Safeguarding Against Employee Turnover Amid the Audit Cycle
As the economy showed signs of recovery earlier this year, an unusually hot job market quickly materialized. Companies of all shapes and sizes are currently experiencing higher levels of attrition, and it has been difficult to fill open positions, including finance and accounting roles. This emerging state of the talent market can raise significant “key person” risks. Often, individuals within accounting and reporting teams possess significant institutional knowledge, and that information can be difficult to transfer during a two-week period when an employee gives notice of plans to leave a company or perhaps takes a medical leave suddenly and unexpectedly. This disruption can specifically impact an organization heading into the 2021 audit cycle, especially if the accounting and finance departments do not have the proper training, technology solutions, and procedures in place to mitigate such risk. There are several ways accounting and audit teams can navigate current risks related to the workforce:
Formalize and document desktop procedures and accounting policies
One of the key steps to help mitigate key person risks is to create desktop procedures. This helps to memorialize steps in a process. While documentation often exists on company wish lists, many teams but have not taken the time to compile the information. Although it can be time consuming to prepare desktop procedures, businesses can benefit by starting with the more complex processes – especially those that would be harder for a new person to pick up quickly.
Akin to outlining desktop procedures, companies will gain similar benefits when formalizing documentation around accounting policies. Sometimes these are understood and have been discussed with the audit team, but undocumented, the nuance around certain management judgments might get lost in transition.
While attempting to effectively deal with employee turnover and the impact on reshuffled roles and responsibilities, companies should remain mindful of the control environment and, in particular, the segregation of duties.
Review location and access for key documents
Another area to consider is whether documents —especially contracts, agreements, and other sensitive files— are stored on local hard drives, which can make it difficult or impossible to recover necessary information after a person leaves a company. It is important to establish a secure repository to maintain key documents and to make sure the appropriate personnel have access, including passwords to protected files.
It can be easy to forget about files that are saved to a local hard drive related to an issue or transactions from months or even years ago, especially when working through personnel transitions. Taking the time to thoughtfully manage records can avoid costly efforts to recreate or recover lost documentation. It seems intuitive that companies should have access to information, but some organizations have recently encountered very abrupt departures of CFOs or other senior leaders, resulting in essential files remaining in password-protected locations on the departed individual’s laptop. In these cases, it might require significant time and effort to reconstruct support that is unable to be recovered.
Cross-train staff to cover disruptions, being mindful of necessary controls
Another strategy to consider is how a company might cross-train employees. This is important if a team member suddenly becomes unavailable during the middle of year-end close so that the company has equipped an individual with the knowledge to step in and cover the responsibilities. Ideally, someone with experience is already available to provide coverage, but if not, companies should consider investing the time to cross-train staff, making sure each key team member has an “understudy” with the knowledge to step in on short notice.
While attempting to effectively deal with employee turnover and the impact on reshuffled roles and responsibilities, companies should remain mindful of the control environment and, in particular, the segregation of duties. Sudden changes in responsibilities can have adverse effects on the control environment.
Given the prevalence of turnover, many companies will feel the impact during the audit season. Riveron’s webinar examines additional insights related to personnel risks and managing other pressures of the 2021 audit cycle.
