WHY SALES EXCEPTION REPORTING can pay for itself! (Part 1)

Following up on last week’s blog, ‘What is my real Net Cost’, I wanted to discuss how Sales Exception Reports can be utilized not just for analysis, but to catch what could be substantial billing errors.  (See example spreadsheet below.)

While many Controllers sift through stacks of reports, how many can find Selling Price errors that, if corrected, could stem further losses.  During my career with a publicly held company we were so fortunate to have some very smart people, programmers and developers, who understood accounting and the needs of the Sales Division.  One of the very best sales management tools they developed was a report issued weekly that looked at product sales, by invoice line (remember, as discussed in the previous post, you must be engaged in transactional posting).  It then compared the unit selling price to the unit cost of sales.  Further it generated a column for Gross Margin Dollars and Gross Margin Percent.  Remember, there is some setup work for a report like this but it is based on simple queries that most programmers could easily create to generate this report.

Let’s look at a a couple of simple  examples:

Example 1:  We have a new product……………Mops.  We paid $3.97 for the mops and sold them for $4.50 with a Gross Margin Percent of 11.78%.  Does that meet the company’s expectations of profit for that product?  The Sales Department should know the answer to that question.  But the question needs to be asked.

Example 2:  The Sales Department was successful in promoting sales of pails this month.  They were budgeted to sell 115 and sold 129.  However, much to the Sales Department’s dismay they actually lost money on the sales.  The Sales Exception Report tells them that they purchased the pails for $2.01 each and sold them for $1.75.  The scenarios leading to lost profits can be many.  Here are some of them:

  • The Selling Price is incorrect.  Someone incorrectly keyed it into the system
  • The Cost is wrong.  It’s possible that the P.O. for the pails showed $1.01 and the Vendor charged $2.01 (we all know that happens)
  • Freight cost was not considered.  Freight is one of the most confusing concepts within a lot of inventory and accounts payable groups.  FOB, Prepaid, Freight Allowance, etc.  If your P.O.’s don’t properly record the freight cost, if any, it will lead to costing errors.

Properly designed, the Sales Exception Report can lead to some serious cost savings.  When I recommended using the report to the owner of my company (a large privately held enterprise) he invested in having the report designed for him.  His comment, ‘it almost paid for itself in one day’.

Some of you may have access to these reports.  But what makes an ‘Exception’ Report?  Many of you may have seen Invoice Registers during your career.  The reports came in and there might be 500 invoices to pour through to see if everything looks right. (What if there were 1,000 invoices to review?) Then we moved into the era of ‘Management by Exception’.  Instead of looking at the good and the bad, let’s just look at the bad.  Who decides what’s bad?  You do.  Your Sales group does.  Owners and Executives will.

So, take a look at my simple example created in Excel.  As previously stated, the Sales Exception Report probably should be generated through a set of queries reduced to a well designed report.  It is not meant for Excel.  It really is part of your data analytics management.  Thing Big!

Next week, we will discuss setting criteria for your report.  No criteria and the report becomes an Invoice Register once again.




It seems that we often live in two worlds, at home and at work.  There is the world of ‘what should be’ and then there is the world of ‘what is’.

Purchase Orders are a very good case in point.  So, I will tell you a story of one of my first encounters with this issue.  When I took the position of Controller at a very large, successful privately owned company they were using a very strict P.O. policy.  There had to be a Purchase Order for everything.  It wasn’t long before I observed accounts payable bills like Utility bills (from the power company and the phone company) with P.O.’s attached.  What sense does that make?  When you see this, you can be sure that no common sense logic is being applied.  This is a terrible waste of an employee’s time.  Then there are the a/p expenses incurred where someone who should have gotten a P.O. did not.  The invoice does not reference a P.O.  The processing employee then writes up a P.O. and attaches it.  What have we accomplished here?

The whole purpose of Purchase Orders can be summed up in the need to be sure there is appropriate authorization for certain types of expenses and secondly, it helps prevent duplicate payments.  Purchase Orders are an integral part of Internal Control.

All of us, the controllers of the world, probably have some differing ideas about the best approach.  I agree that there is not a ‘one size fits all’ solution.  But here are some of my recommendations:

  1. All purchases for Inventory must have a P.O. number on the supplier invoice.
  2. All purchases for Capital Expenditures must have a P.O. number on the vendor invoice.
  3. All purchases for expenses over ($XXX.XX) must have a P.O. number.  You could devise a number for office supplies as a limit that is different from plant supplies as a limit.
  4. Recurring expenses such as lease payments, utilities, salaries, contract labor, should not require a P.O.
  5. Contracts that cover accounting fees, legal fees, consulting fees should not have a P.O.

It’s a simple policy and one that might cover a high percentage of spending in your organization.  In the case of  No. 1, the P.O. should disclose the terms, quantity, price, shipping costs, etc.  Then that P.O. must be referred back to when the invoice is received to be sure you are being billed on the correct basis.

In the case of No. 2 – there should be no exception to this rule (or almost none).  These are purchases that are almost always planned and pre-approved.

I firmly believe that Controllers should not value form over substance.  Just writing a p.o. because the policy says you should no matter what ……………… that is ‘form over substance’.  Maybe this is a great time to ‘audit’ your Purchase Order policy.  See how that policy is being complied with.  You might be surprised.








Many of us have been through the discovery of an employee who steals.  Sometimes, it is really difficult because it is someone we know and work with.  If you read the latest version of  The Global Report on Fraud you will discover that few businesses have escaped this problem.  Why is employee theft so rampant?  Many studies have estimated that one in four employees steal on some level from their employers.

I’ve devoted other columns to prevention techniques, strengthening of Internal Controls and especially segregation of duties.  However, today I want to discuss the ‘aftermath’.  When confronted with the facts, what are you going to do with a key employee, for instance, your only staff payroll person?  What about the Accounts Payable person falsifying invoices and presenting them to the company for payment (to her).  And, she’s your only A/P person and has become much more knowledgeable about the system and its inner workings than you are.

So here is a little quiz for you…………………pick the right answer for your company:

  1. Move them out of their department and away from tasks that involve cash.
  2. Leave them in the department but demote them and hire someone to take their place.  They can train the new hire.
  3. Put them on probation for sixty days and monitor them very closely.
  4. Fire them immediately

Which answer did you pick?  1…..2…..3…..4….?

If you picked any number other than ‘4’……………..my question to you as a Management Consultant is:  ‘ARE YOU CRAZY?’

First, if you think that the other employees in your company are not watching every move you make, you are most likely mistaken.  News that an employee has been caught stealing can travel like wildfire even if you have tried to keep everything about it secret.

Second, anything other than firing the employee will be a signal to a lot of people that they can rationalize some very bad behavior.

Third, allowing the employee to remain in any capacity is like poisoning the well from which you drink the water.  I strongly advise against it.

Several years ago, a long time dedicated employee and single mother of three was caught taking a check, endorsing it and depositing it to her account which was discovered during a reconciliation process.  Her boss felt terribly sorry for her because he knew she was in rough financial shape.  You can agree not to prosecute.  You can agree to not challenge unemployment and you can even pay some severance (I advise against that) to help the employee while she finds another job.

However, before you write a glowing letter of recommendation or tell a caller checking her references that you regret she resigned and she was a great employee, please CONSULT YOUR ATTORNEY.

Finally, remember one thing, your leadership and management skills are on the line here.  Show decisiveness in dealing with incidences of fraud.  You will be respected for it.






 Bank Robber

My column today is not the first one regarding your Accounts Payable department, nor will it be the last.

If you are a new controller unfamiliar with managing an A/P department, you need to get educated as quickly as possible.

Several years ago I was faced with the same challenge and through a stroke of luck,  I found Mary S. Schaeffer.  To say that Mary is a leading expert in the U.S. on Accounts Payable is an understatement.  I have almost all of her books and several of her writings.  I couldn’t have managed a multi-million dollar A/P department without her.

Mary has just published a new book ‘Internal Controls in Accounts Payable’ which I would describe as everything you needed to know about A/P but were afraid to ask!

I know it’s an old joke but it cannot be repeated often enough……….when Willie Sutton, a famous bank robber of the 20’s and 30’s, was asked why he robbed banks…………..he replied ‘because that’s where the money is’.
As controller, it is your job to manage and eliminate as much risk of theft in A/P as you possibly can.  As I have said before, A/P is not about cutting checks and making payments.  It’s also about fending off all would-be crooks inside and outside your company.

If you want to preserve your career and your reputation, don’t let yourself and your company become a victim of A/P fraud…..AND  don’t lull yourself into a false sense of security believing  that no one in your A/P department is smart enough to pull it off.  I’m giving you a stern warning that first…….it doesn’t take a genius to pull it off and second……some A/P fraud is committed by top management.

We often hear Controllers and others say that they cannot maintain necessary Internal Controls because of segregation of duties, probably because A/P might be a one person department.  In Mary’s book she offers practical solutions to segregation of duties and other Internal Control practices.

You can order her book now  at http://www.amazon.com.

Below is an image of her newsletter you can subscribe to in order to stay abreast of all the new developments happening in this corner of the world.


Newsletter of AP-Now

Newsletter of AP-Now







In the Wall Street Journal’s Saturday ‘Review’ section, the dean of the Columbia Business School examines public policy and unemployment in the U.S.  Finally I have found someone who agrees with me that people are out of work because they don’t have the right skills.  That’s really what is meant by a ‘structural labor shift’.

But as a controller, how do you justify adding another person to your team (not replacing someone).   If you’re a small shop, a department of one or two, then that decision may be much more straightforward.  But adding to an accounting/finance department of eight or ten calls for a very in depth analysis of what everyone is doing and if they are operating at 100% or more.  Could you squeeze out one more hour daily of productivity per person in a ten person department?  If so, you have figuratively added another employee to your group.  Where do you start in conducting your own investigation.  Usually requests for more personnel come from your own staff.  Here’s my list:



  • How much texting do you see going on
  • Taking personal phone calls
  • Visiting between employees  for purposes other than ‘teamwork’ (gossiping)
  • Tardiness or leaving early
  • Salaried exempt personnel putting in less than 40 hours per week
  • Excessive absences
  • Periods of ‘downtime’ due to lack of work for the employee


  • Do I call too many meetings?
  • Are my meetings too long and rambling?
  • Do I call too few meetings and therefore my employees are unmotivated?
  • Do I make sure my staff is challenged?
  • Am I too accessible?
  • Am I not accessible enough?
  • Am I causing low morale?
  • Do I advocate for the best resources available for my staff?


  • Is everyone on my staff competent for their given responsibilities?
  • Are any of my direct reports contributing to low morale?
  • Do all staff members have an interest in receiving training related to their skill sets?
  • How old are the p.c.’s and printers that staff are using?
  • Are the working conditions favorable to productivity?
  • Has a key staff member left the company in the recent past?

I want to strongly emphasize that just because  there’s a large acquisition ahead or more work coming your department’s way, the first response should not be to hire additional permanent full time employees.  If a company continues its growth obviously there can come a time when there is no other option but to expand the labor force.  However, it should be considered carefully in your department as Controller or CFO.

Growth is a wonderful thing.  But growth with no added incremental overhead (fixed or variable) can be an elusive goal…. one that may be achievable if there is still best practices and better personnel management yet to be achieved.

Finally, if a staff member(s) comes to you about needing more people in the department, tell them to submit a proposal to you which can be worked on jointly.  Make sure they outline the reasons WHY the current staff is unable to handle the workload and the reasons WHY another person should be hired.



Dear Controllers:

I have a confession to make.  At home, when it comes to cooking, or taking a digital photo, I have no fear of failure.  Burnt dish.  Start over.  Fuzzy photo, delete it.  Start over.  However,  I have spent an entire career terrified of failing at work.


The Everyday Controller

So, let’s discuss the fear that might be holding you back by discussing some of mine.  Here are a few of those big fears (in no order of importance):

1) Forgetting something important like a meeting or a deadline.

2) Creating a flawed spreadsheet.

3) Creating budgets, forecasts or business plans with flawed data or assumptions.

4) Concern about mergers that might lead to job loss (mine)

5) Fear of new bosses.

6) Fear of owning an idea or project that once underway cannot succeed.

7) Fear of not knowing what crisis is out there somewhere waiting to pounce.

8) Fear of losing the respect of direct reports

9) Fear of losing the respect of people I reported to

10) Fear of publishing inaccurate Financial Statements

Shall I go on?  There’s more.  But I try to keep my articles and posts to around 500 words.

Is there a cure for I.T. projects run wild?  Or Accounts Payable sending out a duplicate $700,000 payment.  What about forecasts that are wide of the mark and for which there is really no defense?

These are just a few of the ‘horrific’ events I have lived through.  The worst of them are the ones you don’t see coming and are usually the result of a staff member failing to follow through.

How do we survive these and live to work another day?  Meds?  No.  Here’s some advice all of which I have learned the very hard way.

1) Always take responsibility for the mistake even if it’s something that occurred at staff level.  After all, you are responsible for them.

2) If you undertake a project, try to take ownership of it as best you can.  If it’s a project assigned to you by your CFO or CEO, if there are problems – just keep them posted so that there will be no surprises down the road.  Communication is key.  Put your updates in E-Mail form and retain them in the project file.  It’s the professional thing to do.

3) Whenever possible, try to validate your data.  There is nothing scarier than data that comes from spreadsheets using links that need to be refreshed.  (See my earlier posts on Spreadsheet errors)

4) Do not spend time building spreadsheets as a time filler or so you look busy.  There are always lulls in your work schedule.  Fill them by getting up and ‘walking around’ as some famous efficiency experts have long recommended.  Talk to people.  Go on line and read controller blogs like mine! Join ‘Linked In’ and find groups of like minded accounting and finance people.

5) Repeat after me ‘my staff usually knows more about what’s going on than I do!’   I can’t begin to tell you the number of heads up I received from staff members warning me of impending doom (or danger).  If you take the position that you are the important boss of everybody and no one is as smart and educated as you are………….you are risking falling flat on your face.  And your staff……….they’ll just step over your body.  Or, you can be a coach and a mentor to them.  You can be happy and not threatened when they do well or stand out to upper management.  You can care about them and their personal challenges (there will be many).

Next week we will delve into the area of ‘change management’ or how you can become an ‘agent for change’ within your sphere of influence.





Following up on the last few posts on Month-End closing it’s time to get your arms around the entire closing process.  I believe in this case we need to start at the end and not the beginning.

Below are my recommendations:

  1. Create an Agenda for your ‘Post Closing Meeting‘.  Personally, I think there should be a staff meeting every month right after closing that addresses all issues that arose during the process.  As the closing process improves, the meetings will become less time consuming.
  2. Gather all staff involved in the closing process within one to two days after the closing is totally complete.  Have them bring all checklists and instructions as well as other notes that they think is relevant.
  3. Ask each staff member to be ready to ‘report’ any findings (good or bad) that may have affected the close process.  I recommend letting staff members speak first in a ’round table’ session.
  4. If you can, use a flip chart/board to list the issues that arise.
  5. When issues are identified, you may need to handle them or assign them to someone to investigate.
  7. Morning meeting – bring doughnuts.  Afternoon meeting – bring cookies.

For example, during the ‘Post Mortem’ you discover that your Accounts Payable department continued processing expenses into the system for the current month after the month end cutoff but before you actually closed the books.  In other words, somebody will most likely need to accrue into the next month these expenses or, if still possible, reverse and have rekeyed in the new month.

The question becomes for your post-mortem …… why did this happen?  Was A/P not informed of the impending cut-off?  Errors are time consuming.  So how can you drive out such time wasters?

What if a key staffer was out sick, or otherwise absent during the process?  Did everything come to a screeching halt?  Is anyone cross trained to perform those duties?  If not, there’s a problem sitting squarely in your lap.

Let me point out that ‘post-mortems’ should always be a learning experience and not just for your staff……for you as well.

As a controller, most of your life is spent being reactive.  If you don’t believe that, make a list tonight of all the things you want to accomplish tomorrow.  Put it on a time sheet.  For instance, 8:00 a.m. – finish Segment X G/L account review – 9:00 a.m. – Read lease for new copier – 10:00 a.m. – call a Vendor about a problem……………….then, I challenge you to get all of these things done, in that order and on time.  I’m going to gamble and say you won’t.  The truth is ‘the day owns you’ and not ‘you own the day’.  Agree?  I believe that my ‘post-mortem meetings’ are not reactive.  They are proactive if you follow through to see if needed improvements are made before the next month end close.  Try it.  Let me know how it goes.

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