Your Finance Department Is Second-Rate

Not certain how your finance department stacks up? Here are ten markers of mediocrity.

Then there’s the case of the company whose treasurer and controller each reported their own cash number — different numbers, that is. (Apparently the discrepancy stemmed from an inflated cash sum reported by the treasurer, who ignored the float on the cash balance.)

It turns out, says Michael Feder, a partner in the Chicago office of turnaround firm AlixPartners, that the two executives were aggressively competing for face time with the CEO and CFO. A little competition is fine, but it should never trump a clear delineation of duties.

Another crack in the structural foundation is improper division of duties. For example, internal audit rules usually require that the employee that receives checks doesn’t post them, and that the employee who prepares checks doesn’t sign them.

Finance chiefs agree that its often impossible for very small companies to separate the administration of payables, receivables, and bank-statement reconciliation among three different people. For companies of more than 100 employees, however, it should be mandatory.

9. Overly Cozy with Sales

At its root, this is a problem of revenue recognition, and of training the sales department about just how serious an issue this can be. Just last week, Computer Associates landed back in the headlines over new allegations that it had shifted revenue from quarter to quarter, a practice that could violate generally accepted accounting principles (GAAP).

Accountants from Logitech International, declares CFO Kris Onken, are routinely sent out into the field “to put the fear of God into the sales staff.” (“Routinely” used to mean about twice a year, but since Sarbanes-Oxley it’s been four times in four months.) Onken insists that the finance department is responsible for educating the salesforce about when to book revenue — “but there can be no doubt who is boss.”

What’s on the syllabus? It’s a refresher course in revenue recognition rules, for new and existing employees, including “what if” scenarios and a question-and-answer period. In addition to the sales and marketing staffs, Onken’s team trains other supply-chain workers such as order-entry and shipping employees.

Sales employees should understand the nuances of different contracts, and other supply-chain workers should have at least some familiarity with them. For example, one Logitech agreement states that the company will ship products to a customer warehouse, but the inventory title is not transferred until the customer actually pulls products from the warehouse — so revenue cannot be recognized until that time.

In a good organization, say many CFOs, the sales and marketing departments should be aggressive about order flow, and the accounting department should lend a helping hand when it can do so appropriately. But when “lending a hand” leads to postponing sales problems — or even straying from GAAP — a company might pass “second-rate” and drop to the bottom of the barrel. (For more, see RevenueRecognition.com.)

10. Staff Turnover

Where there’s churn, there’s trouble, says Stover, and it’s usually associated with burnout or poor management. Accountants are precise by nature, adds Onken, and the CFO has to cater to that part of their personality.

Procedures that aren’t sharply defined, processes with too much wiggle room, moving targets for deadlines, inadequate staffing, systems that don’t support job functions — all are incentives for employees to walk.

Some CFOs believe that substandard transaction systems are the most common cause of dissatisfaction in the finance department. Accountants detest the idea of manually extracting numbers from a system that should deliver them automatically.

Bill Hurley looks instead to procedural breakdowns as a major cause of discontent. The practice leader for Parson Consulting points a finger at departments that wait until the last day of the month to run the numbers, instead of updating receivables, payables, inventory, and cost of goods sold on a daily or weekly basis.

No one likes to “do the big cleanup” — especially when it’s the one thing that seems to arrive on schedule, month after month. (For more on best practices and motivating employees, see “What Works: Building a Strong Finance Team.”)

The best reason to keep staff turnover low might be to help communication flow more freely within the finance department. When your finance professionals and other staffers are unhappy or untrusting, word of potential problems may not reach your ears until it’s too late.

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