Re-launch your engagement with Finance- 10 key questions to promote open dialogue

1. Re-launch your engagement with Finance- 10 key questions to promote open dialogue Better Boards conference, 3 August 2014 Michael Corry, CFO Clarity

2. Brief overview – our objectives WE WILL … • Consider why there is sometimes a disconnect between Finance and the rest of the organisation • Do some profiling of Finance Managers, CEOs and Chairs • Consider different ways to ask questions and receive challenging news • Look at 10 key questions to address to Finance. • Explore strategies to make those questions more effective

3. How to engage with Finance?

4. The ten questions- a sneak preview • How are we investing our surplus cash? • Are we tracking aged debtors and creditors? • Are all of our activity streams covering their costs? • How can we use technology to improve things? • What’s our main tax risk?

5. Questions 6 to 10 • Is our fixed asset register up to date? • How can we improve reporting to the board? • How do we know everyone on the payroll works for us? • Got any leave planned? • What keeps you awake at night?

6. Profiling Accountants

7. Profiling CEOs- number 1, the Volcano

8. Profiling CEOs number 2- the smiling assassin

9. Profiling CEOs number 3- the sulker

10. Question 1; how are we investing our surplus cash? Principal X interest rate X time invested = investment return

11. Question 2; are we tracking our aged debtors and creditors over time?

12. Question 2; are we tracking our aged debtors and creditors over time? • Several measures can work OK • The key is consistent measurement over time • Example; Total purchases (exclude salaries)/365 = purchases per day Creditors / purchases per day = creditors days outstanding

13. Question 2 continued • AND/OR- an aged creditor listing Total Current 30-60 60-90 90+ SGR lawyers 5,654 5,654 0 0 0 AGR electricity 12,400 12,400 0 0 0 GU Workcover 1,544 0 0 0 1.544 LL premises 10,450 010,45000 Total 30,04818,05410,450 01,544

14. Question 3- are all of our activity streams covering their costs? Check everyone knows what we mean by “cost recovery”. General meaning- are we avoiding a loss? Are we generating enough revenue to cover costs? Does this work across all activities? Specific meaning- can we allocate some costs to this grant, and legitimately spend, say, 90% in the field?

15. Question 4; how can we use technology to improve things? • Quick fixes • Medium-term projects • Broader strategic objectives. • Finance system change or whole of business? • Emphasis on reporting or processing?

16. Question 5- what’s our main tax risk? • “Not-for-profits don’t pay tax”. They’re exempt! • Oh yes they do! • GST, fringe benefits tax, Workcover (alright, not a tax) etc

17. Question 5 continued • Have a good look at contractors. • It’s a complex area. • Various tests. 80% test is just one. • Affects superannuation, Workcover, (payroll tax), withholding tax on payments to contractors

18. Question 6- is our fixed asset register up to date? • This is a CLASSIC risk area. • Does the register contain redundant assets? • Is all work in progress shifted into the register?

19. Question 7; how can we improve reporting to the board? • Comprehensiveness versus clarity • Risk of CYA approach- “they’ve had it so they can’t say they haven’t” • Keep it meaningful and concise • ASK THE BOARD- what’s useful to them?

20. Question 7 continued; board reporting

21. Question 7; Board reportingLessons from the Centro case • Each month the board received a board pack about 450 pages long. One of the board packs that was particularly relevant was more than 1000 pages long. • “The directors failed to see the ‘obvious errors’ because they all took the same approach in relying exclusively on those processes and advisors. No director stood back, armed with his own knowledge, and looked at and considered for himself the financial statements.”

22. Question 7; board reportingLessons from the Centro case • “A board can control the information it receives. If there was an information overload, it could have been prevented. If there was a huge amount of information, then more time may need to be taken to read and understand it. The complexity and volume of information cannot be an excuse for failure to properly read and understand the financial statements.”

23. Question 8- How do we know that everyone on the payroll works for us? Check this from time to time. Fraud prevention/detection focus Think laterally about how you approach this.

24. Question 9- got any leave planned? “……..spent more than a year struggling to reverse a bewildering decline in cash flow” “Trusted senior accountant…..” “Multimillion -dollar discrepancies” “Rat in the ranks….” “No outward sign……..” “…where the complexity came in was…how she covered her tracks”………… “payments in bank statements deleted from on-line records”

25. Question 10; “what would keep you awake at night” • THEKEYQUESTION. • Works best with trust. • Off-the-cuff or on notice? • Be ready for an initial brush-off. • Persist gently but firmly. • Gives the accountant “permission” to air concerns.

26. Question 10 continued Goes back to how you ask questions, and how you receive answers “What exactly do you mean by that?” “How specifically does that work?”

27. Conclusion • If you ask penetrating questions constructively, the finance function will generally welcome this and feel engaged. • Set up the culture where it’s OK to report bad news if necessary. • Develop a technique of questioning that gets the answers you are really looking for. Be aware and genuinely inquisitive. • We accountants love to spend time mixing with the humans. Re-engagement is good. Good luck!