In Part 1, we discussed how corporate status affects reporting, and in Part 2 we discussed the types of processes needed. In Part 3, we'll take a look at how an organisation design could be structured based on reports needed and systems used.
Record to report processes usually are owned by the Finance department; however, inputs always come from the upstream business. The finance department is managed by the Chief Financial Officer who can design the department to include financial controllers, financial planning and analysis, and further business partnering.
There are no rules when designing a company infrastructure. Management should always consider when to invest in systems vs staff and determine. The company's trajectory will influence the types of staff needed too. The design can, and often should, include some outsourcing to reduce costs on managing staff, their professional development, and to keep the organisation flexible.
Report preparation
Not all entities are created equal and the types of reporting required will be different for each. The types of reports needed and how to interpret them will impact staff needed to support those processes. Companies who require statutory account filings may want a financial controller on staff. In some companies, financial statements are for internal use only and someone with expertise in financial planning and analysis is enough. In most cases, having someone who has experience in both areas will keep a strong control environment.
Does the company need to prepare statutory financial accounts? If so, these need to be prepared according to relevant standards. Depending on the size and complexity, the services of a technical account may be required along with financial controllers to review each transaction and record them in the accounts.
Is the entity required to pay corporate tax or VAT? While most ERP systems offer specialised modules to prepare these reports, having an experienced tax manager available ensures accuracy and business advice to ensure that tax requirements are kept low. In many medium and smaller companies, tax returns can be outsourced to a tax advisor/accounting firm as this is a repetitive task.
What types of management reports are needed? Management needs to monitor business performance and use that to make future decisions. Is this data standard or is there a need to manipulate reports? An FP&A team can prepare and interpret data before presenting it to management reducing the burden and pre-interpreting complex transactions. Depending on the company's size and areas of business, having appropriate business partners is advantageous to senior management and can help to reduce the time it take to make decisions.
Do stakeholders require reports? In some areas, such a joint ventures, a stakeholder may require additional set of data to prepare financials. Some donors to charities require reports prepared according to a certain standard. Usually this is agreed in contract. This may necessitate a dedicated finance resource to support a project, confirm its compliance, and prepare any specialised reports.
ERP systems
The ERP system supports the generation of accounts. ERP systems come from very basic software, including using Microsoft Excel to very complex multi-module ERP systems, such as SAP. When looking at organisation design, its important to determine the type of ERP system used and how access works:
How complex is the system? The more complex ERP system, the more staff needed to manage it. SAP development teams, Master Data Governance Teams, and good training are all needed to ensure proper implementation and management of a complex ERP system. Smaller companies should consider whether they need complex ERP systems due to the increased staff needed.
Does the system use a GRC (Governance, Risk, Compliance) system or module? This is important when determining the control environment, SOX compliance, and overall corporate risk environment. This can reduce staff needed to monitor internal controls.
How much does it cost to give access? Some ERP systems give access per user and this can come with an additional cost. Using more modules and automating process can reduce the types of staff needed from operations to IT.
What types of accounting approvals are needed? Can the company use manual approvals or email approvals?
Additionally, ERP systems can connect (API) to other ERP systems from further up stream. Some software will fully manage the period end close procedure. Who needs access to these? The organisation design needs to consider separation of duties between staff who are preparing and approving manual journals and assign reconcilers and owners to monitor system integration.
The less advanced the ERP system is, the more likely control issues will arise and the more likely there can be errors. Businesses who only invoice customers and pay suppliers may not find it problematic to have a simple ERP system, such as QuickBooks. For more complex companies, not investing in a quality ERP system will require additional staff to manage databases and prepare reports in addition to strong and clear processes and deliverables, including KPI management. Before deciding on an ERP system to use, management must determine if the ERP system can adequately prepare these accounts and whether it is cost effective to invest in staff or in an enhanced system.
Cost vs. benefit
As always, the benefits should outweigh the costs when designing:
What is the company's future? Are there plans to open more subsidiaries, enter new lines of business? This may require additional financial control staff and experts in group and local reporting processes. More advanced ERP systems are able to service all of the reports needed with less reliance on human resource.
Is the company growing? Growing companies will need a stronger support structure internally to manage the process, monitor reports, and take some of the burden off the business. This could signify that investing in staff will deliver more of a return than investing in ERP. While ERP may automate transactions, growing businesses may want to have someone looking at each transaction during a growth phase to identify trends and areas of improvement or additional markets.
Does the business engage in complex transactions? The more complex the transaction, the more effort needed to ensure profitability. Is this something which the business can support on its own, or should the business have someone who specialises in this?
When reviewing cost, management should not only consider the hiring its own fulltime staff, but can also engage the use of outsource consultants to manage the process. Many offer the use of ERP systems and not only offer business process outsourcing, but knowledge process outsourcing too. This can be very useful when there is enough business to warrant expertise, but not enough of it to support a full time member of staff.
Chayim Messer Consulting can provide support with organisation designs incorporating technology, people, and process to ensure companies are investing in the right areas and not heavy in any given area. Contact us today for your free process audit!