Financial Controllership

Hi! It’s AM. 😄 

Welcome to this week’s publication. I am in awe to be handing out some informative content about Financial Controllership.

In today’s email, I will be sharing to you how the accounting function have undergone vast changes through the years. From just performing traditional tasks, to incorporating new tasks, to identifying new tasks specifically assigned for those controllers in smaller companies. We will cover the first 4 chapters of Steven M. Bragg’s book entitled The Essential Controller.

So let’s get into it, shall we?

Chapter 1. Accounting in the Corporation

Financial Controllers have evolved from merely preparing and presenting financial statements to contributing to the ever-growing world of business through sharpening technical and managerial skills.

Traditional tasks of the controllers are comprised of:

• Accounts Payable Transaction Processing

• Accounts Receivable Transaction Processing

• Assets Transaction Processing

• Debts Transaction Processing

New tasks include:

• Currency translations

• Margin analysis

• non-product cost analysis

• Target Costing

New tasks (for controllers in smaller companies):

• Information Technology Systems, Hedging, Foreign Exchange, and Internal Auditing Programs

Role of the Accounting Function

The important area in which the role of the accountant has changed is related to processes. When another area of a company changes its operations, it is the duty of the accounting staff to adapt to these. They must alter their existing accounting systems to process the transactions accurately and timely.

Role of the Controller

The key factor is that the controller must be highly skilled in interdepartmental dealings since they will be interacting with other departments to discuss opinions on a variety of topics in order to come up with better decisions.

Impact of Ethics on the Accounting Role

Essentially, the accounting function is in the midst of a fundamental change from being a clerical group without significant training to a group of experienced technicians and managers.

With this being said, the need for hiring clerical personnel will be reduced as the focus in hiring more experienced personnel will significantly increase.

Chapter 2. Controller’s Responsibilities

Chief Accounting Officer can have numerous titles, but the most common used is controller.

There are four main functions which a controller is responsible in. These are:

• Planning Function

  The establishment and maintenance of an integrated plan of operation is a major function.

• Control Function

  Living up to its name, a controller is responsible for the systems of controls used to monitor accounting transactions.

• Reporting Function

  This function is closely related to both the planning and control functions.

• Accounting Function

  This is the systematic recording of the financial transactions.

The accounting function does the following to stay up to date on the latest technology advancement:

• Benchmarking key practices

• Using electronic transactions

• Installing new systems

• Reducing cycle time

• Outsourcing accounting functions

Controller’s Job Description

A controller reports directly to Chief Executive Officer or Chief Financial Officer. He is responsible in supervising all accounting, finance, administration, information technology, and human resources personnel.

Relationship of the Controller to the Chief Financial Officer

In a larger company, there is a clear division of tasks between the controller and the CFO. However, there is no clear delineation of these roles in a smaller company, because there is usually no CFO.

The controller in a smaller company handles all financial functions, but when a company grows to become a larger one, a CFO is hired and would take some tasks from the controller such as setting up and maintaining lines of credit, managing cash, determining credit limits for customers, dealing with investors, handling pension plan investments, and maintaining insurance policies.

Take away:

If before, the position requires a controller to focus on processing transactions and financial statements, the job now requires a controller have with exceptional managerial skill, as well as a general idea of such diverse bodies of knowledge as taxation, business process improvement, outsourcing, and information technology.

The controller plays a major part in cash conservation:

• Send invoices promptly.

• Collect account receivables promptly.

• Conduct cost accounting promptly.

Chapter 3. Chief Financial Officer: From Controller to Facilitator of Change

It is important for a controller to be aware of the Chief Financial Officer’s job due to the fact that it may be the logical next step to fulfill.

Task of the CFO

Creating value means facilitating change that affects finance and impacts the operating units.

The CFO must:

▪ Develop and communicate a compelling finance agenda.

CEOs want CFOs who are strategic thinkers and aggressive implementers, who can execute successfully.

▪ Build a commitment to change within finance.

If the CFO has developed a compelling finance agenda, it is time to build commitment around what they want to accomplish.

▪ Change executive management practices.

The executive team must develop a set of management practices that allows the CFO to implement his or her finance agenda.

▪ Enlist the support of the CEO.

Executive teams that are able to drive change and are able to work through many organizational challenges have the following practices:

1. Regular meetings

2. Constructive Confrontation

3. Listening

4. Shared Agenda

5. Clear feedback

6. Decisive-fast paced meetings

7. Consensus with qualification decision-making.

8. Data driven.

9. Role of support functions.

10. Continuous improvement.

▪ Mobilize the organization.

Mobilization goes beyond communication, which is often characterized as a two-way exchange of information.

▪ Institutionalize continuous improvement.

The more effective a CFO is at instituting a continuous improvement mentality and process, the easier it will be to keep driving change.

Chapter 4. Operational Accounting

This chapter focuses on how to upgrade the accounting function so that it runs as how a world-class department should.

• Create Departmental Job Descriptions

• Billing Clerk - is accountable for creating invoices and issuing them to customers and updating customer files.

• Collections Clerk - is accountable for collecting the maximum amount of overdue funds from customers.

• Payables Clerk - is accountable for verifying proper payment approval and processing payments in a timely manner.

• Payroll Clerk - is accountable for collecting timekeeping information and issuing pay and pay- related information to employees.

• Create a Departmental Training Program

It is time to see if they are capable of doing so.

• One of the very first acts of a controller should be to clear as much paperwork out of the department’s confines as possible.

• Streamline the Accounting Workflow

The controller should focus on the elimination of the following items which interfere with the orderly flow of work:

• Unneeded chairs, desks, filing cabinets, and carts

• Unneeded computers, printers, phones, copiers, and fax machines

• Unneeded posted items, such as outdated labor law posters, whiteboards, corkboards, and old messages on those boards

• Excess quantities of office supplies at employee desks, such as printer paper, staplers, tape, and so on

• Document All Major Processes

The controller should undertake an in-depth review and documentation of all processes.

• Correct the Underlying Causes of Errors

Depending on the level of experience, training, and procedural accuracy in an accounting department, it is possible that the accounting staff spends up to 50 percent of its time just correcting errors from earlier transactions.

• Use Best Practices

Once a controller has discovered a best practice that fit into his organization, it is essential to research the issue to ensure that these points have been covered:

• Cost-benefit analysis. The controller must ensure that the cost of installing it does not exceed the savings from using it.

• Control issues. A new best practice improvement may result in a major reduction in the volume of work, but it also may eliminate a key control point in the old system that is being replaced. If so, there is now a control risk that may result in a loss that greatly exceeds the potential savings from using the best practice.

• Capacity. If a controller is contemplating a mammoth project that will improve the efficiency of the accounting department, it would be useful to determine the capacity of the department to perform the installation.

• Murphy’s law. The controller always should expect that something will go wrong with the installation of any best practice and be prepared for the worst possible case.

• Time requirements. The longer an installation project runs, the worse its chances of succeeding.

• Track record. If the controller has a poor track record for installing best practices in the past, it will be difficult to convince the staff to participate in yet another project.

• Personnel issues. If a proposed best practice will require the approval of someone who does not have a good record for assisting in previous implementations, then the controller must fix the problem with this person.

• Support by top management. If a best practice can be installed without any involvement from other department, then the chance of success is much higher than if another department must be brought into the process.

• The accounting functions that can be outsourced are the following:

  • Check printing

  • Collections

  • Internal auditing

  • Payroll

  • Period closings

  • Tax form preparation

  • Transaction processing

  But the most common one by far is payroll.

PS. To my classmates taking up Financial Controllership, good luck in our exams! 😄