WHY THE PEN IS MIGHTIER THAN THE SWORD

 

In today’s column I want to talk about a common problem in companies both large and small, public and privately held.  Even publicly held companies struggle to maintain accounting manuals with policies and procedures.  You may ask why there is a need for concern.  A concept we are all familiar with but often overlooked is ‘continuity’.  For instance, the employee that knows how to write up prepays and enter them in the system as well as making any interest calculations is the only one that knows how it’s done.  She’s the one that developed the process.  However, unfortunately, a dispute arises over her salary and she turns in her notice.  She’s not much help in training her replacement either.  Now you are faced with trying to trace back her steps.  Once you figure it out, wouldn’t it be wise to put the process in writing?  I won’t even mention the cross training that could have taken place in years prior to her leaving.  (That’s another column).

Let’s talk about the article that appeared in the January 14th edition of The Wall Street Journal’s CFO Journal, “Surprise! Audits Dig Deeper”(wsj.com/cfoj) .  The premise of the article is that auditors for companies issuing audited financial statements are under pressure to test internal controls beyond what they have ordinarily tested.  At the heart of that testing is documentation and the need for a transaction to have substance over form.

Quoting the article  “Now, auditors are asking for more documentation, going line-by-line through budgets, sitting in on meetings to observe internal controls in action, and meeting with company accountants to understand their thinking when they signed a specific document.”

Even if your company does not have a requirement to provide audited financial statements, I would suggest you take heed of these audit changes.  Think of your accounting documentation as a safety net.  A good example of that is a written policy and set of procedures to set up a new vendor.  Do you have one that your A/P Department can follow?

As a controller, one of the biggest challenges you have is the day to day management of accounting operations and risk.  Just as in publicly held companies, if your transactional processes are not able to scale up for rapid growth or seasonal demands, internal controls will suffer. In the rush to push transactions through A/P policies may be ignored or forgotten because people are new or ill informed about how that works.  In today’s environment, setting up a vendor can result in the perpetration of a fraud.  It’s even possible to commit a violation of Homeland Security’s accounts payable version of a ‘No Fly’ list of companies and individuals banned from doing business in America.    Who would have believed even ten years ago that vendor mismanagement could result in so much risk to a company.

If you are working for a startup, or a small company who is struggling to grow and thus has put internal controls and policies and procedures on the back burner, where do you start?  I highly recommend ‘The Accounting Procedures Guidebook” by Steven M. Bragg.  Steven Bragg writes prolificly for the accounting industry.  The book is full of great information, forms and templates.  It’s a small investment that can render a large payoff.  It’s definitely one you want in your ‘controller toolbox’.  And, for more in depth information on managing A/P there is always Mary Schaeffer who has published more on A/P than any other other author I know. (www.ap-now.com).

Seasoned controllers know that building any kind of operations manual is not a simple undertaking and requires time and effort to complete.  The biggest single challenge is updating existing policies and procedures.  I’ve seen quite a few manuals gathering dust on a bookshelf somewhere.  All those policies and procedures that took so much time and work to document, print and handout are forgotten before the ink is dry.  Now that we are living under a ‘cloud’ we can use our Microsoft Exchange server (sharepoint) or a web based host so that you no longer have to update only periodically to avoid constant reprints.  Make your manual dynamic and timely and I believe it will provide a more enhanced set of internal controls over your accounting function.

What’s this?

WHEN LOVE GOES WRONG & other personnel issues

No, this article is not about office romance.  It’s about when managers and their direct reports come into conflict.  With respect to Full Disclosure, I follow a newspaper column ‘Your Office Coach’ that appears every Sunday in our paper’s ‘Money’ section.  The writer is Marie McIntyre.  Marie writes the business version of ‘Dear Abby’ .

In her Sunday column, a lady writes in that she and her manager had gotten along very well and that her manager ‘was the best boss I have ever had’.  But now the relationship is broken and the employee feels as if her manager hates her.

What happened?  The employee’s company had a policy that no vacation was allowed in December.  I think we can all agree that this is not an unusual or particularly abusive policy.  I’m sure the company had  very good reason for it.  However, the employee had some family visiting over the holidays and wanted to spend time with them so she asked her manager to make an exception and allow her three days of time off.  What we know is that the manager granted her request but when the employee returned her manager seemed angry with her.

Ms. McIntyre’s response is an attempt to try to figure out what happened during the time the employee was off.  Having been in this position as Controller, on more than one occasion, I can understand what happened.

There are two types of managers/controllers………….the ones who like to say ‘yes’ and the ones who like to say ‘no’.  Obviously, it’s better for everybody when they have a manager that likes to say ‘yes’.

I suppose we could describe the manager’s behavior as passive/aggressive.  She said yes but didn’t really want to, so now she is taking it out on her employee.  The employee sees herself as a victim of unfair treatment.  These types of interactions are becoming more and more common as employees demand more flexibility in their work schedules.

Obviously, the manager granted the request but did not feel it was justified.  What if an employee says they need to be off on Friday for a doctor’s appointment that was difficult to schedule.  You would obviously grant this request.  But what happens when you find out they really went to the beach?  (Really – you should know most doctors don’t work on Friday!)

In my world what would have happened is this.  I would have agreed to give her the time off because I want my employees to think I am fair and the employee rarely asked for time off (let’s assume that).  During the time she was out, I discover a project she was working on is not finished as I would have thought it would be.  I have to assign someone else to pick up the project and finish it.  That employee would have to put in some overtime thus eating in to the time she needs for Christmas shopping (it is December).  The others in that department are resentful anytime I ask them to do something that would have been done by the absent employee.  Two of my direct reports come to my office to point out that it was a mistake to let her off and the consensus that it is very unfair to everyone else, especially since they have families too and would have liked to spend more time with them.

Does this sound familiar?  No wonder her manager seemed angry and resentful.  As they say, ‘no good deed goes unpunished’!.

How would you have handled this?  My only suggestion is to rewind this tape and go back to the beginning.

Did the manager remind the employee about the December policy?  Did this employee plan for company based on the assumption she would get the time off? Are you being taken advantage of?  How will her absence affect the company and its ability to do business during such an important time?  How will it affect her co-workers?  Will they have to work more and thus spend less time with their families over the holidays?

If the employee had come to you and said she needed three days off because her husband was coming home from a war zone for a brief holiday, you would have said yes and everyone would probably pitch in to help.  It’s when people feel taken advantage of, or the recipients of unfair treatment, that’s where problems arise.

In this case, both the manager and the employee were at fault.  What do you think?

A BRIDGE OVER TROUBLED WATERS

As the story about the ‘trumped up’ traffic jam engineered by aides of Governor Christie of New Jersey, one of the networks cleverly played the old song ‘Bridge Over Troubled Waters’.

If you have been following this case, you already know that Governor Christie denied any personal involvement during a long press conference.  Whether you are for or against him as a  possible contender for the 2016 Republican nomination for President, there is one unescapable truth.  As a Controller, you probably recognize that the issue being raised is ‘tone at the top’ but really, what is that about?

While we often define it as having ethically and morally high standards set by the leadership of a company, it really is much more than that.  If we tell our children, as new drivers, that speeding is dangerous and illegal, and then we speed while they sit in the passenger seat, we have the proverbial ‘do as I say, not as I do’.  So here are my top ten requirements for making sure that ‘tone at the top’ is not just something we give lip service to:

  1. The company treats all customers honestly and provides legitimate products and services.
  2. The company insures that all employees are treated honestly and ethically and are not deprived of their rights or benefits.
  3. The company treats its vendors as stakeholders, pays their obligations responsibly and timely and does not use its’size in unfair ways.
  4. The company acts in the best long term interests of its stakeholders (customers, employees, vendors, lenders, stockholders).
  5. The company does not knowingly imperil the safety of others (for example: using drivers who are not legally authorized to drive).
  6. The company does not knowingly violate the laws of its county, state or country.
  7. The company’s leadership insures that all financial statements released publicly are materially correct and accurate
  8. The company hires qualified, sufficiently trained personnel to fill its management positions.
  9. The company makes compliance issues a high priority.
  10. The company does no harm.

I am sure that there are other areas I have not listed but I believe my list is fairly comprehensive.  If  these are the standards by which a company will live, then I believe that growth will not be impeded.  A I have said before, every day the Wall Street Journal has at least one article about a corporate employee on trial for fraud or theft.  Whether it’s insider trading, embezzlement, intentional misstatements of financial condition, all of these can generally be traced back to tone at the top.  Don’t you agree?

BACK TO BUSINESS IN AMERICA

It’s back to school today for many students.  And, it’s back to work today for controllers facing the first full work week of the year.

So, with that said, I am going to launch my first annual ‘The Everyday Controller’ list of predictions for 2014 in America.

  1. I predict that the U.S. Government and other governmental bodies should become your new best friend this year.  In years past, many small companies have felt safe flying under the radar of compliance.  I would suggest that this will not be so easily accomplished.  Build a history of compliance with the various agencies you must deal with including the IRS, your state’s environmental division, city and county officials, etc.  Regulatory oversight is not going away.  Build a proven track record of compliance and you will most likely reduce your company’s overall risk.
  2. I predict that your skills as a Controller in a growing company will be tested.  Companies experiencing rapid growth face their own set of challenges including finding and training new personnel, maintaining internal controls, working capital forecasting and many others.  In companies with both a controller and a CFO, the controller is normally working on the frontlines.  All controllers should make sure that there are open lines of communications with employees.  I cannot tell you how many disasters were averted because someone gave me a heads up.  Keep your door open as much as you possibly can.
  3. I predict that the single greatest challenge you will face in 2014 is keeping all your personnel happy.  In today’s world of work, many employees expect the flexibility to be able to attend functions during the day at a child’s school or to utilize FMLA to care for a sick parent.  It’s the 21st century.  And people want more than just money from their jobs.  They want choice, opportunity, challenges, flexibility and to be heard and respected.
  4. I predict that as a Controller, if you fail to keep up your personal and professional development eventually you will be seen as living in the past, doing things the old way, and even possibly ‘obsolete’.  You are a professional.  Even if you are not a CPA or CMA, you should take advantage of the courses offered for them.  Take a course on Internal Control, or Tax.  There are a number of courses that are specific to industry such as construction and the restaurant business.  Find ways to interact with others in your profession.

It is too easy to live your life at work careening from one crisis, one fire, to another.  If you don’t come to life except when something has gone wrong, you probably need to start building in a daily routine.  Develop projects you want to work on.   For instance an accounting manual for your company may be needed.  If you’re on an Exchange Server developing some of its capabilities.  Have a set time each week to meet with your staff.  Maybe even an hour or two a week for that professional development track.

Finally, having lived and traveled across the world, I can safely say that America is the business engine of the world.  You should be proud to be a part of that no matter how large or small.

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