Getting To Know Your Company
Jan 20, 2014
The other day we had a meeting over lunch where everyone from William Vaughan Company got together to briefly talk about the various specialty services we offer. We recently acquired another accounting firm and as a result we have several new employees. We of course have the typical accounting services such as tax, accounting and auditing, but we also pride ourselves in providing additional specialty services. We recognize the importance of communicating these services on a yearly basis to remind our staff of additional areas of assistance they can offer their clients. Our costing niche was part, but we also talked about: business valuations, cost segregations, operations reviews, financial modeling, financial planning, fraud, I-C Discs, etc.
I recognize most of you reading this probably do not have quite as many specialty areas as we do, but you still have several departments that do different things. Most of your departments do something that effects another department. The sales department closes a deal, the product has to be produced, the sale has to be invoiced and collected, parts need to be ordered and paid for, employees have to be paid, etc.
When we do an operations review we often look at how these all fit together. We talk to everyone involved to find out what exactly they are doing and oversee the entire process. When we do this, we often learn that one department does not know what the other departments are doing, and does not recognize how what they do or do not do effects another department.
Talk to the other departments in your company and see if there is something you could do that would make their job easier. Sometimes making a small change on your end can positively impact another area of your company. Or, if there is something someone else could do that would make your job easier, then tell them! Never assume that everyone is aware of what everyone else is doing!
Categories: Cost Accounting
‘Twas the Night Before New Years
Jan 16, 2014
‘Twas the Night Before New Years, when all through the works, Not a creature was stirring, not even the clerks.
The budgets were stored in the computer with care, In hopes that the coster’s soon would be there.
The managers were nestled all snug in their beds, While visions of variances danced in their heads.
And the CFO in her ‘kerchief, and I in my tie, Had just settled down for a long winter’s nigh.
When out on the lawn there arose such a clatter, I sprang from the desk to see what was the matter.
Away to the window I flew like a flash, Tore open the shutters and threw up the sash.
When, what to my wondering eyes should appear, But the Cost Team from Vaughan already this year.
They jumped from their car and ran straight for the door, We knew in a moment we must hide on the floor.
But it was too late for our lights they had seen, They came thru the door like a costing machine.
The partner was angry I could tell at a glance, He seemed to know that all was askance.
He called in his coster’s and called them by name Each knew their job – and none were the same.
Check all of the steps, he told them with glee, I know that’s wrong, just how – we will see.
The budgets were right it seemed to them all, But what could it be to cause such a big fall?
The classified costs were also done right, We must look harder with all of our might.
The allocations are wrong, that has to be it, But the model worked right, and all the parts fit.
Reporting is wrong, he said to the staff, But that was untrue, so we all had a laugh.
His patience was gone, it was easy to see, With one step left, the problem must be;
We all stood in fear, cause we knew he was right, What must we do to get out this fight?
Reconcile, reconcile, reconcile all; By computer, by hand or the model will fall.
We spoke not a word, but went straight to excel, And soon we were done, all had went well.
The Cost Team was happy, there was nothing to fear, But we all knew in our heart, this would be back next year.
We all heard them exclaim, ere they drove out of sight, Happy Costing to all and to all a good night.
Categories: Cost Accounting
Same Problems, a New Year!
Jan 13, 2014
Finance executives were asked to rank in order of importance their top priorities for 2014. There were five different categories with several details within each category. The first two categories, financial transactions and financial analysis were the two in which I was most interested. Financial transactions listed 24 different priorities (click on download report to view) to rank. As I glanced through the results, I was reminded of the movie “Groundhog Day”.
For all companies, the overall results indicated that out of the 24 process capabilities, variance analysis came in at number 9 on the priority list, cost allocations number 12, standard costing number 17, and activity based costing number 23, almost dead last. The results varied somewhat when looking at large Companies, and strangely enough, activity based costing in comparison was one of the only two of 24 that is actually “Low Priority,”ranking right alongside payroll processing!!!!
Considering that variance analysis is a natural by-product of standard costing, I would think they would be pretty close together. I am not surprised at all that cost allocations was rank in the top 50% because we have seen from many other surveys before that this is a pressing topic for Companies. I know from personal experience that CFO’s and Controller’s struggle with this issue continuously. I am also not surprised that standard costing is still on the list, as again, I have seen and other surveys have reported that standard cost is still widely used by many companies
What I was most startled by was the ranking of activity based costing as a “low priority”. I have advocated for many years that your costing model does not have to “fit within the box” for it to be correct and effective. As a matter of fact, I have argued the complete opposite that your costing model has to reflect the patterns and consumption of your business in the manufacturing process. I am curious if it is just a lack of knowledge as to what ABC is that caused the low priority, or is it that respondents still did not have any intention of moving away from standard cost to a more detailed and comprehensive method of costing.
The second category of financial analysis was a NO BRAINER. The number one priority was strategic planning, hands down. ONLY those businesses that have a strategic plan know where they are going and how to pull it all together to get there. The items that followed for ranking were reporting issues, profitability by product, geographic location, and customer. These are requests we are receiving from our client base on a daily basis. They want the information, they just don’t know how to harvest it, pull it together, or what to do with it. This is especially true for companies in the middle range. The cost of being able to get the information can be prohibitive to companies of that size, so they are left with nothing.
As a matter of fact, the Institute Of Management Accountants updated their 1993 Survey in the fall of 2012, and even then the number one priority for implementation was Business Intelligence. A year and a half later, Companies are still struggling with it. (The Role of the Management Accountant: 2003-2012)
This Protiviti report provides support for what I already know and experience daily. Executives are still struggling with cost cutting measures to maximize profitability but need to manage their COSTS with a system that is likely out of date and inaccurate. CFO’s are struggling to provide business intelligence to the executives and often providing reports (if any) that do not provide the information the executives need to make strategic decisions.
Are you reliving Groundhog Day? If you are still experiencing the same issues year after year, do something about it!!!
Categories: Cost Accounting
Support is Key When Snowed In
Jan 10, 2014
We are still trying to climb out of all of the snow that we got over the last few days and all of the area schools are still closed. Earlier this week the roadways were shut down to all non-essential personnel, which believe it or not, CPA’s are not essential! There were two days this week that most employees did not make it into work. I know everyone, especially those with young children were starting to go stir crazy. Being stuck inside with the freezing temperatures can make you go mad! I hope all of you reading this are safe and I’d love to hear some of your stories. I do not, however, want to hear from those of you who are working or living in sunny conditions.
I was snowed in at a friend’s house for a few days with my three dogs and a six-year old. My friend is a police officer so he was able to get out of the house, as he was essential. The rest of us non-essentials were left at home. We were all kind of getting sick of seeing each other and being together. By Tuesday evening his daughter was tired and getting a little grumpy! My friend was sleeping and I was watching his daughter play the Wii. She was getting frustrated and acting up, I asked her to act right or she was going to bed. My friend ended up waking up and backed me up on my disciplining and she was sent to bed. I later thanked him for backing me up, as I wasn’t sure he would since he didn’t hear the whole story being that he was asleep. It was a great feeling to be supported!
Do you feel like you are supported in your job? Does your boss trust what you’re doing? Do they support your decisions, even without hearing the whole story? If you do not then I am sure it is frustrating. If you are a boss, why do you not back-up your controller?
It is important if a controller tells the CEO that the software system doesn’t work, the costing numbers are not right, ,etc. that the controller feel supported. Otherwise that person will end up figuring out how to work around the system to try to make it work as best as possible, but will always fear that when it comes crashing down it will be their fault. I’m not saying they should have free reign, but certainly should feel empowered and trusted.
Something to think about while sipping your hot cocoa looking out your window at lots of snow, like I am from my office window!
Categories: Cost Accounting
Happy New Year!
Jan 02, 2014
For many of my calendar year corporations, this time of year represents an important point in the annual cost accounting cycle.
By now, most of my calendar year end corporations have prepared their budget for 2014, and it has been approved, or is in the final stages of approval. Effectively the entire operation has set their goals for 2014 and are preparing to implement the strategies it will take to meet those goals. In some cases these points in the cycle have already occurred and January opens with all of the department heads fully engaged in their 2014 goals. However, for the cost department, this is a time of great importance.
Very likely four of the five cost steps have already been performed. That is 1. they have developed the numbers 2. determined the cost classifications 3. allocated out the various overheads 4. reported the results to management throughout the year in a fashion that was useful and timely.
As the year end closes, the final general ledger numbers become available and, as many of you know, I consider the actual results of operations as depicted by the final general ledger and financial statements to be the ultimate goal to which all cost numbers should be reconciled.
That doesn’t mean that the cost system must be in 100% agreement with what’s being shown as expenses on the general ledger, in fact, some items on the general ledger are inappropriate to be recovered by the cost system and should be excluded all or in part.
What the cost folks should be doing is after analyzing the variances that were created for 2013, reconciling all of the components of the cost system back to actual results to look for anomalies, errors, or other adjustments that should be taken into consideration for the 2014 year. Only by complete reconciliation of those costs can a cost manager be sure that the cost systems are working properly, are adequately recovering costs, and apportioning overheads. This all needs to be done in a fashion that is logical and reliable and produces results that provide meaningful information. Any operation that does not perform this vital step is exposing itself to substantial risk that there are fundamental disconnects in the cost model from actual results thereby rendering cost information as less useful than it could be.
This reconciliation should be as automated as it can be and should be performed as soon after the close of the year where actual budget results are available and before the full startup and implementation of the 2014 cost model is complete.
I recognize this is a busy time of the year for accounting staffs at most calendar year corporations but there is little alternative related to the accuracy of the cost system for 2014 than doing these reconciliations prior to the full implementation of the 2014 cost system.
I know it’s a significant temptation to delay this to some future month away from all of the obligations of the year end close, but I believe any cost manager that chooses that alternative is running the risk of having to republish results from the cost system in early 2014 prior to when it was reconciled some time later on in 2014.
Categories: Cost Accounting