Economics 194

Financial Management

R. C. Lowes

Functional Evolution of Finance

Cash

Language of Finance

Business Analysis

Business Planning

Business Partner

The Role of Finance

• Variables

– Type and Size of Business

– Financial Health of Business

– Personalities and Backgrounds of Senior

Management and Directors

The Minimal Roles of FinanceDemanded & Unavoidable

1st – Administrate Money for Company

2nd – Provide the Language of Finance as a Common Denominator

The Larger Role of Finance

• Applying Financial Skills to the Broader Context of the Total Business…

Current & Future

as a

Business Partner to General Management

CFO Career Grid

Corporate

CostAcct.

Planning,Reporting,Investor

Relations

BusinessAnalysis,Treasury

StrategicPlanning

Acct.AuditTax

Entry

Manager

New Co.’s

International

Cross-Functional

Skill Curve

Entry

Middle

Sr. Mgmt.

TechnicalSkills

ManagerialSkills

Political &Leadership

Skills

Lessons Learned

• Play to Your Strength

• Stay Ahead of the Curve

• Manage Up as well as Down

• Network … Internally & Externally

• Understand the Impact of Job Changes

• Communicate/ Communicate/ Communicate

L.L. II

• Make Decisions

• Work on People Skills

• Be Humble

• Keep Learning

• Careful of Image & Impact on Others

• Learn to Play the Cards you have

L.L. III

• Learn to Live with Change

– “Change what you can, accept what you can’t

and God willing you’ll know the difference.”

• Learn to Lead, Manage, and be a Team Player

• Eat Elephants one small bite at a time

• Don’t Believe or trust your own press

Lipset’s: Politics of ScarcityAnarchy

Balance

Shortages

Dictator

Abundance

Democracy

CountriesCountriesCorporationsCorporations

TeamsTeams

Internal Audit

• First thoughts?

“NCAA” (No Clue At All)

“Accounting Practice”

“Boring”

“Reviewing Accounting Records”

“Bean Counting”

Purposes of Internal Audit

• Understand the Nature and Scope of the

Activity/Function being audited

• Check Administrative Efficiency of Polices and

Procedures (P&P’s)

Purposes of Internal Audit

• Ascertain the Extent to which Company Assets are

Accounted

• Safeguard from Losses of All Kinds

• Determine the Reliability of Management Data

developed within the Organization

Purposes of Internal Audit

• Determine the Extent of Actual Compliance

• Appraise P&P’s for Possible Improvement

• Increase Efficiency by identifying any other means by

which the activity/function can be made More Effective

– shared best practices

Internal Audit Structure• Function of Ability to Control Cash

• Complexity & Knowledge of Business

• Quality/ Integrity of Personnel

• Centralization vs. Decentralization

• Report to Audit Committee (vs. CFO)

• Security Department (should be included)

Internal Audit Responsibilities:

• Operation Audits

• Financial Audits

• Cooperation with External Audit

– can drive positive within company

• Evaluation of Internal Controls

Internal Audit Needs:

• Management Support of Audit

• Computer Skills

• Legal Interface

Internal Audit Program

• Risk Assessments

• Size, Amount of Change, Previous Reports

• Cycle Approach

• Based on Risk

• High Risk First

• Visit Everyone within 2 to 5 year Cycle

Internal Audit Program

• MIS Implications (Security Systems)

– External Hackers

– Internal Theft

– Disgruntled Employees

• Statistics

• Pinpoint problems by Variance

Internal Audit

What “I” need to know in order to be successful:

• Familiarity with some element of the business

operations, not just “text book” learning.

– Internal audit is a great job if you have 2-5 years of work

experience in another department (especially IT/Systems).

– Or, a strong ability to compare experience-to-date to the

company’s business processes.

Success at Internal Audit

• Get to the Root of the Problem

– Focus on the Cause, Not on the Symptoms.

• Strong Written and Verbal Communication skills

• The ability to structure work, be a self starter, stay

on-time and budget, etc…

– Strong Project Management Skills

• Skill at being “Non-Threatening” in a threatening role

• Be a Consultant, a Listener with a Purpose

• Make Connections with people in a short time frame.

Success at Internal Audit

Internal Audit – ‘the Dark Side’

• If you don’t have some other work experience, you can

get Stuck in Audit

– Best Sequence:

• Functional Role 2-5 yrs.

• Internal Audit 3+ yrs. (longer if promoted in audit)

• Back to a Functional Role

Internal Audit – ‘the Dark Side’

• Testing Compliance can be Boring

• Many people think its Not a good work experience

• You Travel a Lot (60% 0n the Road)

• “What Personal Life ?”

Internal Audit – ‘the Dark Side’

• Most people are threatened by auditors and can be

defensive (at the least) or aggressive, or even on the

attack…

– You can have days where very senior people are

screaming at you…

Works OK with my motto: “Any Exposure is Good Exposure.”

Internal Audit – the Good Side:

• Audit Improves MPNW

(My Personal Net Worth)

• Broad Exposure to a Business’s Operations

– Translates to Functional Experience

• Work on End-to-End processes, not just in Functional

Silos

a.k.a.

‘the Force’

Internal Audit – the Good Side

• Opportunities to Learn How the Business Really Works

– Functionally

– in Different Markets

• Excellent Opportunity for Networking in the Organization

– No other Internal Role give the same Exposure to the same

Number of People

• Great way to Learn about other Areas of the business from

a career perspective

Internal Audit – the Good Side Interaction & Exposure to Senior Management

• Can Scope out Future/Potential Roles

• Unusual for Entry-Level jobs to have such exposure to

Senior Management

• Develops Communication Skills

– and the ability to think on your feet!

Internal Audit – the Good Side

• Can get a better understanding of what jobs are like than

via an interview process.

• Great Travel.

• Experience what it’s like to live all over the world

without having to move.

• Gives you more career paths as you’re learning

processes and operational capabilities; not just finance.

Lessons Learned – Internal Audit

1. Use and Develop Internal Audit

2. People Development Opportunity

3. Promote and Move Auditors In/Out

• Eliminate Stagnation

4. If they Object send in More Firepower

& more Senior People

5. Prosecute … Hang Publicly

6. High Compensation Doesn’t mean High Integrity

L.L. – Internal Audit II

7. Share Findings and Best Practices

8. Build on Audit Experience

9. Utilize in House Consultants

• to question P&P’s

10. Eyes and Ears in the Field

11. Cross-Train with Systems Personnel

12. Get Audit Involved Up Front on New Systems

L.L. – Internal Audit III

13. Don’t Forget to Recognize the Audit Team

14. Be Creative in Road Time Compensation

15. Remember it is Internal Audit

They Are Your People,

So Keep it in Your House.

External Audit

• Answers to:

Government and Accounting Bodies

• Has become more:

Consulting than Auditing of Company

• Economics is Driving Audit Firm Consolidations

& Spin Offs

External Audit

• Fiduciary Responsibility

• The Audit Committee of the Board

– Hiring External Auditor

– Reviewing Audit Plan

– Reviewing Performance

– Review Audit Issues/Recommendations

– Insuring Internal Control

External Audit

• Audit Firm Reporting Relationships

– Partners

– Audit Managers

• Other Services

• < 30-40% of Bill => Dilemma: Conflicts of Interest

– Technical Accounting

– Systems

– Organizational Development

Lessons Learned – External Audit

1. Relationships Matteri. Audit to Client

ii. Firm to Finance Function

iii. Partner to CFO

2. Replace the Partner before the Audit Firm

3. Be Inclusive of External Audit within the Company as a whole

Accounting

• GAAP– Income

– Balance Sheet

– Cash Flow

Accounting Reporting

• S.E.C.

• F.T.C.

• I.R.S.

• Dept. of Labor

Accounting Organizations

• Consolidations

• Government Reporting

• Technical Issues

• Services

Accounting Business Complexity

• International

• Compensation

• Manipulation

Lessons Learned - Accounting

• Understand the Grey Areas– Management Judgment

• Set Reasonable Policies and Avoid Change

• Standardized Charts of Account & General Ledger Systems– Are Worth their Weight in Gold!

Shared Services

• Payroll

• Payables

• Receivables

• Financial Systems

• Property Management

Shared Services What Makes It Work:

• Internally– Service Orientation

– Profit Incentives

– Mgmt. Communications

– Std. Systems & Procedures

– State of the Art Technology

• Externally– Service Orientation

– Keeping Clients Happy

– Overkill of Problems

– Cost Savings

– Communication, Communication, Communication

Shared Services What Makes It Work: