Who fares best in your opinion?
A business yielding a $13m Profit After Tax having a team of 19 officials to manage its finance department,
Or
A business with Profit After Tax of $20m having a team of 60 officials to manage its finance department.
You would say the former one.
I would say: NONE!
Because the former one has not one, not two but four qualified accountants, yet this army of accounting staff, predominantly made up of clerks is an investment they intend to retain; for reasons to be unearthed in this space in a while.
However, it’s not that there aren’t any commonalities between the two models. The most major is thinking alike! Accountants can think alike you may say. Well, even a qualified and an unqualified one think alike and thus their teams look alike too!
So, let’s first see what is that keeps these armies occupied:
| Processes | Activities |
| Cost Center Accounting, Payments & Receipts | Posting accruals, invoices, making payments and recording payments and receipts |
| Net Payroll | Deals with deductions and reconciliations once gross payroll has been completed by administration |
| Budget Compilation | Consolidation, making budgeted Profit or Loss, Balance Sheet and Statement of Cashflows |
| Management Reporting | Monthly reporting of actual results against budget and budget utilization reports |
| Financial Reporting | Quarterly, Half Yearly and Annual Financial Statement Close Process and Reporting |
| Tax Deductions | Deducting and recording applicable taxes from payments, receipts |
| Treasury / Working Capital Management | Cashflows management, determining low-cost financing and best possible return on short term investments and selecting from amongst these |
| Asset Recording | Recording capital expenditure investments made, derecognition, depreciation and recording investments below the capitalization thresholds in memorandum records |
Largely therefore these processes constitute an accounting function and that too at a rudimentary level.
And now for what they don’t usually do or get it done through other teams or external consultants:
| Processes | Activities |
| Invoice Verification | Verification of services completed, goods received prior to recognition of payable or at least prior to payment |
| Assets Inventorying | Regular sample based independent physical checking of fixed assets |
| Assets Management | Reviewing and recommending to the management decisions for assets management; review of economic lives, maintenance expense, condition and location, disposal recommendation, etc. |
| Forecasting | Incremental budgeting and cashflows, revising budgets regularly and forecasting for remnant periods based on actual results and variances thereon |
| Costs Optimization | Identifying opportunities to re-engineer and improve processes to achieve economy of operations without compromising on controls |
| Capital Structuring | Optimum capital sources and mix based on cost of capital and business financing and stakeholder risk and return requirements |
| Investment Analyses | Determining feasibility of a proposed investment |
| Growth Avenues | Identifying and advising business growth avenues to executive management for consideration |
The first two here are again basic expectations from an accounting function, requiring fulfillment of assertions pertaining to these as well. Rest of it is stuff that a Finance function should be doing or aiming for. These activities add to the ones for accounting, they don’t replace any, since most accounting function tasks have now been relegated to information systems.
Finally let’s see what the reasons are for so doing; doing what should instead be done by information systems and not doing what they should be doing. And why still a massive resource laden department is necessary for them:
- The function continues to insist on being a legacy accounting function,
- Bigger department means optics of doing bigger stuff,
- Optics of too much workload,
- Department managers like an army of subordinates,
- Importance amongst other departments and across the entity,
- Apex management must give due consideration to them / their advice,
- They remain bigger even if right sized,
- Inefficiencies are hidden.
The last one, hiding inefficiencies is the most remarkable benefit of all. In the guise of too much work, the regular tasks assigned replete with errors and control lapses remain hidden, since someone can catch and correct it before the final output is laid bare. This then morphs into a culture where it is believed that someone will catch if he/she doesn’t.
Fortunately, internal auditors fare a lot well in this regard. They can understand how processes within the department have been designed and resources are being utilized and can make their recommendations for re-engineering of processes and right sizing of the function.
However, this ability works only when internal audit is being heard. And when it’s being heard, entities seldom have resource laden armies in their departments!