On September 29th Column5 hosted a quarterly meeting of the UK100 Group Financial Controllers (GFC) forum on the web. This is a quarterly meeting that Column5 hosts to give GFC’s from the UK’s largest listed Companies opportunity to hear from experts about topics of mutual interest, network and share experiences. This meeting was to understand how Covid-19 was impacting their role as GFC’s, how well prepared they felt when the lock-down arrived in late March 2020 and what they plan to change going forward, particularly given the likelihood of more home working over the next 6 months due to Covid-19, and whether there will be permanent changes to their role as GFC going forward.
Key elements of the discussions are set out below and make an interesting read, but everyone agreed that the key points to take away were:
- Modern technology works well in supporting the Group Financial Controller and his teams key business activities and most of the organisations at the meeting already had move to some element of remote working even before Covid-19 struck the UK with a lock-down in late March. But, the key challenges were making sure people communicated frequently and didn’t hide behind the laptop and putting in place detailed work plans so the whole team was clear on what was being done by whom and when, particularly when trying to produce consolidated results and external disclosure reports for the stock markets
- The Controllers Teams found that their consolidation tools and Group Reporting solutions were able to work effectively even in these challenging conditions, the key issues were home bandwidth rather than any specific issues with the solutions in use. The developments in cloud computing and networking over the last few years really did stand up to the challenge presented by globally dispersed teams working from home
- The frequency of running forecasts and evaluation models during the fast-changing pandemic situation was a real challenge for many. This was either because planning solutions had been designed to support a slower paced bottom up planning and forecasting process or the processes were still very dependent on excel models spread across the organisations. As a result, looking forward, many of the participants were re-evaluating how their existing planning solutions could be better configured to support rapid reforecasting and top-down planning required and some were even looking as a priority at whether they needed to acquire new planning and modelling tools to support rapid reforecasting. It was clear that Covid-19 uncertainty and its impact will be here for some time to come and will have a lasting impact on the requirement for fast and effective planning, reforecasting and scenario planning
- Preparation of external reporting documents such as the Annual Report and Accounts or the Half Year Report and Accounts was a real challenge. It was toughest for those who use traditional processes and solutions for report production, such as stand-alone excel and word documents. Those who had invested in disclosure management software, such as Workiva and SAP Disclosure management, found it easier to manage this process as these tools specifically support collaborative working on disclosure documents while applying controls and security at appropriate levels
Stories from Group Controllers:
The evening started with the GFC of a FTSE100 Group talking about his experiences. To give some context to his challenges the Group has over 10,000 employees working in more than 25 countries and much of the revenue of the Group is generated by business that could not be carried out under Covid-19 restrictions.
He set out what he had to deliver while the lock-down was in place and the impact it had on his team:
“We announced our half year results in mid-September for a 30th June period end and that was probably the latest I’ve ever reported a half year result in my career. We delayed our half year results because of the dramatic effect of the pandemic on our business. We wanted a better clarity as to the outlook for our business and we wanted to have a bit more insight into what was happening before we went to market with the results”.
The Financial Reporting Council and Financial Conduct Authority which govern UK corporate reporting timetables had already announced in April 2020 that companies could delay their reporting by up to two months because of the pandemic.
“We saw the impact of the pandemic hitting our business from mid-March onwards and the outcome was that our results were very badly hit. Our half year 2020 revenue was down 40% compared with our 2019 Half Year. So, we also had a lot of activities to try and cut operating costs, initially these were directed towards retaining staff through flexibility with sabbaticals, reduced hours and pay cuts which would allow us to get through what we thought was going to be a short term slow down. Then, as the pandemic continued, we moved to compulsory redundancies and carrying out a wide review of where we could cut costs. We also did some Capital Raising exercises during the lock-down to give us maximum flexibility by increasing cash reserves. Before we reported at the Half-Year we also had to go through a very detailed piece of work on impairment and in our results announcements, we had to do a lot of work to explain to our stakeholders the impact of impairment on our financial statements”.
With all this going on the Group Controller went on to describe the impact on him and his team as they moved to working at home for the lock-down. He highlighted areas which had significant impact.
“The first area was the auditors. They had to do their half year review remotely, this added time to the process. They did a very detailed review of our work on impairments and what we deemed to be exceptional COVID19 adjusting items. We had a lot of interactions with the auditors on that. We had daily meetings with the auditors through July and September and it was very intense. Although it was a half year review, the Auditors work felt more like a full year-end audit and there was a lot of detailed work.
The second area was forecasts, in the lead up to the half year my team had to prepare weekly forecasts as events got rescheduled or postponed week after week and this was very heavy work. These were very detailed forecasts, generated bottom up by our business divisions.
The third area was the challenge of remote working and making sure the team could operate successfully when working remotely. There were practical issues such as one member of the team who couldn’t carry on working full time at home because of childcare issues and we had to recruit additional cover for that role.
The fourth area was that we prepared to close the half year in July but then that got pushed to September which meant we effectively closed and consolidated the books twice as the outlook changed so quickly over those two months. We were working very hard form early July until mid-September on the Half Year. No summer holiday in these circumstances for the team!
Of all these issues the greatest challenge for the team was the work focused on impairment and going concern reviews, the level of scrutiny that we got from the auditors and the justifications we had to give to satisfy them. Things like assumed recovery rates, links to external publications on recovery rates for certain industries and GDP’s. It was very detailed, and a lot of time and energy was expended on this process.
On a more positive note, the Group Controller talked about the lessons that would be taken into the year-end reporting process in January 2021.
“I think we will be able to use our hard work and learning at the half year and replicate it in the annual close, consolidation and Annual Report production so it will save us time. Just the fact that we have now done a half year close remotely means we are used to that rhythm and way of doing things. We now understand that you need to get really organised with your meetings and your planning, everything has to be scheduled carefully for effective work in Group Finance in a remote environment”.
After this introduction the discussion opened-up, with contributions from Group Controllers from a wide range of business sectors. Below we set out some of the key experiences. First, the Group Controller of a distributor of industrial and electronic products with international operations talked about her experiences.
“We have a March year-end, so we were in the middle of dealing with our auditors when the lock-down arrived and we closed our offices and told the auditors to go home. But we then had to do all our year end working remotely and we reported in June. We delayed our announcement by two weeks purely to give us time to go through the additional work concerning going concern and impairment. Luckily our business has not been heavily impacted so we didn’t have to do any impairment adjustments, but we had to do a lot of work to persuade the auditors that we didn’t have a risk collection issue on our receivables as over 60% of our business is online.
Our biggest issue was not being able to spot clearly that people were having issues, because people were sitting at their laptops wondering why something wasn’t working and would wait a whole day to ask for help. We had to learn quickly how to improve communication while working remotely. We also had to go through the whole Annual Report and Accounts process remotely and that was a challenge. For example, we learnt how important is was to have secure links with your design agency, so you don’t have problems talking to them and sending all the documents remotely. We spent days communicating with them on the final proofreads. The front half of our Annual Report was totally re-written because most of it had been drafted in January and February
As far as our need to do rapid re-forecasting and planning, prior to lockdown we had just started a planning system implementation project which we had to put on hold when lock down arrived and instead had to build lots of models in Excel to do weekly forecasting and cash forecasting just to keep track of what was going on. Now we have restarted the planning project and all that additional modelling we’ve done in those Excel models has been beneficial because we have now changed what we actually want to do in the planning system to reflect our learning from the period of rapid planning in lock-down”.
The Group Controller of a listed global investment company talked about the challenges he faced despite the fact that his business wasn’t as impacted as many others as they continued to have people’s assets to manage and we were able to move their operations to working from home quite quickly.
“We obviously had a revenue hit from the value of assets falling but it wasn’t a threat to the viability of the business. But, at our half year we had some very significant impairments, and these were fully scrutinised by our external auditors. This put a huge amount of pressure on my financial reporting team. We weren’t well prepared for dealing with such scrutiny at half year as it reached year end proportions which meant much more work. We stuck with the same date for the announcement, but we found the final steps quite difficult when working at home. So, in the final week we had to bring a lot of people in the office to work in a social distanced way and this made a lot of difference. We will need to do the same for year-end”.
The Group Controller at a listed public utility company also talked about the experience he and his team had during the lock-down
“We are a March year end and I think the first inkling that we had around what was about to hit us with Covid-19 was when we had a disclosure committee meeting in early march and the CFO said to me any concerns you have on the year end process? I said I don’t think so, and the next day I had to go back and say I should have mentioned COVID19 and things accelerated really quickly from there. It went from being something on the distant horizon to contingency planning and our own working from home plans and within a few days we were in lockdown.
We chose not to delay the timetable and it was very difficult. Echoing some of the points that some of the other Controllers have raised dealing with the auditors was a challenge. We faced challenges with impairment with a joint venture and there were 3 sets of auditors involved so we had to run assumptions and judgements past all 3 auditors. Receivables was tricky because of the impact of COVID-19 on our customers’ ability to pay. We ended up looking back to the credit crunch a decade ago to see what the impact was then in terms of increases in unemployment. We extrapolated on previous experiences to see what might be happening this time. Pensions was also a challange, in particular the asset side of pensions and getting assurance around any property assets as most of the valuations had material uncertainties in them. Finally, a growing concern was the additional procedures that the auditors put in and even though we have forecasts that go out 24 months we’ve got funding that goes way beyond that. The auditors went way beyond what they had done in previous years because of their concerns about Covid-19’s impact.
There was a lot of work done in the final week, a lot more than normal. We use disclosure management software and that really helped, it’s great for the financial statements, although we don’t use it for the front end of the Annual Report, the front end is still with the designers using desktop publishing applications.
We are about to go into our half year reporting process now and I think we have a lot to learn from the first time around in ways of working with the auditors, ways of working ourselves, daily meetings etc. I think we’ll be looking to close issues down more quickly this time around. We did it all remotely at year end and I thought I would never get through a year-end without printing any documents but learned how to review PDF’s in acrobat and we used their comments and review sections so that worked pretty well for us”.
Finally, we heard from the Deputy Group Controller of one of the UK’s Banking Groups.
“We report quarterly so we did a quarter consolidation in April and then had to do a Half Year consolidation process and a slightly bigger document at half year in July. So, both were done in the thick of Covid-19 lock down. I’d say that the majority of our problems came from the fact that all our modelling is based on consensus, macroeconomic variables and these variables would change every week because of the impact of the pandemic globally and its rapid evolution. This makes it incredibly hard to forecast and to carry out our impairment testing. The process is painful, and so we agreed with our auditors that because it takes so long to run these models that for were built for pre-pandemic times, we were running them with a lag. We decided in the middle of the half year that this wasn’t sufficient given the continuing volatility in the markets, so we ended up running everything manually for the half year reporting period.
The other area that caught us out at half year, because we are so heavily regulated, was because the government is issuing a huge amount of loans to companies to support them during the pandemic through banks like us. We had to focus quickly on this issue, adapting to the government requirements.
I wouldn’t expect the coming year end to be so turbulent, but we will still have a big exercise with the forecast and models. From a logistics perspective we weren’t too bad, out tech team did a fantastic job. On my team we were on average working around 3.5 days in the office and 1.5 days at home across the board, pre COVID-19, so we already had the technology and everyone was already set up for remote working. We work in over 20 countries and there were of course country by country issues, typically with home broadband speeds, not issues with our systems”.