AN OVERVIEW OF FINANCE WITHIN AN ORGANIZATION
Organization of the Finance Function
Most businesses and not-for-profit organizations have an
organization chart similar to the one shown in Figure 1 which
highlights the following components:
1. The Board of Directors (BOD) is the top governing body,
and the chairperson of the board is generally the highest-
ranking individual.
2. The Chief Executive Officer (CEO) comes next but note that
the chairperson of the board often serves as the CEO as well.
3. Below the CEO comes the Chief Operating Officer (COO),
who is often also designated as a firm’s president. The COO
directs the firm’s operations, which include marketing,
manufacturing, sales, and other operating departments.
4. The Chief Financial Officer (CFO), who is generally a senior
vice president and the third ranking officer, is in charge of
accounting, financing, credit policy, decisions regarding asset
acquisitions, and investor relations, which involves
communications with stockholders and the press.
If the firm is publicly owned, the CEO and the CFO must both
certify to the Securities and Exchange Commission (SEC) that
reports released to stockholders, and especially the annual
report, are accurate. If inaccuracies later emerge, the CEO and
the CFO could be fined or even jailed. This requirement was
instituted in 2002 as a part of the Sarbanes-Oxley Act in the
US. The Act was passed by Congress in the wake of a series of
corporate scandals involving now-defunct companies such as
Enron and WorldCom, where investors, workers, and suppliers
lost billions of dollars due to false information released by
those companies.
Figure 1. Finance within an Organization
Figure 2.
THE ROLE OF FINANCIAL MANAGERS
The financial manager of a firm plays an important role in the
company’s goals, policies, and financial success.
The financial manager’s responsibilities include:
1. Financial analysis and planning: Determining the proper
amount of funds to employ in the firm, i.e., designating the
size of the firm and its rate of growth
2. Investment decisions: The efficient allocation of funds to
specific assets
3. Financing and capital structure decisions: Raising funds on
as favorable terms as possible, i.e., determining the
composition of liabilities
4. Management of financial resources (such as working
capital)
5. Risk management: protecting assets by buying insurance
or by hedging.
In a large firm, these financial responsibilities are carried out
by the following:
1. The Treasurer is responsible for managing corporate assets
and liabilities, planning the finances, budgeting capital,
financing the business, formulating credit policy, and
managing the investment portfolio. He or she basically
handles external financing matters.
2. The Controller is basically concerned with internal matters,
namely, financial and cost accounting, taxes, budgeting, and
control functions.
3. The Chief Financial Officer (CFO), usually holding a vice
president position, supervises all phases of financial activity
and serves as the financial adviser to the board of directors.
The Financial Executives Institute, an association of corporate
treasurers and controllers, distinguishes their functions as
shown in Table 1.
Table 1. Functions of Controller and Treasurer
The financial manager can affect stockholder wealth
maximization by influencing:
1. Present and future earnings per share (EPS)
2. The timing, duration, and risk of these earnings
3. Dividend policy
4. The manner of financing the firm
Specific Roles of a Financial Controller
1. Ensuring proper internal controls
2. Leading an accounting team
3. Overseeing accounting functions on Accounts Receivables
(AR), Accounts Payable (AP), General Ledger, financial
reporting and payroll
4. Preparing periodic financial statements
5. Creating information relevant to decision-making
6. Budgeting and forecasting
7. Coordinating with external accountants and/or auditors
8. Handling compliance and tax filing (business licenses, sales
tax, income tax, property tax, etc.)
9. Evaluating financial health of the organization
10. Cash management (if there is no treasurer)
11. Work closely with the CFO or in smaller companies, the
owner
CONTROLLERSHIP FUNCTIONS DEFINED
Planning
The detailed formulation of future actions to achieve a
particular end is the management activity called planning.
Planning therefore requires setting objectives and identifying
methods to achieve those objectives. A firm may have the
objective of increasing its short- and long-term profitability by
improving the overall quality of its products. By improving
product quality, the firm should be able to reduce scrap and
rework, decrease the number of customer complaints and the
amount of warranty work, reduce the resources currently
assigned to inspection, and so on, thus increasing profitability.
This is accomplished by working with suppliers to improve the
quality of incoming raw materials, establishing quality control
circles, and studying defects to ascertain their cause.
Controlling
The processes of monitoring a plan’s implementation and
taking corrective action as needed are referred to as
controlling. Control is usually achieved with the use of
feedback. Feedback is information that can be used to
evaluate or correct the steps that are actually being taken to
implement a plan. Based on the feedback, a manager may
decide to let the implementation continue as is, take
corrective action of some type to put the actions back in
harmony with the original plan, or do some midstream
replanning.
Feedback is a critical facet of the control function. It is here
that accounting once again plays a vital role. Accounting
reports that provide feedback by comparing planned
(budgeted) data with actual data are called performance
reports. Exhibit 1 shows a performance report that compares
budgeted sales and cost of goods sold with the actual
amounts for the month of August. Deviations from the
planned amounts that increase profits are labeled
“favorable,” while those that decrease profits are called
“unfavorable.” These performance reports can have a
dramatic impact on managerial actions—but they must be
realistic and supportive of management plans. Revenue and
spending targets must be based (as closely as possible) on
actual operating conditions.
Exhibit 1. Performance Report Illustrated
Accounting and Reporting
The controller position is accountable for the accounting
operations of the company, to include:
a. the production of periodic financial reports,
b. maintenance of an adequate system of accounting records,
and a comprehensive set of controls and budgets designed to
mitigate risk,
c. enhance the accuracy of the company's reported financial
results, and ensure that reported results comply with
generally accepted accounting principles or international
financial reporting standards.
The scope of the controller position is much larger in a small
business, where the position is also responsible for cash
management and risk management. In a larger company,
these added responsibilities are shifted to the treasurer and 2. Monitor debt levels and compliance with debt covenants
chief financial officer, respectively. 3. Comply with local, state, and federal government reporting
requirements and tax filings
A variation on the controller title is the comptroller, which
generally implies a more senior position, and which is more ADDITIONAL ACCOUNTABILITIES:
commonly found in government and nonprofit entities.
1. If the company is publicly held, then add a requirement to
PRINCIPAL ACCOUNTABILITIES: be responsible for the filing of quarterly and annual reports
with the Securities and Exchange Commission
Management
2. If the company is a small one, then the controller likely
1. Maintains and enforces a documented system of assumes the responsibilities of the chief financial office
accounting policies and procedures
2. Manage outsourced functions
3. Oversee the operations of the accounting department,
including the design of an organizational structure adequate
for achieving the department's goals and objectives
4. Oversee the accounting operations of subsidiary
corporations, especially their control systems, transaction-
processing operations, and policies and procedures

Transactions

1. Ensure that accounts payable are paid in a timely manner

2. Ensure that all reasonable discounts are taken on accounts
payable
3. Ensure that accounts receivable are collected promptly
4. Process payroll in a timely manner
5. Ensure that periodic bank reconciliations are completed
6. Ensure that required debt payments are made on a timely
basis
7. Maintain the chart of accounts
8. Maintain an orderly accounting filing system
9. Maintain a system of controls over accounting transactions

Reporting

1. Issue timely and complete financial statements

2. Coordinate the preparation of the corporate annual report
3. Recommend benchmarks against which to measure the
performance of company operations
4. Calculate and issue financial and operating metrics
5. Manage the production of the annual budget and forecasts
6. Calculate variances from the budget and report significant
issues to management
7. Provide for a system of management cost reports
8. Provide financial analyses as needed, in particular for
capital investments, pricing decisions, and contract
negotiations

Compliance

1. Coordinate the provision of information to external

auditors for the annual audit