FINANCE IN THE MIDDLE OF THE ORGANIZATION - PowerPoint Presentation

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FINANCE IN THE MIDDLE OF THE ORGANIZATION

Southern New Hampshire University

Business Indicator Series

August 23, 2017Slide2

Speaker

Richard E. Johnson , CPASr. VP and CFO30+ years of experience in accounting / finance1985 Graduate of Bentley University1991 Graduate of New Hampshire College Graduate School of Business (SNHU) SNHU Alumni Board MemberSlide3

What is the goal of any finance organization?

… to ensure the books and records of the organization are accurate, correct and complete1

+ 1

=

3

-

1Slide4

What does the … mean to you?

Back

OfficeSlide5

A look back…

Shhh

,,..don’t tell the accountantsSlide6

Unfortunately, when finance is in the back office,

… the accountants only know what they knowTherefore, the goal of “completeness” and “accuracy” is flawedBACKOFFICESlide7

Headlines

The fall of Enron

Apr 14th 2005 |

From

The Economist

ENRON has become a byword for all that was wrong with {o}ne of America's most celebrated companies, following allegations of unprecedented accounting fraud…

Olympus and Ex-Executives Plead Guilty in Accounting Fraud

By

REUTERS Published

: September 25, 2012

—

The Japanese camera and medical equipment maker

Olympus Corporation

and three of its former executives pleaded guilty on Tuesday over charges related to a $1.7 billion accounting cover-up in one of Japan’s biggest corporate scandals.

.

Ex-Tyco CEO Dennis Kozlowski received 8-1/3 to 25 years

in prison Monday for his part in stealing hundreds of millions of dollars from the manufacturing conglomerate. Mark Swartz, former Tyco CFO, also gets 8-1/3 to 25; both men fined, handcuffed, sent to jail.

By Grace Wong, CNN/Money staff writer, NEW YORK (CNN/Money) - September 19, 2005: 4:31 PM Slide8

The Further Tragedy…The fall of Arthur Andersen…

The fraud, collusion and greed of a few brought down one of the biggest auditing firms in the U.S.Slide9

RESULT

PUBLIC COMPANY COMPLIANCE

SARBANES-OXLEY 404 ON

INTERNAL CONTROLS

PRIVATE COMPANY LOOK-A-LIKE

AUDITOR INDEPENDENCE

… but shouldn’t we be doing this anyway?Slide10

The Result – Overkill?

The Sarbanes–Oxley Act of …is a United States federal law that set new or expanded requirements for all U.S. public company boards, management and public accounting firms. There are also a number of provisions of the Act that also apply to privately held companies, for example the willful destruction of evidence to impede a Federal investigation.The bill, which contains eleven sections, was enacted as a reaction to a number of major corporate and accounting scandals, including Enron and WorldCom. The sections of the bill cover responsibilities of a public corporation’s board of directors, adds criminal penalties for certain misconduct, and

required the Securities and Exchange Commission to create regulations to define how public corporations are to comply with the law.Slide11

The Result – Overkill?

Broadly speaking, the goal of the Sarbanes-Oxley Act is to restore public confidence in financial reporting. ... Another part of the law, Section 103, requires direct auditor reporting on the effectiveness of public company internal controls.Sarbanes Oxley Section 404 threw finance and accounting to the FRONT of the organizationSlide12

The Result – Overkill?

In a small company, just as in a large one, it is management's job to maintain a system of internal controls so that the financial statements will be reliable. FINALLY, THE FINANCE TEAM WAS GETTING ITS MUCH NEEDED ATTENTION…But…..Slide13

Finance in the Forefront?

Finance & Controls

Rest of Organization

?

?

?Slide14

The Auditor “CYA”

Auditors now “audited” by the PCAOBManagement OWNS the financial statementsAudit representation letterSoxSox-LiteGovernanceControlTransparencySegregation of dutiesSlide15

Sarbanes Oxley tipped the scale to too much bureaucracy, not enough of what it was intended to do…

CONTROLS

“GOOD FOR BUSINESS”Slide16

Need to strike the right balance

CONTROLS

“GOOD FOR BUSINESS”

But how do you get there? Slide17

The Ethics Tug of WarSlide18

Guiding Principles

Values

Mission StatementVision

Code of Conduct

Code of Ethics

Creed

Policies and Procedures

TenetsSlide19

Fundamentals of “Guiding Principles”

Strategy of companyGreater purposeEmployee welfare (compensation, work/home life balance, opportunities for advancement)Good corporate citizen

Shareholder returnThese are fundamental…how necessary are these?? Slide20

Benefits

CostsSlide21

What is the Goal?Complete the internal control assessment that include written policies and procedures

Automate more processes within all groupsAccountability for everyoneSlide22

The Cost of Compliance

Changing culture – is there a value proposition other than compliance?PostersSignageMarquisCredosBest practicesEfficiency optimizationCompliance effectiveness related to cost

Slide23

How much is Enough?

DID WE ACCOMPLISH WHAT WE SET OUT TO DO?Slide24

FINANCE IN THE BACK OFFICE DIDN’T WORK

FINANCE IN THE FOREFRONT DIDN’T WORK

WHERE DOES IT BELONG?Slide25

Sales and Service Operations Engineering Quality Legal & EHS Human Resources Information Services Procurement

Guiding Principles

Accounting

AR & AP

FP&A

Tax & Treasury

Ops Fin

Best Practices

…The Middle Office…

…where finance is considered a business partner to all processes within your company…Slide26

But what does Finance in the Middle Really Mean?

We normally miss the mark – striving for accuracy without striving for completenessIs finance in the middle a…Physical locationPolicyWhat about “tone from the top?”Slide27

With all the best practices, what does the crème de la crème of control oversight NOT do?

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely

basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.(From Deloitte and

Touche

audit opinion)

Prevent or Detect FraudSlide28

So, if Sarbanes Oxley 404 doesn’t do it, what can we do?

What is employee theft?Malice aforethought (www.dictionary.com)Law. 1. a predetermination to commit an unlawful act without just cause or provocationSlide29

Headlines

The fall of Enron

Apr 14th 2005 |

From

The Economist

ENRON has become a byword for all that was wrong with {o}ne of America's most celebrated companies, following allegations of unprecedented accounting fraud…

Olympus and Ex-Executives Plead Guilty in Accounting Fraud

By

REUTERS Published

: September 25, 2012

—

The Japanese camera and medical equipment maker

Olympus Corporation

and three of its former executives pleaded guilty on Tuesday over charges related to a $1.7 billion accounting cover-up in one of Japan’s biggest corporate scandals.

.

Ex-Tyco CEO Dennis Kozlowski received 8-1/3 to 25 years

in prison Monday for his part in stealing hundreds of millions of dollars from the manufacturing conglomerate. Mark Swartz, former Tyco CFO, also gets 8-1/3 to 25; both men fined, handcuffed, sent to jail.

By Grace Wong, CNN/Money staff writer, NEW YORK (CNN/Money) - September 19, 2005: 4:31 PM Slide30

So, if Sarbanes Oxley 404 doesn’t do it, what can we do?

Accuracy ≠ CompletenessHow many use a third party bookkeeping or tax service, whether for your business or personal finance?Who can you trust? Slide31

Where is your company leaking?

Ethics Training

General theft

Missing cash

Trust but Verify

Controls

Lost inventory

Checks and balancesSlide32

Where we don’t want to be…Slide33

Small company in Rhode Island who trusted their

bookkeeper: AP/John Tlumacki

, Boston Globe (By David Morgan CBS/AP June 8, 2007, 9:47 AM) Platt leaves

the

Diamond Hill Convenience store near her house in North

Cumberland

, R.I., Aug. 10, 2006. Platt, a bookkeeper for a

construction

materials company, pleaded guilty Monday, Feb. 12,

2007 to embezzling $6.9 million to pay for a 104-acre ranch in Vermont, a life-size ceramic statue of Al Capone, complete with cigar, and a private performance by entertainer Burt Bacharach, federal authorities said. The books were accurate – were they complete?Slide34

Where are We Today?

Some companies put finance in the forefrontSome companies never left the back officeSlide35

WHERE DOES FINANCE BELONG?—IN THE MIDDLE

Get finance involved earlyTreat finance as your business partner

And Trust but verifySlide36

…we need to achieve our goals for our customers, our employees, and our shareholders in order to…

…ensure success for our customers, our employees, our shareholders…

…while never comprising our ethical baseSlide37

THANK YOU