Re-launch your engagement with Finance-

10 key questions to promote open dialogue

Better Boards conference, 3 August 2014Michael Corry, CFO Clarity

Brief overview – our objectives

WE WILL …

Consider why there is sometimes a disconnect between Finance and the rest of the organisation

Do some profiling of Finance Managers, CEOs and Chairs

Consider different ways to ask questions and receive challenging news

Look at 10 key questions to address to Finance.

Explore strategies to make those questions more effective

How to engage with Finance?

The ten questions- a sneak preview

1. How are we investing our surplus cash?

2. Are we tracking aged debtors and creditors?

3. Are all of our activity streams covering their costs?

4. How can we use technology to improve things?

5. What’s our main tax risk?

Questions 6 to 10

6. Is our fixed asset register up to date?

7. How can we improve reporting to the board?

8. How do we know everyone on the payroll works for us?

9. Got any leave planned?

10.What keeps you awake at night?

Profiling Accountants

Profiling CEOs- number 1, the Volcano

Profiling CEOs number 2- the smiling assassin

Profiling CEOs number 3- the sulker

Question 1; how are we investing our surplus cash?

Principal X interest rate X time invested = investment return

Question 2; are we tracking our aged debtors and creditors over time?

Question 2; are we tracking our aged debtors and creditors over time?

Several measures can work OK

The key is consistent measurement over time

Example;

Total purchases (exclude salaries)/365 = purchases per day

Creditors / purchases per day = creditors days outstanding

Question 2 continued

AND/OR- an aged creditor listingTotal Current 30-60 60-

90 90+

SGR lawyers 5,654 5,654 0 0 0

AGR electricity 12,400 12,400 0 0 0

GU Workcover 1,544 0 0 0 1.544

LL premises 10,450 010,450 0 0

Total 30,048 18,05410,450 0 1,544

Question 3- are all of our activity streams covering their costs?

Check everyone knows what we mean by “cost recovery”.

General meaning- are we avoiding a loss? Are we generating enough revenue to cover costs? Does this work across all activities?

Specific meaning- can we allocate some costs to this grant, and legitimately spend, say, 90% in the field?

Question 4; how can we use technology to improve things?

Quick fixes

Medium-term projects

Broader strategic objectives.

Finance system change or whole of business?

Emphasis on reporting or processing?

Question 5- what’s our main tax risk?

“Not-for-profits don’t pay tax”. They’re exempt!

Oh yes they do!

GST, fringe benefits tax, Workcover (alright, not a tax) etc

Question 5 continued

Have a good look at contractors.

It’s a complex area.

Various tests. 80% test is just one.

Affects superannuation, Workcover, (payroll tax), withholding tax on payments to contractors

Question 6- is our fixed asset register up to date?

This is a CLASSIC risk area.

Does the register contain redundant assets?

Is all work in progress shifted into the register?

Question 7; how can we improve reporting to the board?

Comprehensiveness versus clarity

Risk of CYA approach- “they’ve had it so they can’t say they haven’t”

Keep it meaningful and concise

ASK THE BOARD- what’s useful to them?

Question 7 continued; board reporting

Question 7; Board reportingLessons from the Centro case

Each month the board received a board pack about 450 pages long. One of the board packs that was particularly relevant was more than 1000 pages long.

“The directors failed to see the ‘obvious errors’ because they all took the same approach in relying exclusively on those processes and advisors. No director stood back, armed with his own knowledge, and looked at and considered for himself the financial statements.”

Question 7; board reportingLessons from the Centro case

“A board can control the information it receives. If there was an information overload, it could have been prevented. If there was a huge amount of information, then more time may need to be taken to read and understand it. The complexity and volume of information cannot be an excuse for failure to properly read and understand the financial statements.”

Question 8- How do we know that everyone on the payroll works for us?

Check this from time to time. Fraud prevention/detection focusThink laterally about how you approach this.

Question 9- got any leave planned?

“……..spent more than a year struggling to reverse a bewildering decline in cash flow”

“Trusted senior accountant…..” “Multimillion -dollar discrepancies” “Rat in the ranks….” “No outward sign……..” “…where the complexity came in was…how she covered her tracks”…………

“payments in bank statements deleted from on-line records”

Question 10; “what would keep you awake at night”

THE KEY QUESTION. Works best with trust. Off-the-cuff or on notice? Be ready for an initial brush-off. Persist gently but firmly. Gives the accountant

“permission” to air concerns.

Question 10 continued

Goes back to how you ask questions, and how you receive answers

“What exactly do you mean by that?”

“How specifically does that work?”

Conclusion

If you ask penetrating questions constructively, the finance function will generally welcome this and feel engaged.

Set up the culture where it’s OK to report bad news if necessary.

Develop a technique of questioning that gets the answers you are really looking for. Be aware and genuinely inquisitive.

We accountants love to spend time mixing with the humans. Re-engagement is good. Good luck!