Reducing compliance risk with better finance systems

Updated: December 10, 2024

Recent court cases, including a particularly consequential Supreme Court decision, have changed the calculus around compliance and fraud reporting. These new developments only bolster the case for more easily accessible and actionable financial data for CFOs and other executives as they work to mitigate compliance risks from every angle.

“The Supreme Court ruled that certain protections against fraud disclosure are more limited.”

The most recent court ruling involving financial compliance and fraud came from the Supreme Court’s decision in Digital Realty Trust, Inc. v. Somers. In that case, the defendant was a former employee of the plaintiff, a real estate investment trust that owned data centers in a number of countries including the U.S. In 2014, Somers was fired after he disclosed to senior managers at Digital Realty Trust that the company’s chief executive was obscuring millions of dollars in cost overruns, signing off on no-bid contracts and using company funds to pay friends. After making the disclosure, Somers was fired, an act which he claimed was retaliatory and in violation of the Dodd-Frank Act. A provision of that law, as signed by President Barack Obama in 2010, protects corporate whistleblowers who disclose fraud within their own companies.

However, the Supreme Court’s ruling in this particular case, as well as the specifics of whistleblower protection laws like Dodd-Frank and the Sarbanes-Oxley Act, put these thorny issues surrounding fraud disclosure back in the limelight. This presents challenges for CFOs who are not fully informed of their organization’s financial details.

How can CFOs respond?

While lower courts had sided with Somers, the Supreme Court’s unanimous decision overturned those rulings in what amounted to a more limited interpretation of Dodd-Frank. Their argument hinged upon the basic fact that Dodd-Frank specifically states that whistleblowers may only be protected under the law’s provisions if they report legitimate financial fraud to the Securities and Exchange Commission. Somers, on the other hand, only reported his findings to people within his organization.

The most obvious conclusion of the Supreme Court’s ruling in this case, according to experts who spoke with Financial Advisor IQ, is that any would-be whistleblowers should plan to go directly to the SEC if they have reason to suspect financial fraud in their organization. This actually contradicts the SEC’s own advice prior to the ruling, which recommended bringing potential compliance violations to the attention of internal stakeholders first.

But the ruling also introduces more complexity for senior executives like CFOs who become aware of financial wrongdoing either on their own or from a colleague. That’s because, if another employee suspects fraud and is aware of the new reality that their protection against whistleblowing may now be limited, they might simply let the problem go unnoticed.

When CFOs and other corporate leaders have access to more accurate, timely financial data, some of these complicated issues may well be avoided before they spiral out of control. This latest court decision only makes the argument for better, more sophisticated and intuitive financial reporting and accounting processes stronger.

Related Resources

consero_inhouse_vs_outsource_infographic
Case Study

How private equity-backed AppleCare leveraged Finance as a Service to accelerate growth

AppleCare’s finance team wasn’t just missing out on insights contained within accounting data. It also had patient billing information tied to electronic medical records that ...
Back Office Holding Back 3
CEO / CFO

3 digital tools to aid mergers and acquisitions

Mergers and acquisitions are unavoidable in the modern economy. The Institute for Mergers, Acquisitions and Alliances reported more than 50,000 such transactions occurred in 2017, ...
CEO / CFO

What your financial statements aren’t telling you

  A key part of getting a startup off the ground is securing funding, and in many cases, this means wooing investors with an enticing ...
consero_inhouse_vs_outsource_infographic
ArticleArtificial Intelligence

The ultimate guide to modernizing your finance department

Today’s highly competitive, data-driven business environment demands that organizations let go of traditional finance activities and embrace the digital revolution. Because modernizing your finance operations ...

Day Sales Outstanding (DSO): Ignore It At Your Own Risk

One of the critical keys to managing your company’s receivables is to measure and control your Days Sales Outstanding, the average number of days your ...
CEOCEO / CFO

How to Manage Your Board Relations More Effectively

As a CFO, your corporate board of directors is one of your most important constituencies. Therefore, it’s critical to manage board relations carefully and strategically ...

Finance as a Service

Cutting edge technology, processes, and people in a fully-managed solution to deliver precise financial visibility and improved operational scalability, plus a lower and more predictable cost structure. 

Flex Finance

Keep your existing technology and processes. We can manage the back-office F&A function from end-to-end process, including closing the books. When you need skilled talent, we can supplement your F&A team.

Advisory Services

Expert advice and strategies to help you grow.

• CFO Advisory Services
• FP&A and Reporting
• Technical Accounting & Clean-Up

Consero FaaS: Disrupting the Outdated Traditional F&A Model

Transformation
  • Cash to GAAP conversion
  • Clean-up work
  • Interim oversight & support
  • Accounting software Implementation

Build it Yourself Solution

  • CFO / Interim CFO
  • Consultants / VARs

Consero FaaS Solution

  • CFO / Interim CFO
  • or Consero Interim CFO
  • Consero Setup/Transformation
Ongoing F&A
  • Monthly financials
  • Daily accounting support
  • Management reporting
  • Integrate add-on acquisitions

Build it Yourself Solution

  • CFO
  • Controllers & Accounting Team
  • Enterprise Accounting Applications

Consero FaaS Solution

  • CFO
  • or Consero Fractional CFO
  • Consero FaaS Enterprise F&A Software and Services

New PE Platform Investment F&A Challenges

Founder Owned Company Accounting:
  • Existing accounting done on a cash/hybrid basis
  • Run on SMB accounting software and other disparate applications
  • Inability to produce auditable financials
  • Lack of know-how to develop projections & KPIs
  • No consistency/structure to customer contracts
  • Underqualified staff
  • Non-scalable manual processes
Carve-Out Accounting:
  • Required to move off parent company accounting applications in a timely fashion
  • Have to build an entire F&A team
  • No documented operational policies and procedures
To Optimized Finance & Accounting:
  • Monthly financials available in 5-10 business days
  • Audit and diligence ready support details
  • Integrated enterprise grade accounting software
  • Budget and forecast reporting
  • Business KPIs
  • Efficient & scalable processes for rolling in add-ons