Newsletter – December 2015

Financial Transparency – A Case Study

The following is a composite case of several organizations, and any resemblance to an actual client is clearly coincidental.

A client suffered fraud, misappropriated funds, and confused financial concepts. This caused lots of frustration at the board level. The audit report took almost a year to complete, and the auditing firm pointed out a number of material weaknesses, which went years without being adequately addressed.

What was the problem? The accounting process was opaque, bookkeeping practices were cumbersome, information was not captured at a correct reportable level, internal controls were weak; executive management did not have appropriate skills, and most importantly, the board did not understand the way information was reported (too high-level with weak explanations). This resulted in serious cash flow problems.

Here is how the board/company addressed the problem:

Quality of staff – The board insisted that the accounting and executive staff be upgraded and reorganized, and that the new CEO be very close to the numbers.

Discipline – The board insisted on a standard financial reporting package. This consisted of a balance sheet, P&L, cash flow report, variance analyses of this year versus the prior year, accounts receivable and accounts payable aging reports, and other standard reports.

Restructuring the way information was reported – It is now reported in the way that the business is run. This meant a redo of the chart of accounts to re-organize the way information was reported and to capture certain information at a more detailed level.

Policies and procedures – They were developed in bullet point form; they were kept to a few pages and reviewed and approved by the board, and are now followed by senior management. For example, capital expenditures, which could be masked by leasing equipment in which the monthly payments are in relatively small amounts, could no longer fall under the radar.

Sense of openness:
The new CEO and the board encouraged openness in reporting and telling it like it is. Any spin was discouraged. Businesses were separately reported so one could see the contribution profit. A strategic plan preceded the budgeting process and the fist year of the plan became the budget.

The organization is on its way to meeting its goals with a renewed sense of excitement, and with a financial process that tells it like it is.
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Our mission is to apply our consultants’ considerable collective experience to resolve client issues in a professional and efficient manner.