejected, with many likely to have been attempts to defraud the taxpayer. Research by economists from Cambridge, Oxford and Zurich universities found that as many as two thirds of furloughed workers continued to work.

For businesses that do not understand the extent of their exposure, they risk facing a HMRC-imposed tax charge equivalent of up to 100% of the grant to which any recipient was not entitled and was not repaid. It is, therefore, interesting to see the number of large organisations now publicly revealing plans to repay all furlough payments. For many, this is an opportunity to boost corporate reputation and demonstrate a commitment to rediscovering business as usual. However, given the huge pressures businesses have been under in recent months, many CFOs and FDs may not have the full visibility they require to effectively manage this without the power of audit.

Financial Risks

This is about far more than reputational damage, the potential misuse of furlough is far from the only financial risk. The extraordinary shift in every business’ modus operandi over the past few months has opened the door for opportunistic fraud. New sources of income; staff working from home with limited oversight; the financial pressures – both business and personal – created by the recession. The misappropriation of assets should be a very real concern for businesses of every size.

For organisations that have relied upon grants and loans to survive, an employee exploiting the lack of oversight to syphon funds for personal use could tip the company into failure. Companies must determine how – or whether – deferred VAT payments and loan repayments can be made. Is the company truly solvent or no more than a ‘zombie’ business operating with a balance sheet propped up by short term government finance?

Actionable data 

Business resilience and reputation is a priority in this era, and CFOs or FDs may be struggling to establish trust across businesses now operating under a whole new range of pressures, from slimmer margins to a disjointed, remote workforce. There is an obvious need for complete visualisation of financial risks, and accountants play a crucial role in unlocking this data.

The rapid identification of mistakes in government support applications, potential fraud and the analysis of which deferred payments and loan repayments can be made and when – whilst ensuring other risk factors do not jeopardise business stability – is essential to futureproof the business, and accountants can assess data to provide this information in a complete and actionable format to lead smarter company decisions. This is the data insight CFOs and FDs need today.

Traditional financial risk assessment models will not be adequate. At best, problems will be revealed months after the fact. Companies need rapid identification of areas of unexpected activity today. This is where accountants and finance departments using sophisticated machine learning and artificial intelligence techniques can deliver real business value by rapidly assessing financial data and surfacing unexpected activity. Armed with this information, finance teams will know where to focus activities, the questions to ask and the remedial action to take. This information will drive departments and remedial action to ensure business success and growth as the nation gets back to its feet.

In short, accountants and finance professionals can provide the answers businesses need today, whilst helping managers to plan for the future effectively, despite the changes in policies and protocols as the pandemic continues to throw curveballs. An audit can quickly identify problems including but not limited to, cash flow, fraud, misuse of grants, loan repayment issues – all whilst offering the guidance and steps to safeguard the business to promote resilience and protect the solvency and reputation.