Dashboards, Analytics, and Key Performance Indicators can be a major influence in executive decision making. Is your accounting department doing proper review and diligence before the company’s financial results are published?
Recently, we were working with a client who had just hired a new Accounting Manager. Her education and work experience were outstanding. She was getting ready to publish the monthly financials. While reviewing the financial reports, they just did not look right, but the pressure existed to disseminate the reports. When they were handed to the CEO, his observation was, “If these numbers are correct, why am I hitting my line of credit all of the time?” Instinctively, the CEO knew that something was not right.
Your accounting department’s work is ground zero for effective and accurate corporate reporting. With the advancement of computing and software technology, the desire to push real time information to executive management has intensified. Government contract accounting is granular right down to your indirect rate structure and incremental funding. With this granularity, the chances for errors in the corporate books are high. The materiality of the errors could lead to incorrect executive decisions.
Your accounting/finance department is under constant pressure to get the data right and to produce it in a timely manner. The Accounting/Finance department plants the seeds and sows the crops that provide corporate dashboard views. Accuracy of these views influence correct executive decision making.
For government contractors, a financial transaction can potentially impact three sets of books. The first set of books is the financial reporting books whose audience is primarily stockholders, banks, and outside investors. The second set of books is the project financial performance set of books. The project financial books are the basis of billings to your clients, and your cost and billing information for the DCAA's Incurred Cost Submission. The third set of books are the tax reporting books for federal, state, and other tax reporting such as sales/use taxes and personal property taxes.
The following types of errors can have major impact on your corporate dashboard presentations.
- Errors in Principle – When assets are purchased, they are not always classified the same way. Corporate depreciation and amortization policies are often changed based on the most recent federal and state income and other tax reporting regulations. The company’s board of director’s meetings often will determine capitalization thresholds based on the company’s growth and the most recent tax regulations. The accounting department must be informed and trained on the impact of the changes in their monthly recording of depreciation and amortization.
- Errors in Omission – Is depreciation and amortization recorded for the period? Are project margins in line with reality? Is revenue recognized on Fixed Price contracts being properly recorded? The timing of when revenue is recorded is very important.
- Errors in Commission - Is the transaction assigned to the correct financial account and project? An example of an error in commission would include improper distribution of financial transactions to the financial accounting and or project set of books.
- Transposition Errors - An example of a transposition error would be a Cash Management entry that records a line of credit deposit. The bank actually deposits $126,241.72, but the amount was entered mistakenly into the corporate books as $162,241.72. This error would show the line of credit balance higher by $36,000 and the cash account higher by $36,000.
With all of the pressure on accounting/finance departments to publish accurate financials across the multiple books of record, the accounting department’s job is difficult. It is made more difficult when the accounting department uses tools that are not purpose built for government contracting. Whatever your scenario, relying on output without the accounting/finance department taking time to review and verify the numbers might lead to results that are misleading. Whenever possible, you should employ a staff member or two to spend time “data scrubbing” your preliminary financial results in order to avoid basing decisions on error prone numbers.
SYMPAQ SQL provides a great tool to assist accounting departments with verifying their transactions that are entered into SYMPAQ. Use of the SYMPAQ F9 add- In and the basic analytic capabilities provided by Microsoft Corporation’s Excel can result in the detection of the aforementioned errors before they reach the corporate dashboard.