VideoAccounting is a straightforward science, says Arbortext's Peralta, and transparency is a non-negotiable item for both internal and external reporting.
From an internal perspective, the department must respond to questions with timely and logical answers. When the mechanisms that deliver reports are too confusing, or when the systems that should be running routine reports are spitting out incorrect or incomplete information, that inefficiency should raise a red flag.
Deal with it promptly: While poor report generation creates an unproductive finance department, it also hamstrings business units that depend on updated financial data. When operating units don't get the information they need to support their management and planning decisions, they're not likely to keep quiet.
As for external reporting, Professor Owers gives straightforward advice: Meet disclosure requirements and do it quickly. He praises broadband services and products purveyor Scientific Atlantic for management's quick announcement about the financial impact of the bankruptcy filing of Adelphia Communications, a 20-year customer of Scientific Atlantic. Footnotes, Owers counsels, should follow the spirit and not just the letter of the law. (Easily said — but faced with tough new reporting requirements, many CFOs are having difficulties with "The Fear of All Sums.")
8. Dubious Structures
First, and most dubious: If your internal audit team reports to the CFO, you would be hard-pressed to find an executive, regulator, or Sunday-morning talk-show pundit who did not bristle at the potential conflict of interest.
Every CFO we interviewed for this article insists that this line of report is a grievous governance deficiency that's wide open for exploitation. (The flip side, as exposed by our article "There's a Monster in Finance," is that the newfound power and independence of internal auditors poses its own threat for finance chiefs.)
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.
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