Tag: CFO

Sloppy Accountant Steals From Lorne Michaels and Tina Fey


American+Museum+Natural+History+Hosts+Museum+MhOXuAo6hyZl Well, technically he stole from NBC Universal who bankrolls the production of 30 Rock, but Lorne Michaels and Tina Fey helm the show.  I guess, if it has something to do with the creator of Saturday Night Live and the show's former Head Writer, even the embezzlement case must have a bizarre skit flavor.

The media-released facts of this "grand" scam, which yielded the schmuck, formerly employed as an "accountant" on the show, a $13.6K "fortune" in stolen funds, are sketchy (pun is always intended), so I will have to apply my financial forensic expertise and speculate about some of the details. 

The way I see it, he caught on the fact that when expense reports/envelopes are submitted for reimbursement, nobody checks the actual receipts inside.  It is also possible that he was the very person responsible for checking them.  Either way, there were obvious holes in this internal control plot.  So, he decided to pad a few envelopes with fictional expenses, personal use of the business credit card and even altered receipts.  On top of that, he did it stupidly and sloppily: used whiteout to falsify the receipts, faked the NBC Comptroller's initials.  He thought nobody would ever notice. As far as he could see, from his limited to one season and inexperienced point of view (how do these people get employed?), nobody was looking.

Nobody in accounting management did!  Judging by the timing of his employment and arrest, it seems the independent auditors were the ones who discovered the receipts with the whiteout!!!  In a business with big-shot executive producers charging all kinds of perks (limos, flowers and whatnot) to corporate credit cards, the reconciliation of expense accounts is a sensitive area.  That's where diligent auditors would look.  And the SLOPPY WHITEOUT – how can anyone possibly miss that?

So, now he is facing up to 7 years in jail.  That's a year for every $2,000 he stole.  Pretty severe.  However, The Frustrated CFO is the most curious about the consequences of this ordeal for the NBC's Comptroller.   In my book she is ultimately responsible for the lack of proper internal control procedures and the inadequacy of the budget variance analysis.  If those functions were correctly established and executed, this small-time offense, blown out-of-proportion by its show-biz relation, would never have occurred in the first place.  Both her and the arrested one are sorry excuses for accountants.        

What was the perp's self-justification?  Did he think that "it was not fair" for Tina Fey to spend $200 a day in limo charges?  IMDb Pro reports her current 30 Rock salary at $300,000 per episode.  That must've killed him.

However, we are accountants, so let's count.  The show reportedly has 6 million viewers.  That's only in the US and doesn't count reruns or DVD sales. So, on the evening of each episode's airing Tina Fey makes 6 million people laugh and forget their worries.  (Please, appreciate my objectivity here as I personally don't find Tina Fey's comedy funny, intelligent or entertaining.)  And for that she gets paid 5 cents per person.   I think that's reasonable.  Who did that "accountant" make happy?

The Curse of Private Business: Nepotism


My friend, a fellow career CFO and frequent correspondent, MJZ urges me to write on nepotism. Her acute sensitivity to the subject is understandable: over the years, she's had more than a few encounters with this practice and I intend to use some of those shared with me as examples.

The dictionary gives a definition of nepotism as "the practice among those with power or influence of favoring relatives or friends, especially by giving them jobs." Nowadays, a lot of people confuse nepotism with networking. Let me correct them. Circulating a resume of someone you know because you can attest to their professional achievements is not nepotism, but a favor to those seeking good people to hire. If you do the same for someone who is a poor worker and a nitwit, it's not nepotism either, it's just your own stupidity. Merit is the key.

The people who mistake networking for nepotism also miss an important element of the definition – "those with power." In monarchical states and dictatorships (such as Kim dynasty's North Korea) the passage of power from parents to children is a given. And in my post on The Distortion of the Bill of Rights in closely-held businesses, I have pointed out that these companies are not democracies, but absolute monarchies. Yet many of us, who still crave the illusion of meritocracy, still cringe at the unfairness of the "family" business arrangements.

It's not always that nepotism has a poor impact on business. For example, it would be a great relief for the media world if strangely progressive Lachlan Murdoch, son of Rupert, got a chance to  overhaul his father's empire. His departure from News Corporation has only deepened the company's regress. However, that's a rare exception: 99.99% of nepotism cases are bad both for commerce and morale.

In her early career, MJZ held a Controller position in a manufacturing and distribution company. She was responsible for all accounting, trade finance, and credit functions. As the matter of fact, she was the one who transitioned them from manual into computerized accounting. She was revered by the business owner. But when his daughter with a marketing degree hit the ceiling in her career at now defunct telecom company, MJZ's job went to her. The company went out of business within a year.

At her more recent job, MJZ had to suffer an onslaught of owners' children (all recent college graduates) being appointed as Presidents of the company's subsidiaries. As the conglomerate's CFO, she was forced to educate them, tolerate their shortcomings and listen to her peers and middle managers complaining about the kids' laziness, time in the office they spent on personal matters, and unlimited PTO. These stupid people made a terribly destructive impact on the business.  Yet, MJZ was unable to voice her opinion, because, say it with me, there is no such a thing as Freedom of Speech in a place of one's employment.

Curiously enough, the industry where nepotism is the most prevalent is the one that suffers the most from the lack of fresh talent – the entertainment business. But that's a subject for other posts.

CFO Folklore: The Mathematical Wisdom of Economic Triangles


Triangles

Optimization of resources is one of the most crucial tasks in business and every day life.  The larger the variety of resources we have at our disposal, the more complicated the task of their optimization becomes. There are mind-blowing models developed with very sophisticated technology trying to approximate the complexity of, let's say, genetic engineering. 

However, there is a fundamental  optimization problem associated with any type of job we undertake.  Whether you are a business owner, a financial exec, a manufacturing manager, a movie producer, a janitor, or a cook, you have to joggle these three basic properties of production: Time, Cost and Quality.

When we want to optimize these three resources we want to accomplish the job at hand with the highest quality, over the shortest time, and at the lowest cost.  Unfortunately, both logical and empirical observations show that one cannot achieve all of these targets at the same time.   

In practice, the dynamics within any economic system characterized by the presence of these resources can be described by three right triangles in the illustration above, in which the shorter the line representing one or another property, the closer we are to the desirable level of that resource.

As Pythagorean theorem shows, the hypotenuse (the side opposite to the right angle) is always larger than either of the catheti (the legs).   So, what do those triangles show us?

You can accomplish something as quickly as possible and at the lowest cost, but the quality will be far from the desirable level (triangle 1).  I can give a task of creating a profitability model for a new line of business to my junior analyst and give him one day to do so.  Do I even have to describe what I will get from him, if anything, tomorrow morning? 

On the other hand, you can strive for the highest quality achieved at the shortest possible time, but then it will not be cheap (triangle 2).  I can drop everything else on my agenda and outline detailed specification for the model myself, and then hire a team of highly paid developers to design it.  The result – outstanding functionality available for use within 2-3 days, if you can afford it.

Finally, you can keep the quality standard on the level and cost at a reasonable low, but it is going to take a long time to achieve the desired result (triangle 3).  I can give the task to my VP of Financial Planning & Analysis, who is very good at creating this sort of models, but has another 15 ongoing and new projects I already assigned to him.  So, I  instruct him not to spend more than 1 hour a day on this one to keep the cost relatively low.  When will I see the model ready?  Who knows?  

Simple?  They teach Pythagorean Theorem in 8th grade AP Math.  Now go and try to explain this to your boss.  Good Luck!     

New CFO, Same Staff: Inheritance Problems


Ok, let's leave our bosses alone for the time being.  Let's talk about us as bosses.  In our multi-functional lives as CFOs and Controllers we frequently end up with more direct reports than CEOs/owners.  There are accounting managers, finance directors, budget and analysis groups leaders, PR, AP, AR, IT, and so on.

Let's say you are making a career move and just accepted a position with XYZ, Inc., replacing a departing CFO.  In a dreamy corporate fairy tale you should be able to do what our newly elected presidents do – form your own cabinet and move in with your faithful acolytes. In real life… you inherit somebody else's staff.  Moreover, you have to quickly immerse and keep the business going.

The subsequent events can play themselves out in three possible scenarios:

1.  Without giving the existing operations a real dissection under a microscope, you simply learn how everything functioned under your predecessor, decide not to change anything even if you find the old ways inadequate or wrong, and continue in the same fashion.  The effect: good for the staff – no changes, no new things to learn, no old habits to break; bad for the company, your employers and ultimately yourself – inheriting diseases without attempting to treat them will assure your failure.

2.  If you are a responsible and knowledgeable person with an impressive background and enthusiasm for your new job, you will study all aspects of functions under your control, diligently, but without prejudice; find errors, shortcomings and blind spots; apply your expertise, and develop improvements and innovations plan.  And then you will face incredible resistance from your inherited staff.  It is very natural: humans are resentful of changes.  They will give you very hard time, no help and mountains of frustrations.  Just because you are great at finance and accounting, it does not mean that you are good at managing and educating people.  If you don't have patience and sufficient skills to overcome the resistance in a positive way, you will end up firing a third of the stuff and another third will leave on their own.  The rest will stay, but you will never gain their trust and support.  The worst part – by replacing former employees with new ones, you will loose the continuity of the departmental knowledge.  

3.  Under the best case scenario, your professional and managerial skills are equal.  While you sifting through processes, functions, policies and procedures, you must study the people.  What motivates them? Do they know their jobs well? Are their duties properly matched with their abilities?  Psycho-profiling is one of the most important managerial skills.  Try to discern the personality traits of your employees.  The personnel strategy should be part of your improvement plan.  Find people who are interested in positive progress, explain to them how the new developments will benefit them, show them the big picture (for more on this subject see my post Big Picture and Staff Training) and make them your agents of change.  Then you can claim the successful transition.    

Job Search: Prestige and Compensation


It happens very rarely, but this time I am in absolute agreement with yet another installment from "You Are Better Than Your Job Search" – previously referenced book from The Ladders' CEO Marc Cenedella: Title vs. Salary.  And I strongly advise everyone to click on the link and read the excerpt very carefully.

It is true that a good title looks pretty on our resumes, but it cannot be at the center of your decision to accept a job offer.  If the title comes as a part of a good deal completed with new professional challenges and attractive compensation package, then great, you are doing the right thing by taking the job.  However, if its just a title and everything about the job makes you unhappy, depressed and economically strapped, there is no point in making such sacrifices. 

And you cannot fool anybody with that line on your resume either.  All experienced recruiters and the majority of hiring execs know that if you held the Controller position in a $10 million a year, known to nobody company, it means you had no staff, can claim no sophisticated accomplishments, nobody asked your strategic advice and your salary was around $80K.  At best, you were a glorified full-charge bookkeeper.

As the matter of fact, I frequently say that I don't care about my title.  As far as I am concerned, they can call me "hey you," or a "firefighter," or a "cleaning lady" on the organizational chart as long as I can continue impact the business in the most profound way, implement ideas of highest sophistication,  keep all functions in full control and receive compensation that reflects my influence on the company.

Another very valuable point concerning inflated titles brought up in the article/excerpt is the artificial promotion.  In the companies with flat management structure, people keep carrying out the same responsibilities year after year with minimal salary increases and title changes that reflect not a professional growth but rather simple seniority.  After 10 or 15 years with the same company a person who started as a catch-all office girl becomes the Controller.  And it is fine if she actually grew into the Controller's responsibilities together with the company's development (this is what I call an "in-the-chair" career ladder), but most of the time that is not the case.  Hence, taking the Controller's job replacing that person would not be a great professional achievement.  

Of course, when we are stuck in the rut of a long job search, we become desperate and dispirited.  Then even an inflated title may seem like a sweetener of whatever position we are ready to grab to "put the food on the table."  However, desperation is a poor adviser.  Please, think long and hard before you take that step.