Download - Lecture Slides 1
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: