Finance organisation

The Modern CFO and Controller

A modern CFO will often be on a similar pay-scale to the CEO (although often reduced equity)

They will be driving strategy, raising money and talking up the value, explain performance to shareholders and banks, negotiate possible acquisitions etc

In some ways they have as much or more to add for the shareholders as the CEO, which can lead to tension between CEO and finance

The Controller therefore has to take on the Operational Finance Director role. Some or a large part of this team may be outsourced as has a “standardised accounting process”. The significance of this role is not always rewarded by Finance Director equity as does not report to CEO.

Both could be seen as CEO and CFO in waiting.

Typical CFO organizational structure

CFO

Corp Development IR and Strategy Group ControllerFinance & Planning

LegalTax and Treasury

Invoicing

Control andTransaction processing

Planning

Projects (systems

Implementation etc)

Group Controller

-normally largest team

-sometimes planning and invoicing under CEO directly

-additionally “transaction processing/ shared service” may be split from control

- often significant project work particularly systems

Why so many people when only 3 priorities:

Invoicing => Often companies provide non standard terms and conditions as a rule rather than exception. This is difficult to manage in most billing systems.

Monthly management reporting => Group Finance and Planning. Finance is assessed by the quality and speed of its management reports. Often issues with significant offline reporting in excel including Consolidation.

Collection of outstanding receivables => Group Finance. Cash is king.

…need the people because there will always be conflicting time consuming projects needing Control input• Acquisition’s• Refinancing, optimum capital structure• Organisation re-structure; cost reduction• Managing for growth• HR issues – bonus calcs, stock, salary increases, external payroll• Complex legal entity, tax structure, transfer pricing, VAT compliance,• Inter-company• System implementations (including BI and Workflow) –”help” from IT• Shared service, preferred supplier lists, payment terms, ”business” language• Forecasts• Audit (including internal and interim)• Recruitment and stabilisation• Due diligence – centralised contracts, key management/ processes• Strong documentation, procedures, policies, support for G/L• Rationalise chart of accounts, sensible account structures• Effective internal communication – number of meetings, email usage• Rationalise and Group management of all entity bank accounts

Balance of team

Cost reportsExpense claimsSupplier paymentsBudgets, forecasts

Mgt team

Board reportsGroup Analysis

CEO/CFO/Shareholders

Local complianceStatutory auditLocal needsToo small for office Manager and accountantLanguage issues

Group or Shared Service Local

Joint venturesFinancial Analysis

Lack of integrated systems

Changes in cost centres or revenuelines of business through restructuringcauses significant re-work

New acquisitions or disposals

Time consuming lengthy budgeting/ re-forecasting and audit process

Not enough thought in budget or actualprocess to match budget vs actual –defined rules

Invoicing process very manual

Payroll process not sufficient detail to analyse by employee

Lack of integrated banking to trace receipts/ payments

Help, finance is sinking

IT department does not wantto help

Group Controller

Typical standard processes

Typical close process

• Receive input from legal entities by close of play (workday 4)• Consolidate the companies by morning of (workday 7)• Slide deck first draft (workday 8)• CFO review (workday 9)• CEO review (workday 10)• Cost centre reports and review with Mangement team (workday 11)• Chairman review (workday 11)• Board slides submitted (workday 12)

Main risk areas • Quality received from entities on workday 4.• Any major changes need ”re-consolidation”

Split of transaction processing and control

Journal Level Source/review Entered Workdaygroup

1 EBITDA Revenue accruals/reversals FP&A Shared service -1

2 EBITDA Cash receipts Control Shared service 1

Most cash queries should be cleared and resolved weekly

3 EBITDA Intercompany Control Shared service 14 EBITDA Capitalisation of project costs Control Shared service 25 EBITDA Credit card postings Control Shared service 26 EBITDA Salary, bonus, holiday Control Shared service 27 EBITDA Revenue accruals, bad debt provisions FP&A Shared service 38 EBITDA Accruals and prepayments Control Shared service 39 EBITDA Local GAAP adjustments Control Shared service 3

FLASH results10 EBITDA Consolidation adjustments to FLASH Control Shared service 311 Below EBITDA/ Bal sheet Interest, Tangible Depreciation Control Shared service 412 Below EBITDA/ Bal sheet FX Control Shared service 413 Below EBITDA/ Bal sheet Other Balance sheet entries Control Shared service 4

Management reporting from legal entities

1. Commentary:1. P&L – revenue, staff costs and external cost explanation of absolute and variance2. Cash flow –funds from interco, cash receipts from customers and payments to

vendors, other –specify3. Bal sheet – analysis of major balances, full bank account details4. Commercial – corp dev, strategic, competition, legal, regulation5. Compliance update6. Risk and Ops7. Projects working on8. Headcount and payroll analysis9. Achievements and concerns

2. Revenue analysis of pipeline to end of year3. Cash forecast and explanation to prior month4. P&l, bal sheet and cash flow – trended in euros and local and variance to

plan in euros5. DSO calc and comments6. Analysis of accruals and provisions7. Analysis of prepayments8. Analysis of interco9. Copy of journals for month

Transaction processing

Shared Service function

Summary of Activities Handling by transaction processing: Accounts Payable Process

Accounts Receivable Process

Bank Reconciliations

Dunning Letters Process

Month-end Activities

Preparation of MIS Reports

P&L Cost Centre-wise Analysis

Accounts Payable Process:

Accounts team receives the invoices by post or mail

Accounts team stamped on the invoice with the date of receipt and send to respective departments for approval ideally through workflow

Once obtained the approvals, invoices will be given an unique number and forwarded to shared service centre for entry to finance system

If Invoice received against a new vendor, shared service function will send a mail to Finance System Administrator to setup the new vendor

Accounts Payable Process-Payment Run: Shared Service team needs to prepare Accounts

Payables Ageing Report, to identify the payments to be made in the Payment Run. Payment Run will take place on alternate Thursday.

Control identifies the payment to be made, vendor-wise and sends to Shared Service team.

Shared Service team will upload the payment entries in finance system and into on-line banking to complete the payment process.

After performing the Payment process, Shared Service team will send a mail to Signatories to approve the payments made into on-line banking.

Accounts Receivable Process - Receipts:

Shared Service Team has been provided with the on-line access to all bank accounts.

Each bank receipt contains the invoice number and Shared Service Team identifies the customer based on invoice number, entry will be accounted into the finance system.

Receipt amount will adjust to the invoice amount. Control team verifies the entries and post into finance system.

Accounts Receivable Process - Dunning Letters:

Dunning Letters process is following by Shared Service team based on the customers, whose payment is past due date.

Shared Service Team prepares the letters manually and send them to Control for signature.

After completion of signature and approval process, Shared Service Team send letters along with statement copy via E-mail or post.

If any queries relates to letters or statements, Shared Service Team will follow up with the customers and resolve them.

Bank Reconciliation Process: All the Bank accounts to be Reconciled by Shared

Service team on every Friday.

India team is provided to access all the bank accounts on-line.

All receipt entries will be booked by AR Executive and all payment entries will be booked by AP Executive, of the bank statement.

AP Executive is responsible to prepare the Bank Reconciliation.

If any unknown entries in the bank statement, AP Executive will upload the details into QUERY file and send to Control to resolve the same.

Month-end Activities: Shared Service Team prepares the journal entries

for prepayments, expense provisions and revenue accruals, based on the data provided by Control team.

Once journal entry booked into the finance system, the Control team verifies the same and posts.

Inter Company entries will be updated by Shared Service team, based on the invoices received from other entities ONLY in reported currency. The same will be reconciled and will follow up with other entities for the differences.

Once Trial Balance finalized for the month, Shared Service team will prepare the Reporting Package in Group format and send to Control for approval.