Answers on cost assurance, ESG finance and SME strategy services.
Businesses preparing for the sustainability assurance process should begin by understanding and adhering to relevant standards and frameworks, defining clear objectives and scope, and establishing robust data management systems. Documentation of policies and procedures, engagement with stakeholders, and the implementation of monitoring and reporting processes are critical. Internal audits help identify areas for improvement before external assessment.
There is a growing body of research showing that ESG practices can lead to better financial performance and increased shareholder value. By way of example, a Sustainalytics study showed that a portfolio of companies with the fewest ESG incidents outperformed global equity markets by 11%. Companies may also see financial growth from accessing new markets, e.g., Millennials or environmentally or socially conscious consumers.
A cost assurance team should be independent and have strong technical capabilities, including experience in contracts, project-based issues, cost, and risk reporting. It should be aware of the procedures and processes within the business for cost reporting and risk identification/reporting. They should be independent of internal pressures to allow for fair and reasonable feedback to be given and actioned. In some cases, cost assurance may come from and sit within an existing commercial team using a peer-based assurance structure. In such instances, it is important that the individual is clear on their objectives and does not feel pressure from senior management. It should also be recognised that there is an inherent risk in auditing yourself. If this route is chosen, there should be an independent, impartial review by an external party to verify the methodologies and audit findings. Many organisations have an independent team carrying out commercial assurance. The benefits of this are independence and clarity to wider stakeholders on the assurance parameters to be provided and provide standardisation of audit findings. Additionally, the confidentiality of base information and findings is easier to ensure – this is of particular concern in an actual cost contract, but this can be preserved via an independent assurance and audit team.
Audit and commercial cost assurance provide supporting evidence based on data that controls and contracts are being adhered to and identify areas where commercial practices can be improved to reduce inefficiency, assure adherence (to the contract and law), reduce cost, and waste, and ensure the audibility of accounts and documentation. On cost-based contracts, there needs to be a degree of audit of the accounts as set out within the contract. The accounts should be accessible to the parties. Where lump sum contracts are in use, the sharing of cost information may be limited however, individual organisations will still need to record, verify, monitor, and forecast cost information and risks. Commercial cost assurance can ensure that the contractual procedures needed to provide these are being followed and recommend or advice on improvements where required.
As set out in our Key Output 5, the skills and expertise of the cost assurance team need to extend to an understanding of contractual and legal terms, data analytics and benchmarking, knowledge of cost and financial systems, accounting, and commercial management. The people involved should provide insightful information to influence commercial and cost decisions in real-time. Ideally, this role should be undertaken by an independent team of qualified and experienced personnel comprising qualified accountants, data analysts, auditors, and quantity surveyors. The importance of organisational culture and a cost assurance strategy for instilling stakeholder confidence early on is vital. Training should emphasise how cost assurance audits should not be used punitively for the wrong reasons, for example, to realise efficiencies in the later stages of a project lifecycle but to equitably safeguard the parties’ interest in a cost-based or open book alliancing contract. Resources should be capable of administering the contract form and specific contract requirements and controls. Therefore upskilling commercial, finance and project teams on cost assurance protocols can safeguard cost assurance to these early-on projects.
Management boost. The “Fintech” approach to SME financing also helps improve ongoing management. Fintechs can pull client data in real-time to improve management throughout the lending cycle.
Improved risk management: Fintech businesses may provide data analytics and machine learning capabilities to assist SMEs in more effectively assessing and managing risks such as credit risk or fraud.
Access to finance: Fintech businesses may provide alternative forms of funding, such as peer-to-peer lending, and invoice financing, which can be more accessible and flexible than traditional bank loans.
Reduced costs: Fintech businesses may provide lower fees and charges for services such as payment processing, foreign currency conversion, and account management, which can save SMBs money.
Quick transaction processing: Fintech businesses may be able to process transactions faster than traditional banks, which is especially significant for SMEs that need to manage cash flow and respond promptly to consumer requests.
Better cash management: Fintech businesses may provide digital tools and platforms to assist SMEs to manage their cash flow, tracking spending, and processing payments more effectively.
More questions are answered on each service page: Infrastructure, SME Strategy & Fintech, ESG Finance and Steering Group.
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