How CFOs can do value addition and balance client expectations. CA. BHARAT KANANI SARAF FOODS LIMITED BARODA

Value Additions for the Organization  In the current competitive business environment Chief Financial Officers are expected to play a bigger role in all the functional areas of a business organizations.  Accounting and Financie functions are taken-for granted for CFOs, besides these there are many important functions where CFOs are expected to make significant contributions.

Note worthy news items  Nielsen, the world's largest market research firm, has paid a fee of Rs 1 lakh after it admitted to violations of section 297 of the Indian Companies Act by doing business with other firms, with whom it shared a common director, without obtaining necessary approvals.Companies Act

Note worthy news items  The Enforcement Directorate (ED) is proposing a penalty on German sportswear giant Adidas’ subsidiary Reebok India for alleged violations of the Foreign Exchange Management Act (Fema).

Note worthy news items  The telecom minister has cleared a penalty note to Idea on account of Idea-Spice merger, wherein the DoT has levied a fine of Rs 50 crore per circle for six telecom circles, which translates to a total penalty of Rs 300 crore to the company. A showcause notice will be issued to Idea for a response within 60 days.Idea

Note worthy news items  Food safety officials issued closure notice to the outlet of the multinational Kentucky Fried Chicken (KFC) at Pulimood in the city on Monday evening following a complaint about live worms inside the chicken served to a family.

Note worthy news items  The Gujarat Pollution Control Board has slapped a closure notice on Spectrum Dyes, a chemical unit owned by the president of Southern Gujarat Textile Processing Association, for discharging hazardous wastes into the creek at Palsana in Surat district.

Regulatory Environment  In India in all there are more then35 different Act / Laws to be observed and complied with while doing business.  Achieving regulatory compliance is crucial for Business Org. Non-compliance can lead to large fines, reputational risks and plant shutdowns.  Delays in statutory compliances with national, state and local level laws can lead to major monetary loss, imprisonment etc.

Regulatory Environment  Statutory compliance varies from state to state, and is subject to frequent, sometimes unpredictable changes.  In recent times both international and domestic Indian companies have paid huge fines, experienced plant shut down etc. on account of non compliances of various Acts.

Effects of non compliances  Non-compliance increases oversight by regulatory agencies and apart from reputational and monetary issues, it involves considerable top management time and effort to assure all stakeholders that reasonable diligence is being applied to ensure compliance.  This complex area requires expertise and full time monitoring. Treating this area in an ad hoc manner or even with the best of intentions by non-experts is an unnecessary risk.

Who are concerned  the CEO, CFO and boards of companies discussing has not only been in the area of maximising shareholder value, but also in the area of regulatory compliance as mandated by statutes.  In India, the Securities and Exchange Board of India (SEBI) under Clause 49 of the Listing Agreement has mandated the audit committees of companies to review reports relating to compliance with laws and also steps taken by companies to rectify non-compliances.

Compliance Process  compliance is not a one-time event but a repeatable process that needs to be sustained cost effectively over a period of time.  Compliance process should be designed and implemented with proper design and reporting structures.

List out applicable laws  Identify applicable business, labour, environment laws etc. applicable to the organisation.  A best practice would be to use the services of legal firms where organisations are not equipped with strong internal legal teams.

Which one is crucial  organisations should prioritise the laws based on risk/ impact analysis so that key and critical Acts are monitored regularly.  While all laws applicable to companies need to be complied with, companies may, based on the risk/ impact analysis, decide on the monitoring period for critical and non-critical laws.

Identifying critical area  Once priority is listed-out, critical area for each Law should be defined.  These areas should be detailed in nature so that every section of the law is monitored and complied with.  An important ingredient in this activity should be to define 'timelines/ calendar' for compliance.

Ownership of Process  No activity can be conducted without process owners performing their role.  Hence, the next step is to identify process owner's responsibilities to comply with the sections of the laws.

CFO’s Role  CFO can then, at any point review the status of compliances, non-compliances, remediation plans, time frames for remediation and drill down to last level of detail to the point of location, process owner, section etc.  CFO can organise necessary training to the Process owners.  CFO has to get the result from all the people who are taking care of implementation and compliances.

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