Accountants are Financial Historians - Don't Make them Rewrite History
Accountants are financial historians; they are not magicians, miracle workers or the driving force behind your business. They should be a messenger of the truth whether it is good or bad. An accountant's job is to record the day to day financial transactions of a business as they occur. It is not their job to record make believe transactions, overestimate work in progress or conveniently ignore consultant invoices.
Unless you have been living under a rock for the last few years it is hard not to know about the Enron, WorldCom or Tyco "accounting scandals." In some cases the accounting fraud may have started out innocently enough.
It doesn't take too much imagination to hear the following rationalizations: Were the earnings for the quarter were somewhat short of expectations? No problem, we'll just use some creative accounting to recognize some of the next quarters projected revenue in advance.
Were the expenses somewhat in excess of what we anticipated? No problem, we'll just "misplace" some of our expense invoices until next quarter and we'll record them then.
Is some of our inventory no longer useful or over valued? No problem, we'll just wait until we have a better quarter and we will write it off then.
Several quarters or years later, with no improvement in sight, the house of cards became too large and collapsed under its own weight. Were the CFO's the driving force behind these scandals? Probably not, but they were put in the position of being a willing accomplice the fraudulent activities. One thing that I do know for sure - there is no way it could have happened without their cooperation.
What does this have to do with the A/E industry? Well I can see the same thing happening on a smaller scale. Perhaps the motivation is to show solid financial results in order to renew the line of credit, avoid scrutiny of the home office or insure a healthy bonus. In the short run it is possible to manipulate the numbers and put off the day of reckoning. However the day of reckoning almost always comes - and it is never pleasant.
Those consultant invoices that you conveniently didn't pass on to accounting until 3 months after the quarter was closed will eventually have to be recorded. That inflated extra service invoice (for a scope of work that wasn't approved) will eventually have to be adjusted. That actual work will have to be done for that project that you invoiced as 50% complete when it was really only 25%.
In the short run, the most difficult thing may be to face up to the truth. In the long run the truth is your savior. The truth is good. It forces you to take the needed action based upon the facts.
If you are 25% complete, invoice 25% complete. If you don't have an authorization to perform a scope of work, don't invoice it until the client agrees. If a consultant sends you a legitimate invoice record it in the proper period.
The time you spend cooking the books can be better spent solving the problems your company faces. Please take a look at my "Top Ten List" this month. The Seven Deadly Sins of Finance. Don't Make them rewrite History
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