In one of my earlier articles, 'How to improve Productivity in F&A function' published on 6th January 2015, issues relating to productivity of Finance and Accounting have been discussed. In this article, the attempt is to extend these concepts to overall effectiveness of the F&A function. For this purpose, we need to appreciate the relationship among four important aspects, namely Organization Chart, Departmental Objectives, Roles & Responsibilities and KRAs.
Drawing from the overall organizational objectives, we could say that F&A function needs to support:
- Profitable growth
- Conducting operations in a control environment
- Meeting statutory compliances and reporting requirements, and of course
- Providing long term and working capital finance.
F&A Organization Chart, for a mid-size company, with turnover in the range of Ra 100 crores pa to Rs 500 crores pa, could be broadly as under:
We are talking of four levels here. They are CFO, Head, Manager and Team Member. We have listed 8 departments within the function. They are Invoicing & Accounts Receivable, Accounts Payable, Payroll, Taxation, Financial Reporting, Budgets & Performance Reviews, Cost Management, and Cash & Bank Operations. Internal Auditor could report to CFO or to the Audit Committee, where present. It is appropriate to see what could be the important Objectives of each of the above departments.
Invoicing & Accounts Receivable
- Timely and accurate Invoicing. Ensuring that invoices reach right quarters at customers’ end.
- Engaging customers to resolve disputes and collect monies on time.
- Prompt and proper application of collections, to reflect actual outstanding, along with invoice level composition.
- Right escalations and actions to minimize DSO.
- Proper record keeping & compliances.
- Ensuring timely capture of all invoices in the system and keeping track of.
- Monitoring statutory payments through proper checklist and ensuring timely payment.
- Verification and accounts payable creation with proper accounting classification in line with approved procedures.
- Advising Purchase and user departments on actions required at their end and in time.
- Prioritizing payments with compliances and business objectives in mind.
- Ensuring timely accurate processing of payroll in a controlled environment.
- Ensuring that all new employees who have come on board are properly captured, in the employee master for processing payroll, and for updates to the master on salary revisions.
- Non-submission of attendance while on duty, sanctioned leaves, loss of pay are properly considered as payroll inputs.
- Ensuring that dues like travel advance, loss of pay and asset recoveries of all employees who have submitted resignations and are on notice period are kept track of and settled through before making final payments.
- Statutory dues like PF, ESI, Profession Tax, TDS are properly treated and returns and remittances are properly made.
- Keeping abreast of all relevant tax laws.
- Direct Taxes: Effective Tax Rate, taking advantage of all tax concessions, appropriate estimate of tax liability and proper advance tax payment are important.
- Gathering, compiling inputs for tax audit, completion of tax audit report, and filing of tax returns.
- Preserving organized documentation, which would be required for timely resolution of queries from income tax department, completion of assessments and for obtaining refunds due.
- Indirect Taxes: Ensuring that processes are in place for indirect tax compliance, capturing data in an error free environment, timely remittances and returns filing, due attention to input credits.
- Establishing proper accounting methods, and procedures to comply with regulations and GAAP.
- Timely preparation of reliable financial information for reporting, and statutory compliances.
- Meeting statutory audit, tax audit, internal audit and for providing primary base for analytical purposes like actual performance against budgets.
- Organized record keeping with ease of retrieval.
Budgets & Performance Reviews
- Promoting Budgetary Control as an important planning, monitoring and adapting tool among all stakeholders in the organization.
- Annual Budget compilation, review and approval by CEO, before the commencement of a financial year.
- Upload of approved budget data into the system for use in operations, Capex and reporting.
- Sharing function level budgets on opex, capex and manpower with concerned heads in time.
- Constructing quarterly forecast (plan), just before the commencement of a quarter, set stretch target, obtain CEO’s approval, and sharing it once again with the stakeholders.
- Monthly analysis of actual performance against the plan, conducting reviews, identification of corrective steps to adapt the organization to desired changes and monitoring.
- In relation to Made to Order Sales: Ensuring that proper estimation process is followed while quoting for a job with mandated margin levels.
- Ensuring that control cost against each sale order is preserved for use in monitoring job execution and for protecting projected margins.
- Post installation, conduct a margin review for each sale order, to place on record, actions required to improve the process in future.
- In relation to Internal Infra Projects: Ensuring detailed Cost Estimation for a project and obtaining approvals before commencing execution.
- During the execution of the project, End Of Project (EOP) Cost Estimation to provide indications on where the project is likely to end in terms of cost and timelines.
- In the case of Internal Infra Projects, enabling creation of a proper fixed asset record.
Cash & Bank Operations
- Translating business plans into cash flow requirements, as and when required.
- Review future requirements of funding and non-funding facilities over what are available now.
- Categorization into long term and short term (working capital) needs.
- Scanning the environment for avenues to establish dependable banking sources, with minimum commitments from the organization like placing the FDs to secure limits, targeting low rates of interest.
- Advising the management on and assistance in procuring non-bank finances like PEs and Equity.
- Compiling and submitting Financial Forecasts to be submitted to lending institutions, to seek funds.
- Monitoring day to day banking operations, ensuring that limits are effectively and properly utilized
- Timely bank reconciliations and proper accounting, and physical controls relating to cash handling.
We have so far covered Finance & Accounts Organization Structure, and Departmental Objectives, and seen how these two are related. Within the Finance Function, Departmental Objectives offer clarity on what is the intended purpose of each department and will lead to outcomes in the form of KRAs (Key Result Areas) of each department.
Logical extension to these two is defining Roles and Responsibilities for all role holders and attributing KRAs of the departments to respective role holders and making them individual KRAs. In an organizational context, what cannot be measured cannot be achieved. For F&A function which has some activity based roles and some knowledge based roles, how can we attempt to fix KRAs in an objective, measurable way? I intend covering this, along with Roles & Responsibilities in my next article, shortly.
For more articles from me, please read my book 'Translating Operations into Money' available at Amazon.in or Flipkart, or visit www.operationstomoney.com