2 Corporate financial management roles ... ControllerTreasurerChief Financial OfficerVice President FinanceProvision of CapitalMoney ManagementRisk ManagementExternal Financial ReportingManagement Control SystemsInternal ControlFinancial reporting and controlRaising and managing capital
3 The controllership function … The controller (or the control department) ...Designs and operates information and control systems:e.g., supervision of all accounting records (financial / managerial);Prepares financial reports to shareholders and external parties;Prepares and analyzes performance reports and assists managers by interpreting these reports;
4 The controllership function … The controller (or the control department) ...Analyzes program and budget proposals and consolidates the plans of the various business segments into an overall annual budget;Supervises internal audit and accounting control procedures to ensure the validity of information;Performs operational audits;Develops personnel in the controller organization.
5 The treasury function ...Basically, the treasury function entails the control of corporate funds ...Provision of CapitalFinancing;Cash planning;Investor and creditor relationships.Money ManagementBanking: cash and deposits;A/R, A/P, collections, disbursements;Loans and investments (securities).Risk ManagementInsurance, including employee benefits.
6 The control department ... ControllerMISAccountingBudgetingInternalAuditSpecialProjectsAdministrativeSystemsManagerialFinancialP&L-statementsConsolidationTax Returns...Cost AccountingInventory ControlMake-or-buy
7 Relation to the line ...What should be the relationship between the corporate controller and the division controller?Top ManagementPresident / Vice-PresidentsCorporate Control Department?SBUs / Divisions / Segments / Functional AreasXYZDivisional Controller...
8 Relation to the line ...The controllership function is a staff function ...The controller designs and operates the control and information systems (e.g., control measures);However, the use of this information remains the responsibility of line management.The controller can make recommendations for action to management, but (s)he does not make nor enforce management decisions.This is not to say that the controller should not be involved in or have a good knowledge of the business ...
9 The business unit controller ... Two major responsibilities ...The management-service responsibility ...Help business unit management in the business decision process;It requires that the business unit controller becomes actively involved in the local decision making process.INVOLVEMENT
10 The business unit controller ... The financial reporting and internal control responsibility ...Ensure that the financial information from the business unit is accurate and that internal control practices conform to corporate policy and procedures;It requires that the business unit controller acts as a "policeman" or local guardian for the corporate office.INDEPENDENCE
11 Divided responsibility and loyalty ... The business unit controller's job priorities and loyalties are changed when the reporting relationship is changed ...Centralization of the controllership functionSolid-line with the corporate controller; Dotted-line with the business unit manager (staff-relationship).Emphasis on financial control responsibility."Corporate spy” (HQ representative, irritant, unbiased partner, checker, policeman).
12 Divided responsibility and loyalty ... Decentralization of the controllership functionDotted-line with the corporate controller; Solid-line with the business unit manager.Emphasis on management-service responsibility."Business unit ally” (trusted assistant, helper).
13 Alternative controller relationships ... Centralization of the controllership functionsolid-lineCorporate Control DepartmentSBUs / Divisions / Segments / Functional AreasTop ManagementPresident / Vice-PresidentsXYZDivisional Controller...
14 Alternative controller relationships ... Decentralization of the controllership functiondotted-lineCorporate Control DepartmentSBUs / Divisions / Segments / Functional AreasTop ManagementPresident / Vice-PresidentsXYZDivisional Controller...
15 Factors influencing centralization of control ... Corporate management / controller’s desire to ...Exercise “tight” controlImplement uniform control systems across business units or divisionsAchieve economies of scale in controlSpeed up the introduction of new control techniques / procedures...
16 Possible solution …The business unit controller should ...Collect actual accounting and other data on performance, following prescribed rules;Assist in preparing the budget;Analyze results so as to inform the business unit general manager of trouble spots and areas of improvement.financialcontrolmgnt.serviceIf the business unit controller is expected to add value to the business, to be an adviser, (s)he should report to the business unit general manager.
17 Possible solution … Relationship with corporate controller ... The corporate controller has "functional control"Develop (uniform) control / information systems;Prescribe rules / procedures for the collection of information;Study and suggest new control techniques for the better performance of the controllers in the business units;Educate / train controllers (formal courses and informal meetings).
18 And also ...Internal auditors and audit committees can be used to oversee the controller function;Personnel / cultural controls (selection and training of controllers);Incentive systems that do not create temptation (e.g., rewards based on performance measures they can manipulate);Centralization / decentralization of the controllership function.
19 Auditors ...The internal audit function operates in staff capacity and reports high in the organization, at least to the controller or financial vice-president.Financial auditsExternal auditors / GAAPCompliance auditsExternal / internal auditors;Compliance with laws and rules / administrative policies.Performance auditsExternal / internal auditors / consultants;Evaluation of the performance of the company, its management, a department, or a specific activity (+ make recommendations).
20 Audits – two benefits …The audit report adds credibility to the information provided to user groups;Anticipation of the audit increases the motivation of the individuals involved to act in a legal, ethical way and in the best interest of the company and its owners.
21 Board of directors ... Two main control responsibilities: Shareholders, who typically own a portfolio of firms, delegate their authority for internal control to a board of directors.The board is given ultimate control over management;It monitors and approves management decisions, and chooses, dismisses, and rewards managers.Two main control responsibilities:Safeguard the equity investors’ interests by ensuring that management seeks to maximize shareholder value;Protect the interests of other corporate stakeholders (employees, customers, suppliers, competitors, and society at large) by ensuring that the employees in the corporation act in a legally and socially responsible manner.Independence / outside directors / interlocking directorates.
22 Audit committees ...Overseers of the company’s financial reporting process and its internal control systems.Maintain lines of communication between the board and the company’s external auditors, internal auditors, financial management, and inside and outside counsel.Independence from management is crucial for effectiveness.Recommended to be made up solely of outside directors.