Category: Nature of the Job

Priorities and Attitudes


I’ve been predominantly focusing on specific issues and situations lately, thus ignoring the general topics of behavioral patterns in work environment.  So, today I would like to discuss how people’s priorities affect their attitudes and how important it is to recognize that connection not only in yourself, but in people around you as well.

Depending on circumstances, we switch from one mode of operation to another and focus on different priorities. This affects our behavioral patterns, our attitudes towards the tasks at hand and people around us.  For most of us, it is difficult to dissect and analyze our own motivations and actions.  However, to succeed in business and in life we need not only understand ourselves, but go further and develop an ability to recognize the behavioral patterns in others as well.

The good news is that we can apply a certain level of standardization to the seemingly limitless array of human demeanor.  Let’s look at some of the most common priority/attitude correlations.

Remember my post about Economic Triangles?  What happens if the highest priority is speed – to get a task accomplished in the shortest possible time?  Frequently that pushes the quality of the result to much lower level on the priority ladder.  At the same time, for someone like me, for example, it is highly important that no half-baked crap leaves my desk.  It is most likely that while trying to balance speed and quality I will display signs of agitation and frustration.  And so will anybody else in this position.

Here is another one.  Sometime ago you gave one of your employees a complicated assignment.  It’s not just complex, but it’s a crucial piece in your decision-making process concerning viability of a new line of business.  Now, he stands at your door shining like a well-kept copper kettle.  You are busy (when we are not busy?) – you raise your head and snap, “If you have something, send me an email.”  What was the guy’s priority?  Economy of time?  No, it was the desire to show you his accomplishment and be rewarded by your recognition of his success.  Next time you pass him you see him slacked back in his chair sourly moving his mouse.  Whose fault is that?     

So, next time a perfectionist under your supervision starts acting like an irritable child, ask yourself whether there is a conflict between the quality requirements and the deadline imposed on him.  And if an enthusiastic and talented person starts displaying passive-aggressive symptoms, see if you can give him a mid-term performance evaluation and express your appreciation.  

Over the years of self-training and experience, I have become an expert in prioritization and optimization of my personal standards against requirements of the moment.  It takes years of conscious efforts to develop these abilities.  People around us, including our subordinates, peers and bosses don’t necessarily possess them.  Understanding the conflict of priorities that dictates their attitudes gives us an undeniable professional edge.    

2013 Audit Season: Joke #4


Inventory CountI remember a few years ago, during a business lunch, somebody was recapping an episode from one of the numerous crime series all networks are running to compete against each other.  My head was preoccupied with the business purpose of the meeting, nevertheless I do recall that the murder plot turned on a discovery that one of the characters, a compulsive gambler, bet his classy wife's sexual favors in poker and lost.  FBI questioned if the payoff actually took place.  Of course, it did: the real gamblers are "men of honor."  When asked how the pimped out wife handled it, the winner said, "She was willing, but not happy."  I bet this is the best line the screenwriter who churns out this pedestrian crap has ever written! 

Willing, but not happy…  The state of mind applicable to so many situations.  This is exactly how all corporate accountants feel about financial audits, lenders' exams, investors' due diligence, etc.  Commercial and fiscal needs of our employers throw us at mercy of the outsiders: we are forced to carve out time from our main responsibilities and open ourselves up to various poking, probing, and testing.  Oh, we totally understand the importance and the unavoidable necessity of it.  Frequently,  it's our own search for new financing resources that culminates in these proceedings.  Yes, we are totally willing, but we are not happy to go through with it.

I devoted two whole chapters (29 and 30) of CFO Techniques to advising readers on how to deal with auditors, keep yourself focused on the ultimate benefits for the company, and minimize the pains of distraction and intrusion.  It helps to remind yourself that your company needs it more than the one that sends people to conduct the examinations.

And I have to say, most of these specialists of prodding are well aware of the invasive nature of their jobs.  They understand that a financial executive abides by their standards and accommodates all their requirements, because he wants good results, and that this puts a CFO or a Controller into a subservient position. Many auditors are very apologetic for the endless interruptions, inquiries, requests, follow-ups, etc.

Of course, there are always exceptions…

For the CFO with exposure to international measurement systems from this season's joke #2, the last stage of the bank's field exam included physical inventory counts at three locations specifically selected by the bank.  This is habitually done by auditors and examiners in order to (a) establish the presence of various inventories and (b) verify the accuracy of the subject's records.  Obviously, nobody at the audited company has any impact on the choices of locations, timing, or people sent to perform the task.  In fact, the CFO, who every year faces a financial audit and three bank exams, never knows who the hell the counters (usually junior auditors) are. 

This time was bound to be different.  One of the locations the bank selected was the company's storage in Savannah, GA.  A day before the scheduled visit the CFO gets a phone call.  An agitated young man in the receiver tells her that he is from the bank's Jacksonville office and that, according to Google Maps, the drive is 2 hours and 40 minutes each way.  "And it's Friday!  This is outrageous," he says.

The CFO was perplexed: anyone who had dealt with these matters even for one month would know that she had nothing to do with the rookie's plight; that, if it was up to her, she would much rather avoid the scrutiny.  Considering her executive position and professional status, she could've just hung up on this wimp.  But she is the one with a sense of humor, remember?  So, she asked the boy, "Well, what would you like me to do?  Move the inventory to Jacksonville, or cancel your visit?"

"Could you, please, cancel it?" was a hopeful answer.     

2013 Audit Season: Joke #3


Cartoon-Confusion-Question-Mark-300x300A bank's field examiner (read my previous
joke if you don't know who that is) comes to review books and records of a company in the NYC's Financial District.

The company leases space in one of those pre-furnished/pre-wired office suites setups with reception services, heavy-duty business equipment, and highly presentable conference rooms shared by various renters.

(Educational  Side Note:
It's a very profitable business. I believe Regus, headquartered in Luxembourg,
is the largest player in the world. Started only in 1989, today it has presence
in 99 countries, operating over 1400 centers. During my career I have dealt with Regus in Amsterdam, London, Moscow, Frankfurt, and New York.)

Those who have never been in such places don't realize that owners try very hard to maximize the rentable footage and fit into the space as many offices as they can without violating occupancy regulations. There could be, like, 120 companies, some of them consisting of a single employee, on one floor. And, therefore, during business hours it never feels empty or quiet. People are coming, going, walking by. The noise level is much higher than in a conventional business space: at any given moment one can hear at least three phone conversations and virtually participate in two neighboring meetings – one with a real estate attorney and another with an advertisement outfit specializing in cosmetics. It's pretty much your garden-variety beehive that sometimes gives an impression of being even more populous than it actually is.

One of the specific aspects of the office suites is the absence of companies' signs and name plaques – just the numbers on the doors. Yet, if you give the name of the company you are visiting to the doormen, they will direct you to the right floor. There, receptionists will not act surprise when you ask for a particular person and will call him or her up right away. (I mean, there is a reason why these businesses are doing
well.)

This is how the field examiner found her way to the company's CFO, with whom she was in contact after the assignment was scheduled.  The auditor was set up in a separate room next to the CFO's office.  Most of the electronic communications and data exchanges transpired between the two of them.  The supporting documentation was provided by the CFO's staff.  But in the hallways, reception areas,  at the coffee station in the kitchen, through the open doors of multiple offices – everywhere the visiting woman saw, to put it mildly, quite a few people.

Please keep in mind, this is a little story about a person of numbers. Moreover, one of the key requirements of qualified auditors is their ability to gage the validity of the data in front of them. The examiners cannot possibly look at every recorded transaction – they make representative selections for documentary proofs; they construct trends; they look at schedules and statements; and they must apply analytical scrutiny and critical thinking to every number to make sure that it makes sense in the context of the examination's scope.

For example, it is expected of an auditor, who already studied a company's Profit & Loss statement, to understand the physical reality of annual rent expense of $85,000 (especially in NYC's Financial District) and annual payroll of $1 million. Call me crazy,
but I don't think one needs to have a business degree and a CPA to interpret these numbers. I mean, any logical person can effortlessly come to the correct conclusion, right?  One can only hope.

The field work was going very smoothly; the company's finance and accounting staff was well prepared and accommodating; the books were clean and the paper trail was flawlessly coherent. Yet, at the very end, when the auditor was reviewing prior exams'
statistical questionnaires to see if anything required an update, all of a sudden she hit a stumbling block…

She walks over to the CFO with the papers in her hand, looking genuinely puzzled. She points out to a section in the questionnaire, "It says here that the total number of
employees is 10." Now, it's CFO's turn to be baffled as she doesn't understand
why this is so surprising, "Yes, that's correct. Ten total."

The field examiner looks into the CFO's face, still confused, "But I thought this whole floor was you…"

2013 Audit Season: Joke #2


StimpyA lender's field examiner is sent to conduct a periodic review of a borrower's books and records. 

These exercises are regular occurrences in, what I call, the balance sheet financing: a company pledges its assets, receivables and inventories foremost, against a line of credit.  It's only natural that the financial institutions want to make sure, from time to time, that the collateral securing the loans, letters of credits, bank guarantees, etc. actually exists and is properly valued. 

The banks used to be somewhat lax about it and satisfied themselves with quarterly internal financial statements and annual audit reports.  Most of them would ask a client to undergo a field exam (it's always at the client's expense, by the way) only when the issue of a credit line's increase came up.  However, the neverending tittering on the verge between recession and depression has changed things.  The banks got burned by failing companies and defaulted mortgages.  Those that couldn't recover their losses got acquired for peanuts.  The remaining institutions got smarter and stricter.  Nowadays, many lenders demand 2-3 field exams a year.  

Most of these engagements are outsourced to specialized accounting firms, the rest are conducted by the banks' auditing departments.  Either way, the examiners are constantly rotated – every time it's a new team, which is very prudent as far as the auditing standards go, but a pain in the ass for CFO's and Controllers of the companies being reviewed: you feel like a fucking parrot, delivering a summary of the company's business, its operating processes, and accounting procedures over and over again.

Many companies with significant receivables and inventories to pledge against credit lines of $10 million and up are, obviously, international businesses.  The commercial globalization affects both the procurement of resources and the distribution of products.  The ancient golden rule of market success still holds true: people try to buy where the prices are the lowest and sell where the prices are the highest.    

Now, let me remind you, boys and girls, that the United States of America is a solitary customary-measurement island in the global ocean of the metric system.  (Of course, it will cost billions to convert the entire American existence into the world-wide standard. Yet, I always thought that this clinging to the 18th century  units is primarily a manifestation of our country's fundamentally puritan conservatism.  But that's another joke altogether). 

So, back to our examiner.  On the second day of the assignment she comes to her designated point person – the borrower's CFO (the best practice to avoid someone saying something stupid, especially a CEO, is to restrict auditors' access to one person) and shows her an item on the inventory breakdown.  "It says here that the cost is $1.05 per pound, but the supplier's invoice states $2,315 per em tee," she says, actually spelling the stated weight unit – mt.

Reportedly, at this moment the CFO felt like making a joke: "…You know what they call a Quarter Pounder with Cheese in Paris?/They don't call it a Quarter Pounder with Cheese?/No, they got the metric system there, they wouldn't know what the fuck a Quarter Pounder is." 

But looking at the shellac-stiff blond hairdo of this Western PA resident, she changed her mind.  The examiner looked utterly perplexed.  So, instead, the CFO said, "This product is distributed here, in the States, and we keep the inventory records in pounds to match the sales units. However, it was purchased in Korea, so all of the supplier's documentation is in the metric system.  'MT' stands for 'metric ton,' which contains 2,204.62 pounds.  So, if you divide the cost of one metric ton ($2,315) by 2,204.62, you will successfully convert it into the cost per pound ($1.05)."  She writes everything down as she speaks, so that she doesn't have to repeat it again; at least not to this woman. 

The examiner is extremely relieved and very grateful for the little lesson.  The CFO (obviously in humorous mood that day) says, "Wait until you get to our liquid products.  They are bought in metric tons, stored in gallons, and sold in pounds."  "Oh, my God," the auditor looks mortified. 

This is not an isolated anecdote.  It's remarkable how frequently this happens.  I personally never met an auditor who didn't require a tutorial on US vs. metric units conversion.  I'm used to the appalling ignorance. The question is: why is it Ok to come with your tail between your legs and your tongue out, asking these stupid questions?  Haven't these people ever heard about Google?       

2013 Audit Season: Joke #1


Sleeping AuditorI already wrote about subsequent-events analysis during audits in my post Ignorantly Insolent Bosses.  Payments received from customers in January and February prove the validity of sales invoices outstanding as of 12/31.  On the other hand, if you made a payment to a vendor on 01/07/13 for an invoice dated 12/08/12, which wasn't included into your accounts payable schedule – that's an error: both the liability and the related expense should've been recognized in 2012.  There are subsequent events tests for all accounting cycles – really useful, powerful, mandatory for any audit.  If done thoroughly, they can uncover all those overstated revenues and hidden costs that result in public companies' going out of business and their executives going to jail.

"If" is an operative word.  Here is an actual story that happened during the week of 02/25/2013.  An audit field work was under way at ABC International, Inc.  A mid-size NYC CPA firm has been servicing this company for a few years, covering all corporate taxation needs as well as providing their independent opinion on the annual financial statements, which the company submits to their lenders, insurance underwriters, major suppliers, and other users.  ABC has a very strong CFO and the auditors never find anything out of order in the company's books, records, and statements. 

That's great, except that the audit quality should not be affected by the previous experience.  Yet, this time around the CFO noticed that the audit manager seemed a bit lax - the test selections were smaller, there were less questions and supporting documentation requests.  She was pleased: it shortened the exam time and also signified the auditors' confidence in her own work.  Of course, there is confidence and there is negligence. 

As soon as the audit started, the CFO asked her staff accountant to generate January and February schedules of sales, receipts, vouchers, and payments (the subsequent events), which were provided to the auditors with a copy to her.  When the CFO reviewed the information to make sure that everything was in order, she has realized that the payment journal was drawn for the beginning of 2012 instead of 2013 (people do have a tendency of clicking keys without thinking).

The CFO immediately generated correct schedules and was about to email them to the audit manager, when she stopped herself.  Why the hell didn't he notice it?  Did he even looked at it?  She decided not to do anything for the moment and see what would happen.

A couple of days later, the field work was completed.  Two weeks later the CPA firm prepared the draft of their independent opinion and the footnotes, which were sent to the CFO for review (she told me she's received it today).  Nobody ever mentioned the year old supporting data.  Nobody caught it: not the auditing staff, or the manager, or the firm's quality control department.  What quality?  Please, don't make me laugh!                

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