Magazine article The CPA Journal

Financial Department Operating Costs

Magazine article The CPA Journal

Financial Department Operating Costs

Article excerpt

Financial department resources devoted to performance of recurring tasks such as paying bills and reconciling accounts can often be substantially reduced by simplifying department procedures and eliminating steps which do not add value. Financial department changes made at AMAX, Inc. over ten years, reduced the headquarters' accounting department staff from 30 to eight and the planning staff from 22 to four. The reductions accompanied management decentralization and strengthening of division financial staffs. Although some activities shifted to divisions, the overall result was significant net reductions in personnel.

Financial department personnel developed the changes at AMAX as part of the recurring cost containment projects which have become a familiar part of the business landscape. Most changes looked simple individually but required a willingness to adopt new routines--both inside and outside the headquarters financial departments--necessitated improved employee skills--especially related to personal computers-and depended upon management support.

It became clear late in the process that several basic concepts had been applied to our reviews of procedures. These approaches are not original and have been widely discussed in the business press:

* Eliminate unnecessary tasks;

* Do it right the first time;

* Collect only information you have a reasonable expectation of using;

* Simplify procedures for low-risk transactions;

* Use the smallest computer that will do the job;

* Automate tasks whenever it is cost effective;

* Use off-the-shelf software when possible. It's cheaper, faster to install, and easier to modify than custom-written programs.

ELIMINATE UNNECESSARY TASKS

Changes in the environment may permit eliminating financial department tasks without causing additional expense elsewhere. We stopped cashing personal checks as automated teller machines became widely available, offering a convenient way for employees to obtain cash. Acceptance of credit cards at nearly all hotels and restaurants permitted employees to charge travel and entertainment expenses, so we could stop issuing traveler's checks. We found automobile rental charges were generally modest. We therefore ask travelling employees to charge their costs on their credit cards rather than using the company rental car charge card. This eliminated the need to compare car rental costs from bills to expense accounts. (Automobile rental discounts remained the same after this change.) To reduce the volume of cash disbursements, executives were asked to pay smaller bills, generally under $300, directly and to include them on their expense accounts. We also stopped intercompany transactions of less than $1,000. This reduced the volume by 20% and simplified intercompany account reconciliations.

Payroll procedures provide another example. AMAX formerly drew advance payroll checks for employees who expected to be away on the normal pay day. With direct deposit of payroll checks, now a reliable and inexpensive alternative offered to all employees, we stopped providing advance payroll checks. Despite some initial skepticism, employees are now very satisfied with direct deposit. Nearly our entire payroll is handled this way.

DO IT RIGHT THE FIRST TIME

Providing the tools and training so tasks can initially be performed correctly avoids the time, effort, and expense of making corrections. A knowledgeable and well-trained staff can help you avoid the familiar nightmare of accounting records containing a jumble of incorrect entries.

Here are two specific examples of the benefits of doing it right the first time:

* On-line data entry was substituted for batch processing. Therefore, accounting department personnel get immediate feedback if debits and credits are not equal, nonexistent codes are used, or essential elements omitted. Entries are adjusted immediately while all the papers are still readily available. …

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