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Take control and keep your company competitive. The controller's role in corporate America has become increasingly crucial and exceedingly complex. So how can new and established professionals enhance their performance and sustain their company's competitive advantage? With The Controller's Function, Third Edition.
From describing essential competencies—cash management, budgeting, fraud prevention and establishing codes for corporate ethical behavior—to detailing the more sophisticated skills like activity-based and target costing, disaster recovery planning, and outsourcing, The Controller's Function expertly balances both the technical and managerial sides of the job.
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Today's corporation operates in an increasingly complex environment, where there are far too many activities for a chief executive officer (CEO) to keep track of. To an increasing degree, this monitoring function falls upon the shoulders of the controller, who must keep the CEO apprised of the performance of all departments, product sales, costs, and profits, control issues in a variety of transaction processing systems, and the impact of new government taxes and other regulations on the conduct of the business. Thus, the controller can reasonably be compared to the ship's navigator, who warns the captain of current or foreseeable problems in the shoals of the business environment that lie ahead and on all sides. In this chapter, we explore the main functions of the controller, how they have changed over time, what kind of background a controller should have, and the role of ethics in the conduct of the job.
The controller was originally nothing more than a bookkeeper. This person's role was to accurately record all transactions passing through the accounting department, which were primarily related to the payment of suppliers, the billing of customers, or the handling of cash. The controller was also required to issue periodic financial statements, which were just thatÑ no supporting footnotes, executive summaries, or other types of analysis were expected or required. The tradi-tional career path leading to this position was through the clerical ranks, so that the person in the controller's job was intimately familiar with how to manage the transaction flow, and could be relied upon to keep the same old systems running forever.
The function changed with the advent of computers, since accounting was one of the first company departments to adopt automation. The controller was now required to have more than a passing knowledge of computer systems, including how to select, install, and operate them. The controller even became the manager of the management information systems (MIS) department for many smaller companies, since the accounting department was the main beneficiary of computers. This was also a distinctly different job requirement, which led to the hiring of more college-level people into the position. By doing so, many companies sidestepped the traditional advancement method that no longer yielded controllers with a die-hard attitude toward maintaining the old accounting systems. Instead, we now saw controllers who were willing to modify their systems to make the best use of the new computer software, which brought about some improvements in departmental efficiency.
In the 1970s and 1980s, CEOs became more concerned with the efficiency of all company departments, including the accounting function. Supported by the efforts of many consulting gurus, such as Michael Hammer (author of Reengineering the Corporation), increasing pressure came to bear on controllers to find new ways to run their departments in order to wring out all possible inefficiencies. This trend forced out many old-line controllers who were uncomfortable with new systems, but brought in a new breed of heavily educated controllers, many of them with advanced educations and consulting experience, who stream-lined many transactional systems and began to reach outside of the accounting department to other areas of the company to provide a profit center and other specialized forms of financial analysis.
In the 1990s, and probably well into the new millennium, the focus has progressed along the same trend line we saw established in the last two decades, which is for the controller to manage the accounting department's costs and efficiencies as tightly as possible, while also using a great deal of process and financial analysis skill to assist all parts of the corporation in many ways. Over the course of one century, the controller's function has risen from one of senior clerk to one of the most advanced, highly educated, and useful positions in the entire corporate structure.MAIN JOB FUNCTIONS
The controller has a number of distinct job functions. The first four are ones that can be ascribed to any manager in any department. The last two are more specialized, and do not refer to management skill. They are as follows:
The successful controller in years past would only be concerned with the first four of the above job functions, but the recent expansion of the controller's job description calls for the addition of the last two items.JOB DESCRIPTION
The controller has one of the most complex job descriptions of all company managers, because there are so many functional areas for which he or she is responsible. In this section, we list a detailed job description that is sorted by general category in alphabetical order. The controller's responsibilities are as follows:Auditing
The above list may appear overwhelming, but just because the controller is responsible for them all does not mean that this person must actually do each one. Instead, the controller is mostly involved in the six job functions noted in the preceding section that are primarily concerned with managing the work of other people and ensuring that they complete the tasks noted in the bulk of the above job description. In particular, a controller can rely on the services of assistant controllers who are responsible for smaller portions of the accounting department.JOB QUALIFICATIONS
To be fully qualified to undertake the job description noted in the last section, the controller should have a number of qualifications, which we outline in this section. Though not all controllers will possess these skills, it is most important to have those related to transaction processing and the production of accurate financial statements, for these two areas remain the core of the accounting function. The key job qualifications are as follows:
The controller does not operate alone, having to complete all the tasks outlined through the last few sections. On the contrary, there may be quite a large accounting staff that completes the bulk of the work. In this section, we review the structure of the typical accounting department, and the tasks completed by each part of it.
The controller is usually helped by one or more assistant controllers who are assigned different sets of tasks. For example, one may be in charge of the more technically difficult general ledger, tax reporting, financial analysis, cost accounting, and financial reporting tasks, while another covers the major transactions, which are accounts payable, accounts receivable, payroll, and cash application. For smaller organizations, there may also be managers for the human resources and MIS functions who are at the assistant controller level, and who also report to the controller. Below these managers there are a number of subcategories, staffed either by clerks or degreed accountants, who are responsible for specific tasks. These sub-categories are as follows:
In a smaller company, the controller may also inherit all the finance and office management functions, which means that some of the staff will be responsible for analyzing and monitoring customer credit, investing funds, supervising risk management, monitoring the phone system, and arranging for the repair of office equipment. Conversely, a larger company will not only separate these added functions, but may also move the financial analysis function under the control of the chief financial officer. Thus, the exact layout of the accounting department will depend to a large extent on the size of the company and the presence of other managers.
There can be several levels of controller within a company. The corporate controller is located at the corporate headquarters, while each division may have its own controller. There will likely be plant controllers at each location, as well.
In most organizations, the controller reports directly to the most senior onsite executive. For example, the plant controller reports to the plant manager, the division controller reports to the division manager, and the corporate controller reports to the chief financial officer or president. All three levels of controllership noted here have many of the same functional responsibilities that the corporate controller has on a company-wide basis.
The corporate controller must decide if accounting operations through all company locations are to be centralized, decentralized, or occupy a position somewhere in between. Many controllers favor centralization, because they can more tightly manage the function and have fewer worries about accounting control issues arising at some far-off company location. However, not all aspects of the accounting function are so amenable to centralization. Here are some of the reasons why decentralization should at least be considered as an option:
Offsetting these arguments in favor of decentralization are a number of factors in favor of centralization. The primary reasoning behind the bulk of the pro-centralization approach is that the efficient use of employees to complete a high volume of transactions will keep accounting costs down to a bare minimum. The reasons are as follows:
Thus, the controller has countervailing arguments for using either approach to organizing the department. If a company has a highly diversified group of divisions, then their transactions, chart of accounts, and processes may differ so wildly from each other that it makes no sense to centralize the accounting department. However, a company with "cookie cutter" divisions that are essentially identical in their operating characteristics may be ideal for accounting centralization. In many cases, though, the correct method is to opt for a slightly more expensive middle ground, using a centralized transaction processing organization, but also paying for a small local staff that can process exception transactions, investigate variance problems on behalf of the central organization, and also be a training ground for junior accounting managers from the central accounting office.ETHICS
The controller is in the uniquely difficult position of having a significant impact on the level of ethics practiced throughout a company. If the controller tends to wink at monetary indiscretions or alter the timing or amount of accruals or other transactions in order to influence reported financial results, then this attitude will gradually percolate down through the organization, until management suddenly finds that the entire company is rife with ethical problems of all kinds. The alternative approach is for the controller to adopt a methodical and rigorous approach to ethical problems, as is outlined in this section.
The first step by the controller is to convince the management team, and the president in particular, that the company must adopt a written ethical standard and force the rest of the organization to adhere to it through regular audits. Once the code of ethics and all related standards of conduct are complete, the management team as a whole must present them to employees, and continue to reiterate, both by example and communication, that these principles are a significant foundation underlying all company operations.
Using these preliminary guidelines, the controller can then expand the concept and promulgate a series of additional guidelines in specific areas related to accounting. Some of them are as follows:
Only by adhering closely to these ethical guidelines, and clearly communicating to the accounting staff that they are the corporate law, will the controller alter the mindset of the company as a whole (and the accounting department in particular) in the direction of using the highest possible ethical standards.