Finance Reinvented

A survey released today by PMP looks at the shared services views and plans of 100 private and public sector organisations. Their reasons for considering or adopting shared services are unsurprising - streamlining and standardising processes, cutting costs and allowing the accounting team to focus on more added value areas… however, their views on business process outsourcing (BPO) are more interesting.

BPO’ing the finance function did not find favour with the companies interviewed - 87% don’t currently outsource any finance functions and have no plans to do so. Just 7% have outsourced the finance function so far with a further 3% evaluating the option. Only 3% have offshored any finance functions with a further 10% saying that they might look at this option in the future. 62% of the companies would not use an offshore outsourcing company for finance operations, while one in ten have offshored some operations to their own facilities in another country.

When it came to finance systems, the story was not terribly encouraging.  While most companies (51%) feel that their financial systems have met their original objectives, a significant minority, 35%, claim they are not completely satisfied and view their systems as only a qualified success.

They cite two key reasons that financial systems did not deliver all the anticipated benefits – a poor or inappropriate approach to the implementation of the system, and a failure to change the internal business processes thus failing to take full advantage of the new capabilities (each cited by 39% of respondents). Other key factors identified are the fact that the system failed to operate in the way the company wanted (26%) and problems with the software (also 26%).

Although organisations feel the software works well, and welcome the frequency of upgrades to meet new requirements, there is widespread concern about the cost and impact of upgrades, along with the cost of maintenance and the cost of the overall implementation, all of which are at the bottom end of the spectrum in terms of customer satisfaction.

Many of these problems are clearly around expectations of users not being set up front; this can lead to misunderstandings on the size of the implementation project, and to the user organisation not changing to accomodate and exploit the new system sufficiently. And all too often, we find clients get to the end of an installation and then leave the system in place, with no formal review or assessment as the market and business changes.

Ultimately, we encourage users to communicate with us openly and to put in place regular reviews - pre- and post-implementation. Only that way can we hope to deliver what the client wants, and to meet their needs into the future.

Bloomberg.com’s report that Société Générale failed to follow up 75 warnings on the rogue trading by Jérôme Kerviel comes as little surprise.  

 A report written by an independent three-person board member committee has concluded that Kerviel acted alone and that not all of his trading positions had been identified.

The fraud was not identified because of ‘the efficiency and variety of techniques of dissimulation used by the fraudster’ and ‘because the operators didn’t systematically deepen their verifications’. The report also found the controls which could have identified the fraud were lacking.

Whilst it did not arrive at any conclusions regarding the responsibility of managers, the report did say that compliance officers rarely went beyond established routine checks. This looks once again like a case of compliance and governance being approached as a box ticking exercise, where any deviation from the norm was apparently noted but not investigated.

His exploits led to a trading loss of €4.9bn ($7.2bn).

It’s maybe in the nature of governance that creativity is more likely to be found amongst fraudsters than those policing compliance, and this seems like a stark reminder of the consequences of such a reality.

Software development has never been easy, but there always seems to be a sneaking suspicion amongst users and commentators that developing software is child’s play and therefore users should resent paying for it.

Well, I couldn’t comment on all areas of software, but take it from us - developing an accounting package that is flexible enough for large and small organizations, can cope with the quirks of national and international accounting and reporting, and robust enough to trust your companies finance to… is quite a challenge. (more…)

Despite the pitfalls of getting forecasts wrong, a survey has found that most companies fail to forecast sales and earnings correctly. 

According to results from Hackett’s new Book of Numbers™ research “Aligning Forecasting Practices with Market Dynamics,” two out of every three companies are unable to accurately forecast earnings for the next quarter, missing the mark by anywhere from 6% to over 30%. Companies do only slightly better when forecasting sales, with more than half of the companies in the study unable to accurately forecast sales for the next quarter. Accurate forecasts, for the Hackett study, are defined as being within 5% of actual results.

Worryingly, seven times more respondents to the survey than previously claimed to be in markets likely to experience high volatility, suggesting the situation would only get worse. (more…)

A detailed survey of British firms on compliance by Grant Thornton delivers a mixed bag of results and message.

The UK’s guidelines for coporate governance and compliance has been based around principles and pragmatism, supported by the option of explaining why non-compliance is appropriate. The thinking has always been that if you establish the principles and indicate what best practice ‘looks like’, responsible companies will follow.

But this survey shows that only two-fifths (41%) of the UK’s largest companies believe that they are in full compliance, with the majority opting for explanation of why they haven’t complied. Is this really good enough for shareholders and other stakeholders? How can so many companies believe that, in effect, they are ’special’ and deserve to be exempt from corporated governance.

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