Monday, 22 October 2012

Can Accounting Systems be TOO Integrated?

Systems like SAP, Oracle Financials and PeopleSoft attempt to integrate all aspects of a business, regardless of the number of countries, industries, product lines they operate in.  They address all areas of the business, from accounting, to manufacturing, to planning, to human resources, to management.  There is no question that large corporations have benefited from this integration, but is it possible that we’ve gone too far?

The larger the computer system, the higher the cost of change.  For example, one of my clients was an international oil company which wanted to experiment with a new subsidiary.  The company found it cost effective to do a whole installation of Microsoft Dynamics (and throw it away when the experiment proved to be a success) than to integrate the new subsidiary into their main system right away.

But, more importantly, large systems become increasingly complex, reducing their ability to adapt to change.  I don’t have an inside track, but I have noticed that my telephone company’s billing system seems to be unable to keep up with changes in cellphone services and fees.  In any competitive industry, even large companies need to be nimble and respond to changes in the marketplace quickly.

Finally, there is the “best of breed” problem.  You may have the biggest, most integrated system, but there are other systems that handle specific functions better.  You then are faced with the choice of the one-vendor-solution versus assembling a system from the best of breeds by several vendors.  So, you get your basic General Ledger, Accounts Payable, Banking and Accounts Receivable from one vendor, your Point-of-Sale system from another and your document imaging from a third.

A good example of this type of thinking was a client who wanted to connect his ordering system to his web site.  Both systems claimed to be able to handle the sales tax, but in testing, the engine in the accounting system proved to be more robust than the web site.  The client decided to process the order in the web site, but have it pass the information to the accounting engine to calculate the taxes and send the result back to the web site.  The result was a better system with no tax discrepancies.

Monday, 15 October 2012

Not JUST an Accounting System

Alice* shared one of her constant frustrations in a meeting about their accounting system.  She is an accounting supervisor in a medium sized company with offices across the country.  Her problem is the staff in other departments saying that the computer system belongs to the Finance department, so they don’t have to take responsibility for the quality of the information.  It’s not their responsibility if the information in the accounting system is wrong or out of date.

Accounting systems used to be confined to recording entries, producing invoices and making payments.  Current accounting systems integrate into other business software, so that the Sales, Purchasing, Manufacturing, Distribution and Human Resources systems are now part of the “Accounting System.”  More and more, other systems, such as Document Imaging and Customer Relationship Management, are integrating with the accounting system.

In a world where computer reporting is expected to be detailed and instantaneous, there is no room for error.  In short, EVERYONE owns the data.

By the same token, information needs to be shared.  There should be no arguments about who “owns” the data.  If it is needed in decision making, it needs to be made available to the decision makers, regardless of their department.

The more that operational data gets married to the financial data, the more focused the reports and the better the decision making.  The more integrated the systems, the easier it is to marry the data.  But can systems be too integrated?  Stay tuned for the next blog!  

* Not her real name.

Monday, 8 October 2012

Urgent vs. Important

Accounting is all about deadlines.  From the weekly cheque run to the monthly management reports, the quarterly shareholder reporting and the annual tax return, there is always something that has to be done NOW!

At the same time, there are those important initiatives that have no specific deadline but that will significantly impact the running of the department, like systems upgrades, staff development and departmental strategic planning.

Two things are clear:  you can’t manage what you can’t measure and it won’t happen unless you make time for it.

Measuring Success

When implementing accounting systems, I ask for an idea of transaction volumes:  how many accounts payable invoices are processed in a month, how many journal entries, etc.  Often it takes some digging to get the answers to those questions.  Controllers often don’t know how many transactions are being put into the system or, more importantly, how many entries one person can be expected to be able to do in a day.  Accounting managers often have a sense that some staff members are busier than others, but no hard statistics to back up their impressions.  Yet, this information can often be easily obtained.

Accounting systems usually tag each entry with some code for the person who created the transaction, as well as the date the entry was made, so you can create a report that summarizes the number of transactions entered by each person.  When I did this exercise for one company, some useful information resulted.  The report confirmed what the Controller already knew about how slow the summers were, but it also gave him some reasons to investigate the performance of the Purchasing staff.

When he found out the reason it took so long to create purchase orders was the amount of time they had to put in chasing department managers for their signatures, he decided to go ahead with the workflow software he had been considering.

Making Time

A hint about making time for important initiatives:  delegate!  Make it part of everyone’s job description that in addition to the regular routine, each member has a special project they are responsible for.  Emphasize how taking on this responsibility will enhance their career and that you will work with them to help them find ways to make time for the new project.  For example at one company, I knew that we were wasting time photocopying each cheque we received and that our payment encoding scanner was on its last legs, so I asked for a volunteer to research the latest technology.  An accounts payable clerk who loved technology offered to do it.  He did a more thorough job than I would have had time for and he enjoyed the challenge.

How do you make time for important initiatives in the middle of all of your urgent deadlines?

Thursday, 4 October 2012

Nortel Accounting Fraud?

Take a darling of the stock market, add a spectacular fall, throw in a possible recovery and then sprinkle the whiff of scandal in the Executive Suite.  The newest Hollywood business blockbuster?  No, the Nortel fraud case.

In a nutshell, senior executives, including the Chief Financial Officer, have been charged with manipulating the company's earnings in order to earn themselves a bonus.

I don't know the facts of the case, as all I have read are the newspaper accounts.  The reality is that accounting involves estimating of the impact on future events on current operations.  For example, if you guarantee your products, you know that you will have to refund some amounts to customers in the future.  How much?  Only experience can tell, and even then, it's often wrong.  So, you estimate.  A technical person will give you some rule, like 1.25% of the products will fail, so you calculate how many you have sold and set aside 1.25% (or more if you will incur additional service costs).

As an accountant, my goal is that the financial statements of a company reflect the economic activity of that company over time, but please don't hold me to one specific number, particularly the Net Income.  That just isn't realistic.

What I want to know is:  who created a significant bonus scheme based solely on accounting income?  What were they thinking?

Monday, 1 October 2012

Whose System is it, Anyway?

There are many stages a computer system goes through during an implementation.  At first, it is just an idea perhaps starting with frustration with the current system or a sudden new requirement that the current computer (if there is one) can’t handle.  At this point, all you know is that you need a new system.

The Hunt

Then you start looking.  Maybe you ask colleagues.  Maybe you initiate a Request For Proposals (RFP), asking a number of vendors a series of questions about what their system can do, and inviting them to bid on your business.  Maybe the system has already been chosen for you by a parent company.

Then come the demonstrations and the system becomes more real.  You compare different products.  You talk to consultants and the customers they offer as reference sites.  You do your homework and you make your decision about which system to buy, but it’s not your system yet.  Even though you may have signed a contract, taken delivery of the software and paid for it, your staff has not taken ownership of the system.

The Implementation

Next comes the detailed planning, the configuration, the set-up, the training and the conversion of the data from the previous system.  What can the new system really do?  What fits and what doesn’t?  You add additional software.  Maybe the new system doesn’t have Electronic Data Exchange (EDI) for orders and payments to large retail companies, so you add an EDI package.  Maybe you need workflow to handle your online orders or document imaging to get rid of the tedious searches through filing cabinets, so you turn to iDatix.

At this point, you examine your internal processes.  You look for formerly manual steps that the system can now do.  With the workflow system now reminding people to submit their expense forms, move the person who used to phone all the salespeople to a higher value task, such as following up on customer payments.

By this time, your staff should start to feel like they own the system, that it is their responsibility to make it their own and work with its strengths and weaknesses.  Unfortunately, after many years of implementations, my experience has been that they often don’t.  All of a sudden, the old system looks better.  The new one seems clunky.  There’s always something that worked better before.  The staff doesn’t remember the issues they had when the old system was new.  They don’t remember the workarounds they had to come up with.  They don’t have enough time or patience for the new system.

Naming the Beast

Accounting systems are complex.  In a medium sized implementation, there may be over 500 data files.  In a large one, there are literally thousands.  When you layer on tax requirements, Generally Accepted Accounting Principles, industry standards, vendor/customer complexities, etc. etc. even the best planned systems require extensive work to fit.  One simple thing you can do to help your staff take ownership and really commit to the new system is to name it.  It sounds like a small step, but it underlines the fact that it has been customized for your company.  The system is no longer SAP, Oracle, Microsoft, Sage or even Quickbooks, it is yours.  So, if you were the Leamington Manufacturing Corporation for example, you might call your system Lexie (Leamington’s EXtended Information Environment) and have one of the more artistic members of staff find a suitable image.  Give the system a good start by throwing a party, and when people complain, make sure to take their complaints seriously, but also ask them to have patience with Lexie.  After all, she is the newest member of the team.

Re-posted with the kind permission of iDatix: