Reengineering the Accounting and Finance Functions

By Vollmers, Gloria | The CPA Journal, May 1997 | Go to article overview

Reengineering the Accounting and Finance Functions


Vollmers, Gloria, The CPA Journal


The Reengineering Movement the inclination to reduce costs while maintaining service and productivity, the drive for efficiency, has swept the country in recent years resulting in excellent and quick returns to shareholders. The returns have been due largely to layoffs, sometimes so massive that they reach the front pages of newspapers, news broadcasts, and talk shows. Some believe that the largest companies have completed the majority of their cutbacks and it is unlikely that we will see much more of these sudden and large layoffs. However, the desire to control costs continues and albeit, in smaller numbers, so does downsizing.

Long viewed as nonvalue adding operations and as necessary evils, accounting and finance activities have become prime targets for cost containment. The management accounting journals of the United States, England, and Canada have been peppered with articles on this topic over the past few years. They have identified the accounting functions most likely to produce cost saw ings if reengineered. They have also outlined approaches to the task of reengineering and listed or offered case studies of companies that have successfully overhauled their accounting and finance departments. While discussions of reengineering use the language of productivity, timeliness, and usefulness, the results usually reduce transactions, placing costing activities on source (production) personnel, and taking them away from the accounting department. Or, it may require sending activities and processes out of the firm entirely, through outsourcing.

While paper, ink, and computing time may be saved, substantive cost-cutting efforts in these areas will result only if personnel is reduced. Though better and more timely financial and managerial reports may improve the decision-making capability of upper level management and lead to future profits, those profits will always be greater and more immediate if productivity were so enhanced that personnel could be released. According to T. Sheridan in the April 1996 issue of Management Accounting (England): "The message to the financial people (is) unequivocally clear. Business leaders are trying to get hugely more value from the finance function while cutting down on its staff."

Depending on viewpoint, the direction this path is taking is either good or threatening. From the company's side, it is good to reduce cost while maintaining productivity. The company benefits, the stockholders benefit, and the customer may benefit as well. For the management accountant, on the other hand, this trend threatens existing jobs and for the student nearing graduation, it reduces the potential of employment. CPAs in public accounting considering corporate employment should be aware of the shrinking opportunities and be able to identify and avoid bloated accounting and finance departments that may be ripe for redesign.

How and Where to Look for Cost Savings

The CPA wanting to create value for his or her client needs to know where to look. A perfectly competent professional, having worked for a company for years, may be blinded by familiarity and unable to readily see areas of potential improvement. The following suggestions, in no particular order, may offer some guidance.

* Look for signs of operational breakdowns. Are monthly closings difficult and time consuming? Does it take too long to cut travel and entertainment reimbursement checks? Are payroll or accounts payable costs rising out of proportion to the numbers of employees or suppliers? Are the managers of other functions complaining that their informational needs are not being served?

* Obtain benchmarking studies and compare the cost of your company's finance functions to those of peer companies.

* Starting with the benchmarking studies, identify the areas where cost savings are most likely to be found and consider how to make the improvements.

Benchmarking-a Tool for Improving Service

Several studies are now available that have surveyed and measured accounting and finance functions in the U.S. and abroad. They measure the costs of these functions in companies of various sizes in various industries, finding ranges and identifying those best practice companies that have managed to minimize costs in particular areas. A.T. Kearney published two European Benchmarking Studies on the finance function in 1993. In 1994, at the Conference Board Europe's European Finance Forum, the results of that study were discussed and highly praised by companies that benefitted from the study. The AICPA and The Hackett Group reported in the November 1996 issue of The CPA Letter that the results of their ongoing benchmarking study were available. The study reported a 36% decline in finance costs from 1988 to 1996 arising from streamlining and leveraging technology. Despite large cost reductions, they reported that there is still considerable room for improvement.

Benchmarking has become a popular and successful tool. The studies allow companies to compare themselves to peer companies that have been identified as examples of best practice. If a company's accounting and finance costs comprise two percent of gross revenues while peer companies only expend 1.2% of their gross revenues on the same functions, there is some evidence that those costs might be trimmed. Specific functions should then be compared. In the September 1995 issue of CFO-The Magazine for Senior Executives, Stephen Barr and Mary Driscoll catalogued some of the best practices found in core financial areas in major firms surveyed. While it did not identify specific costs, it did describe how these key financial processes are handled in the best practice companies.

Guides to Reengineering

The Financial Executives Research Foundation's Reengineering the Finance Function (1995) and the Society of Management Accountants of Canada's Exposure Draft, Redesigning the Finance Function, both provide guidelines for the companies interested in making changes. The steps include investigation, planning, and implementation. Investigation involves identifying areas that need improvement, studying existing costs, comparing them to benchmarked firms, and garnering top management support for what will undoubtedly be a major effort. Planning includes developing a vision for the end result, timing, plans to handle the transition period, and building support for the effort. Implementation includes assigning responsibility, measuring intermediate results, reacting to feedback, handling people affected by change, and assuring adherence to new systems.

A complete redesign is not a necessity and may be too disruptive to consider. A company may choose to troubleshoot and reengineer selected costly areas. The focus of reengineering should be to reduce the time spent on necessary but nonvalue adding transaction processing functions, such as, payroll, accounts receivable, and accounts payable vs. areas of decision usefulness, such as, performance analysis, budgeting, and cash management.

The nonvalue transaction processing functions are time and personnel intensive. If the number of transactions could be reduced, many businesses could benefit. Regarding payables, (e.g., Can the number of vendors be reduced? Can orders be placed via computer?) both would reduce paperwork. C. Bokman, in the December 1996 issue of Management Accounting presents a simple case study of how General Marble improved its financial reporting and purchasing functions.

For businesses whose employees do extensive travelling, the process of travel expense processing and reimbursement is time consuming, paper producing, and costly. It includes travel requests, cash advances, making reservations, matching expense reports to receipts, following up on missing receipts and inappropriate charges, and preparing reimbursement checks. The company could immediately cut costs by issuing travelers a company charge cardincluding interest rates negotiated with the bank-for travel expenses only, and which permits cash withdrawals at ATM machines. If expense reports are needed beyond the credit card, they should be submitted via online terminals. Reimbursements, if needed, should be included on the next payroll check. Perhaps most important, firmwide travel policies should be established. Only a sample, not the complete population, of expense reports should be audited. Of course, reports violating policy should be appropriately dealt with.

Another cost saving possibility for some companies is outsourcing. If some function is becoming too expensive, and especially if it requires an expertise that must remain current, it may pay to allow another company to handle it. According to the December 1995 issue of Management Accounting, The Economist Intelligence Unit and Arthur Andersen, in a study of outsourcing, found that 26% of companies that outsource-and many do-outsource some part of their finance function. Also, 42% expect to outsource in the near future. Of those currently sending out accounting work, the functions of pension management, payroll, and fixed asset appraisal are the most common. For those planning to outsource, pension management, payroll, short-term investment management, accounts payable, accounts receivable, asset appraisal, internal audit, and leasing are the most likely candidates for outsourcing. These functions are transaction-heavy or require a lot of expertise.

Outsourcing may be a cost saver, but a company should first assess whether the costly activity might be reengineered internally for equal savings. Is it possible to negotiate with suppliers so that single bills are sent out monthly? Could orders and payments be performed electronically, eliminating paper altogether? Can purchases of limited dollar amounts be placed directly by the supervisor needing them, eliminating many purchase orders and the need to match them later to the voucher? What are the best practice firms doing.

An area generating a lot of expense is the poorly designed or completely undesigned information system. For a variety of reasons, in many companies data is keyed in more than once because multiple data bases are maintained. Perhaps because of quick growth, the company has patched one system on top of another and has not been able to integrate them. These legacy systems can generate a lot of costs. Or, the primary accounting software that is used cannot produce the reports that some members of the management team need. These managers then need people to reenter data into another package or spreadsheet so that it can be organized into another format. The increased need for nonfinancial information, such as customer complaints, market share, or time to serve customers during peak hours rais es computer requirements. An integrated, networked data base may well be worth the cost of design, installation, and training.

Do not forget the Total Quality Management movement. In the May 1996 issue of Management Accounting, Robin Cooper warns that new costing techniques, such as "Just in Time Inventory Management," push cost accounting activities onto production personnel. If they are continually reducing costs and making sure that products do not emerge with defects, then many of the old duties of the cost accountant disappear.

Editor

Michael Goldstein, CPA The CPA Journal

[Author Affiliation]

By Gloria Vollmers, assistant professor of accounting, University of Maine

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Reengineering the Accounting and Finance Functions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.