Metering and increasing the efficiency of accounting

The newspaper " Ekonomika i zhizn "

Very often, CEOs believe that their accounting departments have too many employees. They have no idea what accountants do. In their turn, financial directors and chief accountants have to justify the number of their employees and its increases. What are the tools that may accelerate cooperation between companies and their accounting departments and cut the cost of document processing? This is explained by Lyudmila Shusterova, a deputy general director, BDO outsourcing division.

The accounting department is a tool used by the company administration to assess their business. The results of its work are important not just for fiscal agencies. The managers and owners of the company need current reporting as the tool of metering the efficiency of the business. Accordingly, the accountants must work so as to meet the expectations and requirements of the managers as concerns the content and timetables of reporting. For instance, at this time, accountants must submit the summary of the year on January 25 instead of on March 28. As any tool, accounting must be duly adjusted and work correctly.

Business dynamics are indications of the efficiency of accountants. As a rule, the number of accountants grows faster and decreases slower than the business and, therefore, must be adjusted on-the-fly.

The accounting department  as an object of normalization

In order to assess the efficiency of accounting department and figure out the correct number of its employees, its work must be estimated. This requires a substantiated approach, such as the normalization of accounting processes, the determining of norms and the further optimization of activities. Accounting has every characteristic of a process: performers, information about the activities of the company as its input (primary documents), regulating documents, traditional approaches and practical experiences. The process outputs reports in certain formats supplied to the tax agency and to other business users (Fig. 1). This is why the accounting department must be an object of normalization. When there are norms, they may be enhanced.

Labor effort norms determine the number of the company's employees that can produce a unit of result.

Norms may be as follows:

- as is – that reflect the actual condition of the company at the given moment;

- as should be – these are calculated on the bases of the industry data, setting objectives on the bases of benchmarking results that should be attained as the result of optimization.

The existing method of normalizing work effort differ as to their labor intensiveness and precision.

Work shift timing is better suited for homogeneous processes and is not always applicable to accounting.

When microelement normalization is done, processes are divided into sub-processes.

Benchmarking means making comparisons with the best practices, according to which the processing of a certain number of accounts, like in wholesale, requires a certain number of accountants (for instance, three). If their actual number is four, one should think the situation over. Let us look, in more detail, at the method of factor normalization as applied to accounting.

The technology of factor normalization

In accounting, this technology involves several stages. First, accounting as a process is divided into sub-processes. For a company with more than one accountant, the average length of each sub-process and the average number of documents or transactions done by one accountant in a month may be determined. After that, the effort  necessary for the completion of each sub-process is assessed and actual effort expended by accountants of various levels of skill is determined. The measuring is done in man-months (man-days are inconvenient). For each process, factors that affect the labor intensity of accounting the most are revealed. For instance, when working with advance reports, they are best grouped into domestic reports and those concerning business trips over Russia and abroad, because processing norms for these reports are different. When settling matters with suppliers and contractors, significant is not only the number of documents but also their nomenclature directly related to the business process.

Much depends on the person responsible for keeping data and documents. That may be either an accountant or a sales and purchase manager. In the latter case, an accountant simply verifies the documents.

The ratio between the efforts and factors is used as the basis for determining accounting process norms (Table 1).

There are no universal norms, there being no similar processes in any two companies. However, everyone would like to know an ideal figure that one should try and attain or, at least, have in mind. This is why Table 1 contains certain average norms for certain improved processes, which could be used to assess one's accountants. Below, there is an example of factor normalization.

The example

The Trading, Ltd. company is engaged in wholesale. It has four warehouses. The company has 100 employees. The activities of the company are as follows:

- 120 suppliers, 10 monthly supplies received into each warehouse from each supplier;

- two  payments to each supplier monthly;

- 1500 clients, 15 monthly orders per client. The whole job is done by six accountants. Let us see how large is the accounting job load and how efficient is accounting. We will simplify the example by disregarding the skill levels of the accountants. The calculations are shown in Table 2. The company needs 4.24 accountants and one more in case a substitution is needed. Practically, the required number of accountants also depends on their cross-functionality and interchangeability.

If the actual costs are not close to the shown norms, they must be cut.

We will show that using an example of the sub-process "sales accounting" divided into separate operations (Table 3). Firstly, one should understand the organization of the process and the involved effort. Then one should calculate the cost of that process, compare it with the best practices and look for possible solutions. Let us consider some of them.

The redistribution of functions

One of the ways of cutting accounting effort is the redistribution of functions and the reassignment of certain operations to other departments. Decisions as to the distribution of responsibilities are not easy to make. Normally, no one wants added work and responsibility. The managerial approach may be used meaning that specialists must do work in accordance with their qualifications. It is logical that the signing of statements should be assigned to sales managers and not to accountants. It will also be more efficient. The same with verification statements. At some companies, when large monthly numbers of verification statements need to be signed, the responsibility is reassigned to managers working with particular customers and, therefore, having information about payments they make and their indebtedness. This is why the cost of such operations is lower when they are done by managers and not by accountants. In the meantime, the accounting department generates verification statements.

IT optimization

The IT technologies used by the company may significantly affect the productivity of the accounting department in relation to the following:

• the range of the functional capabilities of the accounting system;
• the level of automation (the degree of the necessity of manual input);
• the degree of the adjustment of interaction between the systems (when several databases are used). Repeated input of the same data is just the loss of time. This is why IT system should be able to interact.

A comparison of the versions of the optimization of the accounting function and their outsourcing are shown in Table 4.

Outsourcing

Sometimes, external service providers are used as consultants listened to more than the company's own accountants. The principal reasons for using outsourcing are as follows:

• partial (or ineffective) load on accountants;
• the fast increase or decrease of business (Russian companies often reassign just certain areas to outsourcers);
• the necessity to introduce a new accounting system or optimize the existing one;
• the necessity to centralize accounting in a holding company;
• the lack or ineffectiveness of regulations concerning document circulation.

In a large company, when making regulations, what make sense is creating centers of financial servicing and discuss this with one's external service provider (outsourcer). At this time, many companies create such centers outside of Moscow where they are too expensive.