Murray, Gordon L.

English

eGrove (Univ. of Mississippi)

University of MississippieGroveHaskins and Sells Publications Deloitte Collection1955Getting accounting information used more widelyin your companyGordon L. MurrayFollow this and additional works at: https://egrove.olemiss.edu/dl_hsPart of the Accounting Commons, and the Taxation CommonsThis Article is brought to you for free and open access by the Deloitte Collection at eGrove. It has been accepted for inclusion in Haskins and SellsPublications by an authorized administrator of eGrove. For more information, please contact egrove@olemiss.edu.Recommended CitationHaskins & Sells Selected Papers, 1955, p. 318-325Getting Accounting Information Used More Widely in Your Company B Y G O R D O N L . M U R R A Y S Y S T E M S M A N A G E R , CHICAGO O F F I C E Presented before the National Association of Cost Accountants, Detroit Chapter — September, 1955 The sub-tit le assigned for this discussion is "Removing Road-blocks to Good Communications." In order to remove the "roadblocks" and arr ive at an effective management control reporting system, man-agement must f i rst agree upon the objectives and upon the approach to the problem. Someone also must provide the techniques necessary to initiate and maintain such a program. Companies approach their reporting and communications prob-lems in various ways. Before presenting what we believe to be the fundamental objective and a sound approach, I would l ike to mention the way this problem is often approached and why it usually fa l ls short of a ful l solution. A P P R O A C H E S .AND ATTITUDES Management often f i rs t attacks the reporting problem with the statement - "We are producing too many reports" - the objective and approach should therefore be - reduction in reports. When management makes this c r i t i c i sm it is more often right than not. Management people are expected to read and absorb an amazing number of reports in order to control and be informed about the business. Corol lary to the c r i t i c i sm that there are too many reports is the c r i t i c ism - "We are spending too much money producing reports." When agitiation along these l ines becomes sufficiently great there is usually an effort to eliminate reports and cut costs. Many companies have a regular clean-up compaign. A person or a committee receives the assignment of "working over" reports. By taking one report at a time they proceed to try and "unse l l " users of a report and get permis-sion to eliminate it. Achievement is usually measured in terms of the number of reports eliminated. Another phase of such a program is often a reports control plan with the tacit objective of making it so difficult for a new report to be started, or the distribution of a present report to be expanded, that re -318 port costs are controlled by the "exhaustion or exasperation" method. Place sufficient red tape in his path and the average person wi l l even-tually give up. The ultimate extreme in this approach is the "desperation ap-proach. " The technique here is to surreptit iously stop issuing a report and then sit back and wait and see what happens. If no one notices the absence of the report, you have scored! If someone notices the absence of the report, i ts reinstatement depends upon who the fellow is and how big a holler he puts up. F A L L A C I E S A l l these approaches are negative. No effort is made to find out what people real ly need. They drive reports underground - if you e l im-inate something a person real ly needs, or believes he needs, he wi l l usually find a way of compiling the information himself - usually in a much more costly and inefficient manner than if the report were author-ized. It is amazing the informal reporting and statistical collecting systems that grow up inside an organization - when you find secretaries and staff assistants compiling informal records and reports it is very often the result of an inadequate control report system. The objectives of these approaches are much too narrow - they are concerned only with what currently exists in the way of reports. They do not seek opportunities for increasing effectiveness of the com-munications system through new reports. The amount of savings real ized f rom a cost reduction approach to reports is very difficult to compute. How do you segregate report costs from cost of maintaining underlying records which are often necessary whether they are the subject of reports or not? A lso - how do you compute costs of using reports - which may be the major cost? How do you compute the cost or loss to the company through failure of man-agement to be adequately informed? Therefore, cost reduction should not be the bait placed in front of management to get them to take action on the problem. An effective evaluation of control reporting systems almost always results in cost reduction but this should not be the p r i -mary objective. A N O T H E R A P P R O A C H St i l l another approach containing inherent defects is in connection with new or revised accounting procedures and systems. Too often, 319 however, reporting requirements are given a secondary rather than a pr imary pr ior i ty. The system is set up and then you say, "What kind of reports can I get out of these records and procedures?" A system is a means to an end and not an end in itself. The end objective is often control information and reports and therefore it is logical that these requirements be developed f i rs t and the system then be designed to generate the information needed for reports. Some control reporting systems are inadequate because the ac-countants have taken the position that accounting is an end in itself. They want management to run the business so that accounting is easy and reports are easy to produce. They have a tendency to say, "You can't do this and you can't do that, because it would be difficult to ac-count for, and report on, the operation." The positive approach is to say, " T e l l me what your management decision is and I w i l l accept the challenge in devising adequate controls and reports." BASIC PRINCIPLES IN REPORTING AND COMMUNICATION What is a sound approach to this problem? What comprises an adequate removal of roadblocks to effective communications ? F i r s t of a l l there must be a recognition by management that con-t rol reports are a separate problem in themselves. Reports come from information and data generated by systems, procedures, and methods. However, report requirements should be approached separately. A s previously noted, many procedures exist solely for reporting purposes - therefore report requirements should be resolved f i rs t and procedures and methods should follow. When report requirements are studied you are most concerned with the philosophy of running the business - you must resolve how the business and its various operations are to be planned and controlled in terms of the objectives of the management. When you speak of control you immediately f ind yourself in the area of performance measurement. This impl ies a determination and understanding of what the objectives of each of the controllable func-tions are and the most effective means of measuring performance. Control reports are therefore of sufficient importance and are susceptible of treatment as a separate problem. A proper approach also requires an acceptance that the most effective system of reports wi l l result if consideration is given to a l l types of control areas at one time. Financial controls, cost, sched-320 uling, quality, personnel, etc. should be considered together. These functions are interrelated and therefore a properly integrated control plan requires that they a l l be considered. Management should not be satisfied if costs are controlled and in line at the expense of performance to schedule, or at the expense of quality. A l l control areas should be evaluated together if report users are to ar r ive at proper conclusions. Basical ly , management's objective is to make a profit - therefore al l the profit contribution elements should be identified and be interrelated in management reports. Management has been defined as "the art of getting things done through people." Therefore, one of management's pr ime responsibi l -i t ies is to know how well things are being done - how well people are performing. To evaluate performance effectively you should have be-fore you a l l the elements of performance for a part icular position - not just cost, schedule or quality. Now to come to the main premise in what we feel is a sound ap-proach in evaluating a control reporting system - what you real ly want to do is to make certain that each person in the organization has the information he needs to do his job effectively. A lso , that he does not receive unnecessary information. This implies information which is adequate as to content, form, t iming, integration, and so on. If manage-ment were certain this condition prevai led it could not help but be sat-isf ied. Report costs would certainly be acceptable, if at a l l reasonable. This sounds like a rather obvious and basic approach and, of course, it is . However, it is not generally used, for a variety of rea -sons. Management and staff people in the organization may not have time to tackle the problem. The scope of such an undertaking may serve to frighten management off. There may not be anyone in the organization in a position to be sufficiently objective to carry through such a program, or the techniques for such a project may not be known. If you agree with the points which have just been made that: a cost reduction approach is basical ly an unsound approach to a positive solution to the reporting and communications problem, and control r e -ports should be attacked as a separate problem in itself, and the basic objective is to see that members of management have the information they need to do an effective job - then how do you go about solving your reports problem; what are the techniques? 321 TECHNIQUES The techniques break down into two phases: The imaginative phase consists of pretty much ignoring what you now have in reports -you stand back far enough f rom the operation to take an objective look and ask the questions: "What are the key functions in this business which must be controlled if a satisfactory result is to be achieved?" "What are the profit contribution factors in these operat ions?" A s examples, I w i l l cite two instances of major control factors which were identified in actual practice. In the case of a major air f rame manufac-turer, the pr incipal identified areas were finance and profits (overall), costs and overhead, sales and backlog, engineering research, production engineering, tooling, production, inventories, quality, plant and capital equipment, and industr ial relations. In a second case, involving a de-partment store, the major identified areas were overal l operating re -sults, f inancial position, industry and competitive position, and depart-mental performance. Sub-divisions developed within the departmental performance area were gross sales, returns, mark-ups and mark-downs, discounts, gross margins, expenses, work load, departmental net profit, buying, stock position, quality of serv ice, publicity and ad-vert ising, personnel, research, property and fac i l i t ies, and insurance. After the control areas have been identified, the next step is to determine who has control responsibil i ty in each area and who should have information about that area for planning or other purposes. As soon as you attempt to identify control areas and then assign control responsibil i t ies you are immediately concerned with organization questions. You cannot do anything real ly fundamental about improving control reporting without facing up to the organization questions en-countered. If you are going to see that each key person has the infor-mation he needs to do his job effectively you must f i rs t determine what his job is - must know what authority and responsibil i ty is assigned to that position. Therefore, if you have an organization guide or manual or other formal ized evidence of organization planning - you start with that. This does not mean that you cannot do anything constructive about your reports unless you have a formal organization manual or guide. It merely means that you must f i rs t find out what the distribution of authority and responsibil i ty is , and the absence of formal documentation just adds a l itt le to the work involved. If there is a formal guide you had best not follow it too l i teral ly as many organizations do not operate by the book, so to speak, and therefore you had best find out for your-322 self. However, if you start a reports project and find there is no c lear organization pattern, it is wel l to stop and resolve this question f i rs t because a report structure built in such a vacuum wi l l not be effective. Adequate organizational information for evaluating control r e -porting systems should include an organization chart or charts and supplementary information which disc loses: L ine, staff and functional relationships. Functions included in each position. Planning, operating, and control functions. Subordination and equivalency in positions. Individual preferences in reports, i. e., stat ist ics, charts, graphs; and in control through observation and inspection versus paperwork control. Central ization and decentralization. Functions of boards and committees. Once you have determined what the major control areas are and have assigned them to individual positions, you can present this in what can be cal led an overal l "control reports scheme". Usually this takes the form of carry ing control areas down the side, and key positions across the top, and car r ies notes in each box as to whether that position has control responsibi l i ty for that control area or should have reports for information or planning purposes. In larger organizations it is necessary to set up subordinate "schemes" for major units within the company, generally in greater detail the further down into the echelons of the business you go. Once these schemes have been developed, reviewed with top man-agement, and agreement reached, you have accomplished a major portion of the work as far as your own efforts are concerned. You have defined your problem and this is basic to the solution of any such as -signment. Yet sometimes there is a tendency to plunge into a problem without determining specif ical ly what you are trying to accomplish. This temptation is certainly present in control report work where you become so anxious to get at the reports themselves you fai l to plan a basis for evaluating them. You have also resolved any major organizational questions at the start and minimized the necessity of having to negotiate these questions continuously throughout the rest of the project. Further, you have something to tie a l l the rest of your work back to - you can evaluate the relative importance of the various control 323 areas, determine the best sequence for reviewing reports, both func-tionally and by positions, and you have a means of determining when you are through. The latter is not necessar i ly an academic question in a review of this scope. The foregoing outline covers the imaginative phase and although you set it up at the start, the original plan need not remain inviolate. You amend it as appropriate as you discover new areas during the course of the study. Seldom does the or iginal scheme require any basic change if it has been wel l thought out ini t ial ly. T H E A N A L Y T I C A L P H A S E Next comes the analytical phase. This involves evaluating pres-ent reports, f i rs t in terms of the coverage of requirements by control area, and secondly in terms of what makes for a good control report. Determination of report coverage is relat ively easy once you have defined what coverage you require as you set up the overal l reports scheme. The usual procedure is to prepare another chart with the same control areas and positions as the f i rs t and enter reports on it, showing areas not covered by reports and areas covered by several reports. Present reports should then be evaluated against c r i te r ia for a good control report, such as displaying only essential information, trends, accent upon out-of-l ine conditions, t imel iness, etc. You are then in a position to revise, combine, eliminate, and create new reports and to analyze them in terms of integration f rom lower to higher echelons. You also resolve the matter of report distribution - who gets copies of each report and for what purpose - again by relating old and new reports to the overal l reports scheme. Reports cannot be evaluated in a vacuum. They must be ap-praised in the light of the situation and needs of the persons preparing and using them. One technique which has proved to be effective is to approach the evaluation f rom the viewpoints of preparers and users. Simi lar ly , a l l users submit a l is t of reports received. Interviews are then conducted with both groups at which time report " inventory" forms are prepared for each group. The inventory forms cover a l l pertinent facts such as sources, dates, costs of preparation, the user 's needs or desires for information not currently available, and the control areas for which he has responsibi l i ty. 324 The reports are then analyzed - not by position, at f i rs t - but by control area, such as a l l sales reports, a l l labor cost reports, etc. By relating a l l reports for an area of control, it is possible to build a pyramid of reports from lower to higher echelons. It should be pointed out that the objective is not to give everyone what he thinks he should have but rather what he should have as part of an overal l plan related to the assignment of control responsibi l i ty. S U M M A R Y This suggested approach to control reports involves an imagi -native phase in which you establish a control plan representing what you consider an " i dea l " plan without too much concern with what currently exists. During the analytical phase, you give consideration to what you now have in report form and also to the information and data being generated by your accounting and other systems which you determine should be reported. In devising new and revised reports you wi l l need to consider charts of accounts, in respect to their effectiveness in pro-viding responsibi l i ty, accountability, etc. It would be unusual not to un-cover areas in which control information is not obtainable without changes in the underlying procedures. The final result of a report study along the l ines suggested in this discussion would be: A set of f inal report schemes showing actual reports by control areas and positions. A complete f i le of approved reports containing records of i n -terviews with report preparers and users. A procedure for maintaining control of control reports in the future. A reports study is not a "one-shot" proposition. It requires continuous maintenance to meet changes in organi-zation and changes in the scope and pract ices of the business. This being the f i rs t of a ser ies of discussion forums on this sub-ject it appeared to be appropriate at this stage to consider the basic matter of approach and some techniques for arr iv ing at a solution. The organizational approach presents the very best means of studying this problem that we have found. 325 

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