For larger companies, however, ridding the finance department of manual entries and stand-alone spreadsheets is proving to be a Herculean task (think “Augean stables”).
Parson’s Hurley says that 99 percent of his clients — these are Fortune 500 firms, mind you — still work with spreadsheets or disparate financial systems. Only the Fortune 50, claims Hurley, are really breaking away from their reliance on spreadsheets, since only these companies have the resources to connect far-flung systems with middleware and to wean employees from spreadsheets by retraining them.
Spreadsheets are still handy for running “what if” scenarios as well as budgeting and forecasting exercises. But when the subject is financial controls, notes Crossroads’ Stover, relying on stand-alone spreadsheets instead of financial systems “violates the audit trail.” More opportunities exist for mistakes — or wrongdoing — and widespread use of spreadsheets means that a company’s financial-database history is useless.
Balance sheets and income statements, Stover maintains, should be posted within a systems environment. (For more, see “Core Values,” our ERP buyer’s guide.)
7. Lack of Transparency
Accounting is a straightforward science, says Arbortext’s Peralta, and transparency is a non-negotiable item for both internal and external reporting.
From an internal perspective, the department must respond to questions with timely and logical answers. When the mechanisms that deliver reports are too confusing, or when the systems that should be running routine reports are spitting out incorrect or incomplete information, that inefficiency should raise a red flag.
Deal with it promptly: While poor report generation creates an unproductive finance department, it also hamstrings business units that depend on updated financial data. When operating units don’t get the information they need to support their management and planning decisions, they’re not likely to keep quiet.
As for external reporting, Professor Owers gives straightforward advice: Meet disclosure requirements and do it quickly. He praises broadband services and products purveyor Scientific Atlantic for management’s quick announcement about the financial impact of the bankruptcy filing of Adelphia Communications, a 20-year customer of Scientific Atlantic. Footnotes, Owers counsels, should follow the spirit and not just the letter of the law. (Easily said — but faced with tough new reporting requirements, many CFOs are having difficulties with “The Fear of All Sums.”)
8. Dubious Structures
First, and most dubious: If your internal audit team reports to the CFO, you would be hard-pressed to find an executive, regulator, or Sunday-morning talk-show pundit who did not bristle at the potential conflict of interest.
Every CFO we interviewed for this article insists that this line of report is a grievous governance deficiency that’s wide open for exploitation. (The flip side, as exposed by our article “There’s a Monster in Finance,” is that the newfound power and independence of internal auditors poses its own threat for finance chiefs.)