Bridging the Gap Between Budgeting and Risk Management


At many companies, there is a large disparity between the budgeting process and risk management. There are major threats that could leave you vulnerable to high-impact hits to your budget if one or more of these threats occur. We have listed some common types of risks to research, assess and include into adjustments as you draw up next year’s budget:

Competitive. The relative strength and strategies of your competitors influence how your company should form its budget. For this reason, collecting competitive intelligence and acting accordingly is a necessity.

For instance, if a larger competitor has moved into your market, you may need to consider allocating more funds for marketing and advertising. On the other hand, if a long-time rival has closed shop, you might be able to keep those costs the same (or even lower them) and direct more of your budget into production.

Compliance. Although federal regulatory oversight has moderated under the current presidential administration, many industries remain subject to countless rules and regulations. State governments have also been aggressive in their attempts to gather additional revenue through oversight.

Check to see how compliance rules might change for your business next year. Could a planned strategic move subject you to additional or harsher regulations? Remember to factor compliance risks into your budget, whether in the form of increased administrative requirements or expensive penalties should you make a mistake.

Internal. The biggest internal risk to your budget is fraud. Employees may still have plenty of rationales for stealing from you. A 2019 benchmarking report from the Association of Certified Fraud Examiners found that 58% of in-house fraud investigation teams had insufficient levels of antifraud staffing and resources.

If this year’s budget suffered from fraud losses, it is essential to earmark more money to tightened internal controls. Proper risk management can minimize the possibility that a fraudster will strike. Of course, fraud isn’t the only internal risk to consider. Will your hiring costs rise in 2020 due to the anticipated turnover or a need to increase staff size? Will training expenses rise because of a strategic initiative or new technology?

Business budgets often perform well for a while but can change suddenly when something unexpected happens. Our firm can help you devise a sound budgeting process that includes the identification and assessment of specific threats.

CAPATA is a full-service accounting firm located in Laguna Niguel in southern California.

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