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Manage the tension of revenue, risk and COVID-19

Balance cost cuts to avoid risks that could cause long-term losses

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A woman is walking along a stretched sling COVID-19 shutdowns are slowing cash flow worldwide, and many businesses are cutting costs to try to protect their revenue’s cash and profit. That might be an essential move, but the wrong approach could leave them open to critical losses.

“Leaders must resist the temptation to cut risk management and compliance functions so deeply that longer-term business consequences are even more severe,” said Grant Thornton Forensic Advisory Services Partner Bryan C. Moser.

So, where are your critical risks, and how can leaders strike the right balance?

Comprehensive perspective You can begin with a general risk assessment. To gain a more comprehensive perspective, legal counsel can help identify specific risks that could lead to claims or other disputes – such as supply chain issues that might block you from fulfilling contractual commitments. To help you and your legal counsel understand your financial commitments and the web of related risks, generate a robust financial analysis with a thorough understanding of the key elements in your contractual arrangements and business operations.

That financial analysis, and the advice of a financial specialist, can also provide important background if legal action ensues. “That type of analysis is valuable, not only for potential claims from business partners whom you could not serve, but also for disputes with suppliers,” Moser said.

Diligent documentation Once your legal and financial analysis illuminates your greatest sources of risk, confirm that your team is diligent about their daily documentation and interactions:

  • Maintain clearly documented financial records of costs incurred or losses resulting from specific incidents
  • Understand costs associated with not meeting your commitments
  • Document actions taken and costs incurred to mitigate circumstances
  • Know your suppliers well enough to assess whether they will be able to deliver
  • Evaluate supply chain and other vendor agreements to find opportunities to maintain cash

“Employees may feel the stress of the current situation, and a pressure to keep generating revenue to avoid cost cuts. They may be feeling economic duress both at the organizational and personal level, which can make it tempting to short-cut compliance processes.”

-- Grant Thornton Forensic
Advisory Services Managing
Director Scott Nemeroff
Employees at all levels of your business may be focused on your cash flow, but maintaining strong compliance controls will help set the tone for ethical and prudent decisions across the enterprise. With this mindset as your foundation, you can foster a next phase of proactive steps.

“Employees may feel the stress of the current situation, and a pressure to keep generating revenue to avoid cost cuts,” said Grant Thornton Forensic Advisory Services Managing Director Scott Nemeroff. “They may be feeling economic duress both at the organizational and personal level, which can make it tempting to short-cut compliance processes.”

Proactive steps With guidance from your legal and financial advisors, you can take proactive steps to mitigate the impacts of future regulatory enforcement and other potential developments:

  • Assess the business functions under the greatest stress (such as logistical disruption or revenue pressure in the sales function)
  • Identify the regulatory and compliance risks facing each identified business function
  • Ensure proactive action on compliance controls, such as training and ongoing monitoring
  • Deliver off-schedule risk-based compliance training and enhance risk-based on-monitoring efforts
  • Consider risk-based off-schedule compliance reviews or audits

The best balance Quick cost cuts can expose significant risks. As leaders feel the pressure to swiftly scrutinize non-revenue-generating activities, it’s important to understand where cuts could have a devastating impact on legal or compliance functions – either directly or as a side-effect of pulling a long-established thread of compliance from the fabric of the company.

Today’s environment is new and uncertain for your employees. Clarify and model the places where they should now prioritize costs, and where they should avoid creating exposures to legal claims, compliance violations and other long-term losses.

Now is a critical time to give your leaders and team members timely insight and guidelines, to ensure they make smart and ethical decisions that protect your assets.

Contacts:

Bryan C. MoserBryan C. Moser
Partner, Forensic Advisory Services
T +1 703 847 7586


Scott NemeroffScott Nemeroff
Managing Director, Forensic Advisory Services
T +1 703 637 4086