The finance department role in risk management within Maltese pubic limited companies

Abstract

The recent corporate scandals and financial crisis have shed light on various risk management deficiencies. This led to risk management and risk disclosures becoming a major concern for stakeholders, particularly regulators, government and shareholders. Moreover, as a consequence of these happenings, a new approach to risk management developed - ERM. Under this new approach every person within a company shares in the responsibility for managing risk. In addition, the cause of the turmoil surrounding the financial world has also been partly attributed to what is being referred to as dysfunctional behaviour. Purpose - The Finance Department is said to be one of the major contributors of information to risk managers. The aim of this study is to analyse the role that those working within the Finance Department of Maltese Public Limited Companies (PLCs) play in managing risk. Design - The objectives of this study were met through the distribution of questionnaires to local PLCs and the analysis of published sources of information. Findings - The results of this study show that those working within the Finance Departments of Maltese PLCs are highly involved in managing risk. This involvement tends to be heightened in the case of non-financial institutions. Finance Departments are responsible for carrying out risk-related activities, including risk reporting. However, a major area of concern identified through this study was the lack of training provided to those working within Finance Departments during the last five years. Conclusion - This study concludes that even though those working within Finance Departments are likely to embrace a risk management culture and are aware of their positive contribution to risk management, there is room for improvement. This can be attained through a number of measures including the implementation of ERM, the provision of training and the establishment of a separate risk management committee. Furthermore, the incidence of dysfunctional behaviour was found to be minimal. Value - This dissertation seeks to raise awareness on the contribution the Finance Department has in managing risk, despite the relatively small size of Maltese PLCs. This study sheds light on the areas of improvement to ensure that this involvement contributes towards the efficient and effective management of risk.