Strategy & Operations » Governance » 10 ways to avoid a BT accounting scandal

10 ways to avoid a BT accounting scandal

Following BT's accounting nightmare, we take a look at why the errors occurred and outline the key takeaways for CFOs

Last year, BT announced that following an internal investigation into the accounting practices in its Italian business, historical accounting errors had been identified, estimating that the impact would be a write down of items on the balance sheet by £145m.

The situation spiralled last week when BT said that following an independent review by KPMG, the adjustments identified had increased the £145m figure to £530m, resulting in the suspension of a number of BT Italy’s senior management team and the appointment of a new chief executive.

So, why were the errors undetected for so long?

Visibility is key.

Andy Bottrill, regional vice president of Blackline, a financial automation company specialising in cloud based accounting tools, said: “In some organisations, CFOs still go with gut feeling as to whether the numbers provided by Finance are correct. Often there is a lack of visibility into the minutia of the financial processes being undertaken not by the higher paid executives but by entry level accountants who know that debits and credits have to balance, but they are not given the best possible tools to do this job in a controlled and collaborative way. Nothing is in one system, spreadsheets abound and it is therefore very difficult for Controllers, Group Controllers and ultimately the CFO to know that everything has been done correctly by the appropriate person at the right time.”

How could BT have prevented the scandal?

With the availability and intelligence of technology, Bottrill commented that although reporting deadlines are tight, cloud systems should provide CFOs with the necessary visibility to avoid errors.

“Key controls have to be regularly tested and without a system that can see across the whole process this is very difficult to do. Reporting is a stressful time for finance teams and they struggle to meet tighter and tighter deadlines for reporting,” Bottrill said.

“Although there are regulatory compliance rules to follow, without a system of checks, a system that provides the ability to segregate duty, and a system that allows the CFO to drill down into the substantiating documentation that supports the balance sheet numbers, they will always have to cross their fingers and hope no one finds an error once they file. This is the twenty first century, cloud systems are easily implemented to enhance old legacy systems and there is no excuse for lack of visibility today,” he added.

The key takeaways

What are the best practices that CFOs can implement in their own organisations? CFOs should take note of the 10 key takeaways outlined by Bottrill following BT’s announcement.

  1. A clean Balance Sheet leads to a cleaner profit and loss statement!
  2. Improved auditor access means enhanced insight into the reported numbers and culpability where firms are non-compliant.
  3. Audit trail functionality ensures confirmation of responsibility.
  4. Procedure notes attached directly to the reconciliations support compliance with IFRS.
  5. Risk management supports the identification of anomalies allowing them to be addressed in a timely manner.
  6. Simplify your chart of accounts, standardise your processes and automate to optimise the processes.
  7. Make sure you are managing your Balance Sheet in a controlled environment.
  8. Make sure you have visibility into the substantiation of the balance sheet accounts.
  9. Make sure you have segregation of duty applied, up to 3 or 4 levels of review and approve to try and avoid accidental or deliberate fraud.
  10. Manage risk by adopting a “continuous accounting” methodology that allows you to do a soft close at any point in time to avoid the time it takes to detect errors.
Was this article helpful?

Leave a Reply

Subscribe to get your daily business insights