As outsourced CFOs we are brought in to assist in a variety of situations across many different types of organizations. Every instance is unique in terms of what kind of financial position they are in, where they are excelling and/or struggling operationally, and what they are looking to get help with across their financial functions. As a result, their expectations can get hazy for the consulting CFO coming into the role. When this unclear view of what a fractional CFO should be doing is combined with financial management activities that are (either unintentionally or purposefully) against best practices or downright unethical, an outsourced CFO can find themselves in a sticky situation.

So, whether you are a consulting CFO looking for advice or a business leader looking for an idea of what to expect from the engagement, we have put together a quick resource to offer some guidance on how external CFOs handle ethical questions and issues.

Fiduciary Responsibility

As outsourced consultants fractional CFOs can decide whether they want to take on fiduciary authority or not. It is not legally mandated that an outsourced CFO must accept fiduciary responsibility over the business they are working with, which means that each CFO services provider or independent consultant can handle this area however they see fit. For example, here at CFO Selections we choose not to act in a fiduciary capacity to avoid conflicts and reinforce the business owner’s role in decision-making.

However, even when outsourced CFOs do not assume fiduciary authority, they still bear an ethical responsibility to act honestly in the work they do to protect the organization to the best of their ability. They will hold themselves to the highest standard of personal integrity and adhere to a code of ethics in the work that they do.

Best Practice Exceptions

When happens if a company’s financial management activities go against common accounting best practices? Financial best practices are the most common right way to do things for most businesses, but some niches have specialized needs.

Industry variables can sometimes dictate that management decisions be made to handle things differently in certain instances. An outsourced CFO will work with the organization to understand any exceptions that exist for their client’s industry or business model. And, armed with knowledge from previous engagements, they should be able to adapt quickly, reducing the associated learning curve with managing the organization in this way.

Illegal Activity

Sometimes the exceptions that external CFOs find are not a result of well-informed management decisions though – sometimes they are an indication of fraud.

When they find something suspicious, outsourced CFOs should not jump to conclusions. The best fractional CFOs will ask the client why something is being done in a certain way. Often, they will find that the answer is, "We had no idea that was going on!" But if the client is aware, they will highlight the concern to the client and a fractional CFO will then remove themselves from the engagement. They will not look the other way if management has been cooking the books or engaging in fraudulent activity regarding payroll, banking, or processing payments. Outsourced CFOs certainly will not be party to any illegal activity or unethical behavior that is already occurring when they are brought in because they are not willing to go to jail for their clients!

Internal Controls

Internal accounting controls are important even at private companies to protect the organization against bad actors both internally and externally. These kinds of controls are meant to mitigate unethical and illegal behavior by removing the opportunity component of the fraud triangle.

As the head of the accounting and finance functions it is the CFO’s role to oversee internal controls for the organization. Outsourced CFOs will implement internal controls where they are lacking, strengthen them where they are weak, and ensure they are being maintained where they are working well.

For a real-world example of how one of our clients barely avoided losing $50,000 to a fraudulent scheme due to the strength of their internal controls, read:

Managing Cybersecurity Risk

One of the most common threats that organizations face these days is a cybersecurity breach or attack. Outsourced CFOs must attempt to mitigate and manage this risk like any other internal or external threat. They will advise on how the organization can better protect its financial data from a cybersecurity standpoint.

> Download the Top 10 Cybersecurity Tips for Small Businesses <

Today’s fractional CFOs need more tech skills than they ever have in the past – not to own technology functions within the organization, but to work more efficiently and better protect their clients from some of today’s biggest threats.

Need to outsource your CFO or controller role? Reach out to our team of trusted financial executives today! Our team of US-based fractional CFOs has the expertise needed to work with businesses in all stages and verticals to meet their specific needs. Our experience allows us to do high quality work with the utmost ethical considerations to the complete satisfaction of our clients. Find out what others are saying about our work and contact us for more information!