Staffing and Organizing the Management Accounting Function at Large Financial Institutions

Article excerpt

By Woody Alexander*

This study will lay out some of the considerations financial institutions have faced in putting a management accounting group in place. Management accounting, as the name implies, is charged with providing financial decision support information to managers at all levels of the enterprise. A sister function, financial accounting, is primarily charged with an external reporting of financial information to stockholders, regulators, and security analysts. MANAGEMENT ACCOUNTING FUNCTIONS Some of the responsibilities assigned to the management accounting organization are the following: Profitability reporting for organizations, products, and customers Profit planning and forecasting for organizations, products, and customers

Policies and procedures supporting profitability measurement and reporting (PMR) Development of allocations and transfers supporting PMR Development of funds transfer pricing rules supporting PMR Conduct of cost and profitability studies, including activity cost development

Performance and reporting support, to include balanced scorecard preparation This is not an exhaustive list, as different financial institutions may add or delete requirements. For example, in some institutions, management accounting also is responsible for supporting productivity reporting and commercial account analysis. This study will address the staffing and organization supporting the core function. FINANCE VERSUS DATA PROCESSING Financial institutions tend to resemble large accounting functions running on a data processing platform. Management accounting in these institutions tends to resemble the same type of financial system. Management accounting applications, including profitability measurement and planning systems, are configured in accordance with "best practices" policies and procedures. These applications are then processed in a variety of environments in order to calculate and report actual, budgeted, and forecasted results for given reporting periods. This automated environment causes some staffing and organizational issues. Should the function be located in Finance or Data Processing? Most institutions house management accounting in Finance and look to Data Processing to provide systems support. Sometimes, a dysfunctional rift will open between the two groups over support requirements. In recent years, this organizational issue has led the Finance group to pursue client/server solutions. However, because of the large number of source applications and vast quantities of data to be posted and maintained in the management accounting "warehouse," support from Data Processing will be required in virtually any institution. CENTRALIZED VERSUS DECENTRALIZED Management accounting in large financial institutions has become more centralized as executive management sees profitability measurement and reporting as an effective controlling, communicating, and directing tool. Centralization provides control over the data in order to prevent "multiple versions of the truth." Having each line of business or region develop its own policies and systems seems like a great tool for "empowering" profit centers. But when trying to manage across an entire enterprise, some centralized management accounting warehouse is required. For example, a customer may have business in multiple regions and lines of business, so in order to get a clear understanding of the customer's value, management accounting must provide a total view across organizational dimensions. Centralized control does not hamper decentralized execution. Financial executives in regions and lines of business can design and deliver specialized queries and reports from data marts under their control. EXAMPLE OF STAFFING AND ORGANIZATION

Based on a survey of three large regional banks which are on the cutting edge of management accounting `best practices," the example of staffing and organization shown in the figure on the next page was compiled. …