Companies are going through year-end financial reporting.
Just for fun, at cocktail parties and networking lunches, I ask executives and
investors if they get the year-end results as quickly as they would like to get
them. My unofficial survey says that most stakeholders are not receiving
Proactive organizations have “Day Zero” at the top
of mind at the beginning of the month. If you don’t know what this means in
terms of proactively managing your financial strategy, read on…
The truth is that almost every single employee in an
organization can impact the ability of the accounting department to close
timely, yet the company accountant may not be the best source to drive home
that truth. The message from the top should convey respect for each
professional’s time and support for more efficient month-end and year-end
processes – where everyone focuses on funneling information in a manner to
close the records effectively. The ultimate goal is to provide to the
management team a Flash Report as soon as possible following month-end,
followed by the official month end financials.
Day Zero refers to tasks your accounting and finance
departments can complete prior to the
end of the month to speed up the month end close. Decisions about the company
require timely, accurate data – a smooth and timely month-end is vital.
eyeshade” accountants may balk at the idea that they can shorten the
month-end process; however, the strategic finance professional digs into their
process to find and tackle these tasks, as well as improving their process
Here are some examples of what I mean:
standard monthly entries for amortization of intangibles, and
accruals of expense.
Once you have identified the pre-close tasks, create a Day
Zero checklist with deadlines for each item. The finance manager should
oversee that deadlines are being consistently met and if not, get to the root
of the problem to correct the process. One solution may involve asking other
departments to turn in their information based on a schedule you provide in
Refining your month-end close process is an iterative
process if you continually raise the bar to identify better ways to execute.
Automating reconciliation and other process improvements contribute to
shortening the cycle.
Document your processes with Standard Operating Procedures
so that all team members have steps to follow should any one team member need
backup. Keep your SOPs up-to-date through periodic review.
Spend time in the middle of the month following the month-end
process to complete your review of the entire process. Engage your finance team
and uncover those Day Zero tasks you can incorporate into your process.
Everyone in the organization will benefit when leaders have more timely and
accurate information with which to make decisions.
If you are disciplined and implement Day Zero and other
month-end processes, you can provide a Flash Report of results to management as
soon as Day 1 after month-end.
can facilitate a review of month-end processes with your team to ensure you
have uncovered all the possible streamlining opportunities. Provide the best
customer service to your management team possible – provide financial
information and think strategically and become part of positive initiatives to
move the entity forward and not the green-eyeshade accounting department about
which everyone complains.
Yesterday, as I was walking back to my car after a great networking lunch, I almost tripped over a pair of shoes left behind in the parking lot. They were probably part of a strategy to look fashionable and fabulous. Most of us can take a closer look and determine why they may not have been working from a practical sense and just had to be left behind.
From a practical perspective in business, some tools, processes, and even people have to be left behind. Leaders tend to get attached to all three at different stages of their careers and different stages as leaders. Financial systems are not typically customer-facing, being pushed to the bottom of the list of systems to upgrade. In addition, most Chief Financial Officers and Controllers do not have the level of Emotional Intelligence and skills required to stress the importance of the new system.
It makes sense, both financially and practically, that software vendors can only support a limited number of versions of their products. Eventually, you receive notice that support for your outdated version of their system will cease.
When you finally decide to upgrade your system, consider my recent experience. I learned that it is impossible to migrate data from certain older systems to the newest version without upgrading it through each version of the system – some of which are no longer for sale. I was able to locate a CPA who had all the previous systems, and the client had to pay them to move the data through the updating process.
Do you want your valuable accountants struggling to operate your business with an outdated system? Good accountants are in high demand, receiving multiple calls from recruiters who are offering them opportunities to work for more money in up-to-date software environments. They can walk out of your office today and have a job tomorrow. Do you want them dealing with the 10th system crash that week, or trying to get a mega Excel sheet to balance because they can’t use the old software to get the correct financial data for decision-making? When the recruiter calls them it is highly likely your accountant will be in the mindset to listen to what the recruiter has to offer. Turnover in the accounting department will cost you a minimum of $15,000.
You must have the right financial system to report the right financial data to make informed and effective decisions about strategy. If you are selling multiple products or services without clear financial information, you might as well be driving blindfolded down the highway at 100 mph.
The moral of my story is that old systems are not serving your company or your employees well. You must invest in upgrades appropriate to the stage and size of your company, or you are putting your business at risk.
Do the right thing, leave what is not working behind. Leave behind the old system, just like the owner of these shoes left them behind – because they were not working.
Barker Associates helps our clients evaluate their current
financial systems to determine if it’s time to upgrade or replace, and we are
happy to help you, too.
the word audit make your pulse race and put your antiperspirant to the test? Is
your monthly financial review fraught with the same level of fear that a trip
through the Halloween Hall of Terror brings? If you are a growing company and
are required to go through your first audit, it can be scary. The fear of the
unknown, worried what may jump out at you as you dig deep to tie out a balance
can create real panic.
than sweating bullets and launching into panic mode, think of an audit as your
annual wellness check-up and not an attempt to incite fright. If you eat right,
exercise and take care of yourself your check-up typically is not cause for
concern; but if you’ve consumed one too many lattes or value meals and ignored
what you should be doing, the scale and your doc will remind you to pull it
together and get back on track for a clean bill of health.
audit is very similar, but instead of your doctor, it’s your CPA telling you to
get your business organized and your financial health on track for a clean
opinion on your audit. An audit is beneficial in many ways, but essentially an
audit provides peace of mind that your financial statements paint an accurate
picture according to Generally Accepted Accounting Principles. This assurance
is vital if you are growing and need funding or if the funding you currently
receive has compliance requirements.
An audit is important, but it doesn’t have to be as scary as looking into a funhouse mirror. Follow this 5-step process, before your audit begins, it’s like having the answers to the test and will provide you with the clarity needed to minimize anxiety and help you master the mystery behind the first-year audit.
with your CPA.
CPA is hired to help you and is not out to get you. Have them set the stage for
what you should expect during the audit. Ask them what documents you will need
to provide and what tasks you should complete before the audit begins. Talk
about the timeline, when will it start, how long will it take? Who will be the
primary contact to ask questions and submit documentation? A little fact
gathering on the front end will go a long way to help the audit process move
out a project plan
the information provided during your initial meeting with the audit firm and
identify the tasks that need to you will need to complete. Assign the
appropriate person to the task and determine a deliverable date. Work with your
team to ensure that tasks are appropriately assigned and document any
dependencies and concerns that may interfere with the deliverable date.
Communicate with your team and launch the project
kick-off is essential. A proper kick-off demonstrates leadership supports and
identifies the objectives to accomplish as well as risks, assumptions,
dependencies, and timeline. Many of the teammates that are responsible for
supporting the audit are completely busy doing their “day job” and
don’t have a ton of extra time. Communication upfront with clear requirements,
expectations, and deadlines will help them to plan appropriately to coordinate
the additional work into their schedule so they can work much more effectively.
Clarity is the antidote to anxiety. Effective leaders are clear.
the most frustrating aspects of an audit is related to cost increases. Additional
costs arise because the audit team has to do extra work to clean up your mess. Many
times, clients can avoid costly increases to their audit bill by ensuring they
have all their documents in order. For instance, are your accounts reconciled?
Do you have supporting documentation for revenue and payments? What about lease
schedules, do the payments tie out and do you have addendums and invoices to
support lease and CAM payments? Does your trial balance tie out, and is your
general ledger mapped appropriately to your financial statements, including the
statement of cash flow? Get organized, make sure your accounts tick and tie and
have the appropriate documentation on hand.
Review your progress
regular touchpoints to communicate progress. Think agile. In the IT world
during implementation, the team meets for 15 mins each day to give a quick
overview of the task they need to complete, progress, and concerns. Short,
frequent meetings allow the team to stay in synch, mitigate risks, and provide
support along the way. If you know how everyone is progressing, there are fewer
surprises, and likely you can head off any significant delays or concerns.
the time to follow the steps. As a former auditor, I’ve come to learn that
prepared clients are collaborative, not combative. Their team is happier, well
informed, productive, and the result is peace of mind and financial clarity. A
little communication, structure, and organization go a long way to help you and
your team manage the process and stay on task, bringing you one step closer to
a clean bill of health for your business.
Do you need help solving audit mysteries or getting organized? Barker and Associates can help you overcome audit anxiety and set you and your business up for success. We’ve created a Year-End Checklist for Audit Preparation that will help you streamline the process. Click the button below to enter your email and we will send the checklist to you right away via email.
There’s nothing that brings on a bit of panic that the end of the year is coming like seeing Christmas decorations prominently displayed at retailers before you’ve even heard the knock of trick or treaters at your door.
For me, as the year-end
approaches, I tend to count down shopping days and furiously plan out how I’m
going to get it all done. It’s an approach that many of us take as we navigate
holiday parties, shopping, travel, and the million other things that are
synonymous with the end of the year. Whether you’re a holiday enthusiast or
just a busy parent who is driven to make this the best holiday ever, It’s easy
to get super focused on the end of the year hoopla for your family to ensure
you get it all done, but what about your professional life?
For the business world the last
quarter of the year is full of opportunities though I’ve heard countless
excuses for the end of the year slack ranging from PTO, lack of focus or just
plain ole procrastination but this is the best time of year to outpace your
competition and get a jump start on the next year.
“If you fail to plan you plan to fail” – Benjamin Franklin
While everyone else is planning their
vacation, surfing online stores for that coveted gift, and running around to
countless holiday parties, what are you going to be doing?
Now is the time of year for a full-on
sprint to the finish, but to cross the finish line a winner, you need to take
some time to evaluate.
What did you set out to accomplish
Did you accomplish all your tasks,
achieve your goals?
The last 60 days is an excellent
opportunity for a big push to check off those last few boxes on the company
to-do list. If you haven’t set specific goals, think in terms of categories and
get your team together for a review. The more involvement in the evaluation
process, the more likely you will get the support and momentum you need to push
Financially – Did you
meet your profitability goals, move inventory, or land the big customer you had
your sights on? If not, design some strategies and draft an action plan for the
next 60 days. Is there a campaign you could run, a promo, or maybe a customer
Projects – Review
your project list. How many did you complete? Did your accomplishments align
with your goals? Assess current status on open projects and determine what you
can accomplish now.
Teammates – Look around,
is your team tired, haggard, and barely hanging on? What have you done this
year to take care of your team and show your appreciation? People can only push
so hard for so long, so if your team has been knocking it out of the park, look
for ways to acknowledge and reward. If you don’t know what to do or want to
find creative low or no-cost strategies, enlist teammates across all levels. I
think you will be surprised at how a little goes a long way towards building a
loyal following in the workplace.
Customers – What’s
your retention rate? How about an acquisition? Have you on-boarded the
customers you desired, and are they generating profitability as you
anticipated? Customers are essential in our business, and like teammates, they
need to be appreciated. A simple thank you note, a holiday gift, a discount…all
simple ideas that make a difference.
Conversely, you may have customers who
cost more to serve than they add to revenue. Now is a great time to review
those customers and ask why. It may sound crazy to think about firing a
customer, but if they are hurting profitability, morale, and taking too many
resources, now is the perfect time to devise a phase-out approach.
Environment – Take a look
at your surroundings. Have you spent the year head down so focused you no
longer see the stack of files or the supply closet in desperate need of a
KonMarie makeover? What about empty desks? Did you have layoffs this year, and
now a sea of cubes with an errant stapler is your only reminder of what once
was. Clean it up. No one needs to see that; it’s depressing. Reorganize your
space, check lighting, bring in some plants and ask yourself, is this a place
people want to spend most of their waking hours? If not, make a change. Enlist
your team. Nothing drives enthusiasm like a DIY project. Set some guidelines
and go for it, then plan a celebration to cap off the year.
Once you’ve evaluated your year and
have an accurate assessment of the current state, envision your future…dream
big with your team. Throw out a few SWAG ideas, brainstorm, put all options on
the table to discuss, and leverage to take massive action to reach your goals.
Collectively ask “if we were to look back in 60 days, describe the perfect
close to the year?” If you know what ideal looks like, then you have
something to work towards.
Lastly, map it out. Studies show that
we are more likely to be successful if we know what our goals are and then
create SMART strategies to turn those goals into reality. Write them out,
prominently display them and continually work with your team to get to the
finish line and celebrate you’re winning year.
“If you don’t know where you are going, any road will get you there.” – Lewis Carroll
Do you need help creating your winning
strategy, finding focus, or creating an action plan for success? Barker Associates is here
to help you kick it into gear for the end of the year sprint and plan out your
roadmap for future success.
If you don’t know where you are going any road will get you there. – Lewis Carroll
Customer experience (CX)
has been a hot topic for the last several years.
Companies have invested in teams to analyze data, customer service issues,
survey results, and they’ve utilized sophisticated tools such as the Net
Promoter Score (NPS) to understand how likely the customer is to share their
experience and promote the company.
Companies have increased
their budgets and resources to understand the habits, needs and desires of customers to create the perfect
journey and ultimate experience for those they serve but, despite all their
efforts, some companies are still falling short, which means lost revenue,
customer churn, and retention issues with their employees.
CX is the sum of all
interactions. According to a 2018 survey by Gartner, nearly 90% of businesses
compete on customer experience alone. Whether your company is transactional or
subscription-based the competition is fierce and if you want to attract, retain
and grow your customer base you have to lead with the end in mind and design
the ultimate experience.
Employee Experience EX
The exclusive focus on the
customer alone has not resulted in the business outcomes companies desire. Perhaps
the focus should be on something a little closer to home…the Employee Experience (EX). After all,
without employees you can’t serve customers, so maybe the old adage “customer
first” should take a back seat for organizations that truly desire to be
transformative in the market place.
Social media and platforms
like Glassdoor and Indeed have created complete transparency so that organizations
can no longer hide from the real-time employee workplace reviews. In this
competitive market, where skilled talent can be scarce,
companies cannot ignore the need to make the Employee Experience a priority.
Like CX, EX is the sum of every day to day
interaction the employee has from the first contact to last. It’s every
touchpoint they have with recruiters, HR, their boss and peers, the software
they use, the processes they must follow; each touchpoint is specific and
The Employee Experience is
a full spectrum of all their experiences and
a well-designed EX should empower employees with the tools and know-how to
serve customers successfully, provide employees control over their professional
growth and development, and create an atmosphere for positive and healthy
collaboration in a well-designed workplace. When EX strategy is developed and correctly
implemented the end result will be happy employees with a commitment to the
company and their job.
According to a 2016 report
by Deloitte University
Press, organizational culture and employee engagement was a top
priority in 2017 and is still a top focus. The report noted that nearly 80% of
executives rated employee experience very important or important, yet only 22%
felt that their companies were excellent at building a differentiated employee
experience. Of those same responders, more than half were either not ready or
only somewhat ready to address the challenge.
In lieu of a true
strategy that focuses on understanding and implementing modern actionable solutions
to promote a positive EX, employers are using perks like casual Friday, free
ice cream and an occasional “bring your pet to work day” to solve the problem. Companies
use these perks in an attempt to build a great culture without any actual
thought to what creates a great culture.
Jacob Morgan, the author of
The Employee Experience Advantage, analyzed over 252 global organizations to
understand the attributes that promote EX and drive employee engagement. The
top 3 companies that excel in this area are no surprise: Facebook, Google, and
Apple. We’ve all heard about some of the amazing perks these companies offer, but according to Morgan, leadership in these
organizations has focused on the bigger picture to yield positive results. They
focused in areas that really matter to
employees: culture, technology, and physical space.
Culture is a nebulous word and people define culture in a variety of ways. Morgan describes culture as a side effect of
working for an organization. Are your employees frustrated and burnt out? Do
they have a voice and an opportunity to present ideas or provide feedback
without fear of backlash? Is there role clarity and a clearly defined path for
growth? If you’ve heard negative chatter,
you likely have a culture problem impacting the EX, which will ultimately
impact the engagement level of your employees and your customers.
Employees should have
access to technology that supports their function. Technology should be a help
not a hindrance to employees. They should be able to work successfully and with
ease with the help of technology, but sadly, many companies have convoluted
systems that don’t sync, resulting in
errors, rework and duplication, all of which are time-consuming, costly and put
not only the employee experience at risk but your company as well. Leaders who
fail to stay current with new technology and upgrade the employee experience
through exposure to more advanced technology risk losing those employees to
companies who do make such investments.
Lastly, a great employee
experience is dependent upon the physical space in which employees work. Is
your office well lit, clean, free of clutter? Do you participate in initiatives
that support a healthy workplace? Are employees situated in an environment that
supports their tasks? For instance, if call centers are placed next to
employees who must utilize quiet focus to get their job done, then you likely are going to have some unhappy and frustrated
Companies that invest in
the development of a focused EX have seen improved results with attracting and
retaining skilled employees who are passionate about the company and the brand,
and play an active role in the ongoing success of the organization. Employees
want and expect to develop their skills as the company grows and adapts to
market demands. Maintaining stale, obsolete skills is the ultimate morale
Although developing a
focused strategy has not been a priority to organizations, of the 252 global
organizations analyzed by Jacob Morgan, only 15 companies, or 6%, have created
a winning employee experience; companies that don’t focus their strategy are at
risk for both employee and customer churn.
Focusing on long term
solutions means taking the time to engage employees to understand their needs,
wants and expectations and work to align tactics with developing a winning experience.
In the end, you get happy, productive employees who bring tremendous value and
drive positive business outcomes.
Are your business outcomes
meeting your expectations?
Where is your focus, the CX
or the EX?
Have you invested in your
Employee Experience or paid it lip service?
Barker Associates will help you review and understand opportunities to enhance your Employee Experience – the work environment, use of technology and company culture. Together we can design and implement employee experience solutions that yield happy employees and positive results. Contact us today at (904) 394-2913 or by email at here.
Founder-itis is a serious condition that occurs when one or more of the founders have remained in their position in an organization for far too long. They have remained physically, mentally and emotionally in a position that is preventing the organization from healthy growth. This condition can occur in small to very large organizations. I have witnessed very strong impacts of Founder-itis at large companies.
The cure for this condition is an emotionally evolved founder-turned-leader to fight against their natural tendency to hang on to what is comfortable, what worked in the early stages of the company to catapult its growth.
Long-term CEOs of successful companies such as Jeff Bezos at Amazon and Howard Schultz at Starbucks have broadened their horizons as the company has grown.
Successful founders who transition to long-term leaders by avoiding Founder-itis have learned these four key qualities.
Deals with ambiguity – When an organization starts out the management team may find themselves working around someone’s dining room table, in a basement or their garage. All the stakeholders communicate and keep each other up to date in real time because they can, literally, reach out and touch. Modern-day conference software works for small teams as they start a business. During this stage, the Chief Executive Officer (CEO) is engaged in very detailed decisions and aware of every move that is made. When it’s time to move effectively upward with a growing organization at some point, the CEO must effectively delegate those detailed tasks to move up to a more strategic role with the organization. Details they knew off the top of their head intuitively will have to be delivered to them in a report that is generated as a result of a quality process. The CEO must learn to deal with some ambiguity and trust the management team is effectively executing their responsibilities. Founder-itis comes in when the CEO will not let go of knowing small details and continues to micromanage staff. This is not an effective use of CEO or staff time.
Hires well and timely – CEOs of high growth companies hire professionals for positions that will challenge them and help develop the strategy as well as successfully execute it. If the CEO lets Founder-itis slip in and only hires puppets who will execute only on what they are told without challenging the status quo, they are holding the organization back from the ability to grow effectively. I recently heard a private equity partner state that is one of the things that holds back the execution of the strategy that fuels growth.
Leads and supports rather than controls and micromanages – If a CEO constantly talks about how easy a certain task is and should be with 1980s style processing; is not open to a suggested change in process, upgrade to a new system or hiring enough staff to complete tasks, they are choking the organization. Two examples I often see of this are processing payroll internally instead of outsourcing and gathering paper receipts and matching against a paper credit card statement. You may think that only happens in smaller companies; however, it has happened in companies that have over $50 million in revenue and operate in most of the fifty states. Such situations persist because one of the Founders thinks that since they had always processed payroll manually when it was their responsibility, it’s just not a big deal.
I also have seen recently where a very young company got hit with an $8,000 fine from the state department of revenue related to incorrectly processing unemployment. This happened as the founder wanted to save money and not incur the payroll processing fee. The fee was taken from their bank account before the receipt of the letter that explained the error and related fee.
Embraces pivots – Founders who believe they can keep doing what got them to their first $1 million in revenue are not pivoting. Founders need to realize their role has changed and it is essential for the strategy of the organization to change. The world is changing so fast – just when an organization is up to date with technology, it is time to change again. Embracing that change and the short term disruption it causes is not easy, but it is essential if the organization is to remain relevant, keep talented and engaged employees and execute sustainable strategy.
Leadership and sustainability go hand-in-hand and truly make a difference in a growing organization. Especially with today’s low unemployment, leaders must recognize part of their strategy is to provide a working environment that will keep top talent engaged. Expecting employees to be happy that they receive a paycheck while you expect them to deal with 1980s technology and stone age processes will lead to high turnover and unnecessary chaos and is a sure symptom of Founder-itis.
In recent emails, I’ve updated you on regulations going into effect this year as well as consequences we realize from previous legislation (namely, SOX). The legislation was enacted because of the erosion of accountability in this country. How do you hold your company accountable while also raising the bar for maturity of processes? Here are my recommendations, based on my experiences in private equity firms, for-profits and nonprofit organizations. It means going back to the basics that technology may have allowed inexperienced staff to circumvent.
Assess Your Procedures for Payments and Bank Reconciliations
Paper checks – Get rid of them; but if you must have them, make sure to use Positive Pay through the bank. Positive Pay uses information from a file that you provide to the bank each time you process checks. As checks are cashed or deposited, your bank compares the checks they receive against the checks you wrote to ensure they match and are not duplicated.
ePayments. If you can eliminate paper checks, consider using an ePayment service. Such services provide a comprehensive payment process with built-in controls. The due diligence process to determine which service will work for you can be overwhelming, but you can request a free ePayment vendor selection checklist I put together with the information you will need about your company and the questions to ask potential vendors during the evaluation phase.
I applaud companies who had the foresight to move to the ePayment process. Make certain the IT department has proper documentation on how the process works. With low unemployment and the resulting turnover, you do not want to find yourself with no one who knows how to push the buttons and fix this if something goes wrong with the process.
The checkbook is a thing of the past, and many young accounting professionals would not know what one looks like. I have asked many accountants, as they are processing a stack of checks, how do you know you have enough money in the bank account to cover those checks? Most of the time they put a very proud smile on their face and report, “I checked the online bank account balance this morning and there is plenty of money to cover the checks.”
After I hear this, I work to control my facial expression. I should become a poker player so I can practice the poker face I need when I hear this response.
So, I ask, “What about the outstanding checks that have not cleared the bank account? What about the auto draw of ongoing expenses like rent and other items? How do you account for that? Do you maintain a checkbook?”
The responses or reactions run the gamut from blank stares, to statements such as, “I keep a running total in my head,” “The checks we issue get cashed quickly.” These answers only serve to challenge my poker face so that I can keep good customer relations. Rarely does the person I am asking show me the checkbook kept in the general ledger system and a proper cash reconciliation they prepared for the previous month. I find this lack of process in organizations of all sizes.
Bank reconciliations. In general, if the organization has escaped the Sarbanes Oxley controls, which, as I stated before, more and more are doing to escape the enormous and overreaching regulation, there is no timely bank reconciliation.
Make sure that, at a minimum, these controls are in place:
Blank checks are locked in a secure place and only check processors and checks signers have access to them.
Ensure there is a review of the bank reconciliation and the bank statement two times a year by a C-Level executive, Finance Committee or Board member or investor. Request a free step-by-step bank reconciliation checklist on how to do this here.
This is a true story. I received a check for payment from a large, publicly-traded company. I was shocked when I received the same check number for the same amount twice in the mail. I called the insurance company to report it, but they never called me back. I received a letter about the duplicate check weeks after I had received the second check and made the phone call. The letter I received was very factual and did not offer an apology or do anything to try to mitigate the branding impact. This was a shocking revelation to me that the lack of controls over payments was everywhere.
Get Corporate Credit Card Usage Under Control
Credit Cards – If the US government ever creates a Corporate Credit Card office, I am going to run for the position and work myself out of a job. Corporate credit cards are a nightmare to manage in all companies, from small to large.
Large, publicly traded companies hide behind the fact that they are audited to ignore credit card controls. Yes, you are audited, but the corporate credit card balance is small and immaterial, which means it does not meet the audit criteria for detail testing. Remember, the outside auditors are focused on what the SEC is going to ask them about – the corporate credit card is not on the list. Many small, fraudulent credit card transactions can add up and instill a culture of weak financial responsibility in an organization.
In small organizations, the office manager, bookkeeper, (remember the one who figured out how to print a check out of QuickBooks?), or even the receptionist has a company credit card. This usually happens when a C-level person realizes they may have to pick up the toilet paper at Sam’s Club with their credit card and they do not want to. It’s OK to delegate that responsibility as long as controls are in place to prevent fraud and misuse.
In my work with all sizes of organizations, I have found that often they do not have a credit card policy. Get a policy, even if it is short and sweet, and have each employee sign it who is holding a company card. Email me for a free credit card policy template to get you started.
Fraud on corporate credit cards is running rampant. Often the employee is incurring small, unauthorized charges that add up to a significant number. The Accountant, Purchasing Manager or whoever oversees the corporate credit card may be faced with ethical dilemmas every day when executives in higher positions are the guilty parties. Such situations make it difficult to manage and monitor effectively without a signed policy as backup.
Small organizations and nonprofits tend to have no automation of the credit card process, relying instead on cardholders to provide receipts for accounting purposes. When cardholders are late in providing the receipts, accountants set up a holding account in the General Ledger, (which is often QuickBooks), where they charge the payment of the credit card to avoid paying late. With no accountability for the balance sheet reconciliation, the account just grows. If the accountant responsible for collecting the receipts takes their job seriously, they will walk around the building asking for the receipts and, as an added bonus, hit the goal of 10,000 steps on their Fitbit – the search for the receipts will take care of that!
Tighten up controls on the use of corporate credit cards with these process improvements:
If you work for a public company and have authority over credit cards, set up a process where the Audit Committee of the Board has someone designated to review a monthly or quarterly report of corporate credit card usage. Internal Audit should be reviewing executive expense reports and corporate credit card statements annually. I suggest they pick randomly from the group for about 10% coverage each year and always review the CEO and CFO.
Nonprofit Board – make sure there is a policy that each cardholder signs. Review how the process works and suggest implementing automation of credit card receipts. Expensify, or a similar technology tool, can serve that purpose.
Private company – Set up automation of collecting credit card receipts and a review process like the one described for nonprofits.
Readers of this email who work for well-organized companies with mature practices in place may be thinking, “Surely there are not companies operating without these fundamental business practices in place.” My response is that if that was the case, I would not be writing on this topic or asked repeatedly to present these concepts to audiences!
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The Sarbanes-Oxley Act has created several unintended consequences including, in my opinion, eliminating many basic company controls it was intended to enhance in the first place.
Sarbanes-Oxley (SOX) became law in 2002 and was shortly followed by more regulation and the creation of the Public Accounting Oversight Board (PCAOB). SOX has created many interesting dynamics and consequences, which I will elaborate on in this post. Initially, public companies struggled with how to define a “control” to document that could be used to monitor compliance with Sarbanes-Oxley. I related it to one of my past roles where I was required to read two magazine articles a quarter to maintain my technical knowledge. The way the control was written, it seemed I could read any magazine article to maintain compliance and I was uncertain how an article in People or Cosmopolitan was going to help fulfill this control. SOX regulators and my supervisor both needed to tighten up the definition of “control.”
Since 2002 there has been significant, well-documented analysis of the requirements related to SOX, leading to very specific rules and oversight. The result in the public sector is that the audit team who is auditing for compliance now must to try to keep the regulators from sending them letters and questions about controls that may not be the most strategic as it relates to the health of the company. The auditors then, in turn, have their hands full during the audit process reviewing these types of controls, making it harder for them to add value and help with overall strategy. They have less time to step back and analyze the numbers in a way that results in a critical eye on the company’s financials, as they are auditing to the specific regulation to prevent the SEC from having a reason to come after them.
The increased regulation has flowed into the AICPA audit guidance, enhancing the rules of all audits; consequently, the cost of audits has increased for public and private sector companies. One of the most impactful changes has been the enhancement of the rules around auditor independence, including:
The auditor can no longer prepare the accounting records of the company they are auditing at all. Twenty years ago, if an auditor identified a small issue or difference, that auditor could determine what adjustment was required and make the entry to the financial statements. Now the auditor must communicate the finding to the client and request they analyze to determine what the entry should be and submit the entry to the auditor. Especially in smaller companies, the staff may not have the specific expertise to carry this through. These types of delays in the audit process drives the cost up.
The public company can not hire partners and managers on the audit team while they are working on the audit. Twenty years ago, public companies would frequently hire professionals from their audit firm who were already familiar with their company and the culture. The SEC was concerned this impacted independence because if the auditor is expecting to be hired and receive a large salary, they may not work with complete independence.
The peer review regulation has been enhanced, requiring even the smallest audit firms participate in peer reviews. However, a small CPA firm has a difficult time allocating the time to either host a peer review of their work or go to another firm to perform a peer review on their work.
Those were some of the enhancements. Now for the unintended consequences of regulation:
Partners in big CPA firms are leaving the practice as they are tired of dealing with the PCAOB inquires while still having to complete their audit responsibilities.
The number of companies entering the public market with IPOs has declined over time as they are unwilling to incur the cost to comply with public reporting. This trend reversed in 2018; there has been an increase in IPOs as noted in the EY Global IPO trends Q4. Most of the increase is in the healthcare and technology sectors as you can see in this report from EY.
The typical entrepreneurial growth company does not have the disruptive technology and the ability to attract multi-billion-dollar valuations. Take Farfetch (FTCH), for example, who commanded the initial $6.2 billion valuation after the first day of trade in September 2018, with a $112 million loss in 2017. Farfetch’s valuation will make it worth the increased regulation of a public company. This example is the exception rather than the norm.
The cost of an audit for both public and private companies has increased significantly. As a result, many companies subject themselves to an audit when it is necessary. Recently, I learned of a company that was required to get an audit to comply with the buy-side due diligence of their potential acquirer. The cost of the audit was double the original estimate, significantly delaying the sale closing.
Private Equity firms struggle getting through buy-side due diligence without having audit reports or typical systems infrastructure and controls upon which they have historically relied. The standard of requesting an audit has been lowered and the Quality of Earnings (“QOE”) report is being used more often.
Public company accounting and finance executives are expending valuable energy managing to the specific concerns of the PCAOB, leaving inadequate time and mental space to think strategically and apply judgment to controls in their environment.
The companies electing not to have an audit due to the cost may not have proper data and information to run the business day-to-day, which an audit would reveal.
By choosing not to pay for an audit and the value a third party brings by reviewing their controls, the company may not have adequate controls, leaving companies more vulnerable for fraud and embezzlement.
High growth companies have grown without the benefit of audits and may be using a combination of QuickBooks and an Excel spreadsheet explosion to maintain their records. The accounting team may not be reconciling balance sheet accounts and applying proper month end closing process. When the company seeks outside investment or desires to implement an exit strategy, they may find themselves in a situation where they must get an audit completed. The cost of an audit will likely be enormous at that point, as the books are probably not ready for an audit and chances are the existing staff may have never gone through a process of preparing a company for an audit.
SOX and PCAOB are certainly necessary in the United States regulatory environment. Public reporting and transparency are necessary for investors to be properly informed. The regulation should be reviewed and “right-sized” for the current environment. It is a shame that a few companies with less-than-stellar ethics, like Enron, led to a set of rules that has grown into such a powerful force. The PCAOB is not strategically focused on keeping businesses in business, and C-level executives should be pushing back for regulations that help businesses and against those controls that waste time.
Private companies that feel they are unable to afford an audit should keep their books and records so they are auditable. Basics such as monthly bank and balance sheet reconciliations and proper month end cut off should be a normal business practice.
One of the changes affecting private businesses in 2019 is ASC 606, Revenue Recognition.
Danielle Moga provided the insights below about what ASC really means to you. She is an associate of Barker Associates with a wide variety of accounting and finance experience with non-profit and public companies.
ASC 606 What it Means to Private Business
Contributed by Danielle Moga
Public companies had to adopt the standard in 2018 and what we’ve learned is that the process to implement was not a straightforward exercise. Many companies underestimated the complexity of the change and did not have the appropriate time, resources or processes in place to implement seamlessly.
The new standard changes the way companies need to record and recognize revenue from their contracts. The goal of the new standard is to enable users to understand better and consistently analyze revenues across industries, transactions, and geographies but the disclosure requirements are comprehensive, and the changes to the nature and timing of revenue recognition can be significant.
The good news is that you don’t have to be an industry-specific guru to implement the changes, as FASB opted for a more principles-based approach. The challenge is, those preparing financial statements and disclosures will require more judgement.
ASC 606 breaks down the analysis of contracts into a 5-step process that is intended to help preparers wrangle the chaos of details but the task to determine revenue recognition can be daunting depending on the volume and types of contracts that exist.
Identify the contract(s) with a customer
The contract must be fully executed, clearly identify the good/services to be transferred and specifically outline the payment terms.
Determine the performance obligations in the contract
All distinct transfers of goods or services must be identified. A good or service is distinct if 1) the customer can benefit from it on their own, or with resources they already have, and 2) can be transferred independent of other performance obligations.
Determine the transaction price
The amount of consideration the company expects to be entitled to in exchange for transferring the promised good or service.
Allocate the transaction price to the performance obligations in the contract
Performance obligations in the contract need to be separately identified priced or estimated.
Recognize revenue when (or as) the entity satisfies a performance obligation
The timing of recognition of revenue is dependent upon the time frame in which satisfaction of the obligation occurs. Point in time vs. variable over time.
The five steps are handy but don’t realistically help to manage the complexity of the project or the time it will take to meet the looming deadline.
We recommend a 3-phase approach:
Analyze contracts and systems
Ensure you have the right resources on hand with the skills and time necessary to lead and organize the project; or hire those resources externally for support.
Outline all components of the contract(s), as denoted in the 5-step process.
Decide if the retrospective or cumulative method will be utilized.
Document the existing methods and systems used to report revenue streams.
Determine the necessary changes to process and systems to implement and control the new recognition methods.
Document judgements made where clarity is needed.
Outline historical journal entries and the new ones necessary for compliance.
Determine differences and the impact on revenue, KPI’s and other material items.
Begin the conversion process and maintain parallel systems to ensure accuracy.
Schedule internal assessments of reporting and systems to ensure ongoing compliance.
Assess the skills and time of the internal team designated to safeguard this process to establish if additional support is needed.
Even with steps and a process, companies must set aside the time necessary to transition. Companies with minimal impact may only need a few months to go through the process of outlining and documenting. Companies with complex revenue streams and required system changes could take six months or more to transition and implement.
Don’t get caught in the 11th hour, start now! If your internal team is seasoned enough to handle this change then there are many resources available to educate and plan. Alternatively, leverage outside talent to minimize the chaos and challenges that come with significant change.
If you are a regular reader of my emails and blog posts, you know that I am passionate about companies having the right financial infrastructure to operate their business. Real costs are eroding your bottom line when you don’t have a handle on people, procedures, and process.
Consider the cost of these infrastructure “fails”:
Little to no understanding of the cost of individual services or products and whether your price covers the costs;
The inability to seek funding from investors because you can’t pull together the required financial information;
The cost of replacing frustrated financial staff who refuse to follow old, antiquated processes;
Time spent by C-suite execs creating their own financial reports when their own Finance Department can’t meet their needs; and
Fraudulent activity that goes undetected until it’s too late due to the lack of proper procedures and education.
Finance and your company’s IT capabilities are closely linked by the daily transactions that run your business. Sound, efficient infrastructure in Finance is great, but it must be supported by a highly secure and reliable IT infrastructure. I’m not speaking hypothetically, either. This reality hit home when a colleague shared with me his story of being a ransomware victim. The following reads like a script for a cybersecurity who-dun-it!
Our company uses a cloud-based server provided by Intermedia Solutions to host mission-critical applications, including our QuickBooks accounting software and our back-of-the-house order management system. The actual computer hardware on which our cloud server was running was physically located in a server farm in Atlanta, Georgia. This order management system handles everything from accepting of orders from all the channels we do business through (our own website, Amazon.com, Walmart.com, eBay and orders we take via telephone), plus it performs inventory control operations, vendor management, and purchase order issuance. Virtually everyone in the company uses one or both applications throughout every day, seven days a week. They’re accessed via Microsoft’s Remote Desktop software.
On Sunday, February 26, 2017, one of our employees logged into the server, preparing to work, and saw this message on the screen of our supposedly secure cloud server:
Whoever posted the message said that our data and applications were being held for ransom and the only way to free the data was to pay, 24 bitcoins, at the time, about $35,000. We found that the data on the server was not available to us. It has been encrypted. We were a victim of a ransomware attack.
After a moment of panic, we recalled that we and our cloud server provider had prepared for this possibility. If we hadn’t prepared, we would have been a statistic- another company who was either forced to pay the ransom or go out of business as a result of the loss of all of the company’s data. In 2017, there were 184 million ransomware attacks, most in the United States.
But we were ready and if any day was a good day for a ransomware attack, it would be a Sunday when we aren’t speaking to customers.
We had backups. Our cloud services company made image backups of the hard drive containing our cloud server and its data every night at midnight. The one thing we weren’t going to be doing was paying the ransom. Instead, we contacted Intermedia’s after-hours helpdesk and explained what happened.
We instructed them that we did not want the physical computer hardware repaired (because we didn’t now and would never trust that hardware again). Instead, we wanted a new server configured for our use. They had that ready for us in about four hours. We now had a brand-new cloud server ready to go but with none of our data on it. We then asked for a SECOND brand new cloud server to be set up for us but re-imaged from the backup image taken Saturday night at midnight. This would take longer.
Monday morning, although we were still not operating, we now had a clean, empty server and another server that APPEARED to be working with all of our applications and data on it exactly as it was at the close of business Saturday night. But I didn’t want to actually use this for fear that the ransomware application was lurking on the hard drive someplace ready to be reactivated again.
Over the next two days, we created data backups on the server and worked with our two application software companies to reinstall fresh versions of their software on the new empty server. On the third day, we did a restore of the data from the server image to the new server we planned to use. We gave instructions to Intermedia to abandon the original server that had the ransomware and the server image we had created. We were almost ready to resume operation. But I wanted to get some idea as to how we might have become victim in the first place. What I learned is that ransomware is almost always delivered via a rogue email containing an image, HTML or a PDF. The travel path for the virus was likely from one of our users who likely clicked on an email on their local computer while they were also logged into the cloud server. If that was the case, then the ransomware virus was also residing on someone’s workstation.
In my investigation, I also learned that a) Microsoft’s included anti-virus software is completely inadequate for company use and b) the ant-virus software on the server was grossly out of date.
We needed an anti-malware application that created a closed loop- coverage for the server and all of the user’s workstations that access the server. Also, it needed to be managed centrally. Users could not be trusted to keep their anti-virus software up to date. This was not the time for “free” anti-virus protection. Ultimately, I selected Symantec’s Endpoint Protection. For $28 a year per workstation/server, we got a managed malware protection suite. From a single web portal, I can see that everyone’s computers are properly protected. Then I installed it on the server and in the process, it confirmed that my restored data was clean.
Finally, on Thursday morning, we were back in full operation and properly secured.
I was pleased we had no data loss and didn’t have to pay the ransom but disappointed it took four days to recover. Here’s what I learned:
We chose wisely when we chose Intermedia. They take our cloud-based service needs seriously.
If you’re using computers in your business, take a good long time to think about what would happen to if you had a complete data loss, ransomware attack, etc.
Take your IT infrastructure security needs seriously. PLAN for a worst-case breach. Do not presume that your employees keep their computer software updated.
Don’t take your provider’s word for it that you’re protected, backups are being created, etc. Every few months I have a new server brought online and a restore performed. Once I’ve seen with my own eyes that everything works, I delete the server. It’s like conducting a fire drill.
Lessons Learned for Finance
Had Larry not had the right disaster preparedness and IT infrastructure, the costs of his crisis would have been much more than the $35,000 ransom. He still would have incurred at least 4 days of downtime. With his confidence shaken in the violated server, he still would have repeated the recovery process to bring new servers online.
Larry’s Lessons may be applicable to your own IT infrastructure, whether you’ve followed a similar process or realized that you should. Here is how Larry’s Lessons Learned can be applied to your Finance infrastructure:
Have a disaster preparedness plan for your department that aligns with your IT disaster preparedness. Test it periodically against various scenarios, but not less than every 6 months. Update the plan based on changes in your systems, procedures or business.
Cheaper is not always better – in fact, it rarely is. Understand your needs and invest in meeting them with the most robust tools you can afford.
Have an IT Security Policy and related Procedures. Educate your staff at time of hire and throughout the year on the latest scams and the importance of following your company procedures.
Finally, have a third party review your processes for areas of improved efficiency and security.
Barker Associates has the unique ability to work with all sizes of organizations and building infrastructure that matters. Contact us today!
Mindy Barker, Founder & CPA | Jacksonville, FL 32256
(904) 394-2913 or (904) 728-2920 | CFO@MindyBarkerAssociates.com