Internal Audit and the CFO - inherent conflict of interest?

I was reading an interview with the WorldCom whistle blower, once the vice president in charge of internal audit at WorldCom. She made a comment that every CEO whose company has an internal audit function should read. She said having that function report to the CFO, a common situation because of the kind of work internal auditors do, is an inherent conflict of interest for the CFO. The conflict is that much of the work done by internal auditors involves reviewing the work performed by people who work for the CFO. The likelihood of internal auditors reporting problems in their boss's organization seems somewhat problematic, if you think about it.

Her point was that the internal audit team should report to the audit committee of the board of directors, and I agree. Lacking that, such as in a privately owned company that doesn't have an audit committee, that reporting relationship should be to the CEO. The problem: the CEO probably doesn't want the direct responsibility of managing a function whose activities are so foreign to what he/she feels comfortable with. My message to the CEO: get over it! These people can keep you out of trouble and make your company run better.

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If you don't like the sound of "internal controls" then how about "integrity and efficiency controls?" Learn what it takes to oversee these mechanisms in your company, and that includes internal audit. And if your company is over $50 million or so in sales and you don't have a separate internal audit function, you should be worried. If you don't know why you should be worried, call me to talk about a coaching relationship.

I welcome your comments.

Don't take them for granted!

I'm teaching finance for non-financial managers to the management team of a company whose CEO believed they didn't have enough appreciation for the financial side of their business. It's a command performance, in effect, as all managers are required to attend.

You'd expect a "show me" attitude, wouldn't you? Glum faces, resistance to participation, and doing only what is required. Well, you'd be wrong!

These folks are anxious to learn more about finance, and they particularly want to learn more about the financial affairs of their own company. They want to understand things like working capital, ROI, contribution margin, and debt management. Their participation is eager, sincere, and apparently driven by a genuine desire to get better at this foreign language called finance.

If your managers are unaware of the power of financial concepts and practices to improve profits and careers, and you wonder if closing that education gap could help your company, we should talk. I can practically guarantee you'll like the results. Visit us at http://www.executivefinancecoach.com/ or http://www.genesiciliano.com/ to learn more about educational programs that can deliver an amazing return on investment, aka ROI.

And if any new readers know a good resource to get this kind of customized training, I'd like to know about it. Your comments are encouraged.

At last! Help for administrators and non-management professionals!

In my just released eBook, Finance for Administrative Assistants, I provide a basic overview of finance for administrators and non-management professionals who want to broaden their understanding of financial documents and how to interact with the finance department. NO technical jargon! Guaranteed!

This eBook is ideal for administrative assistants and other support personnel whose jobs require them to have a basic knowledge of finance. We all rely on the finance department for information. This eBook will show you how to read the reports you will most likely see and how to better understand the information in them so that you are helping to make informed decisions that support your company’s profitability and financial management goals. It will also help you get information that you may not even know is available.

My new eBook, available at http://www.genesiciliano.com/, gives a basic overview of how finance departments work and the information they provide. This provides administrative assistants – and other support personnel who are accountable to those responsible for business results – with the tools they need to provide better support and to enhance their value to the company.

The value of the finance department is in the information they provide. Employees of all levels, in all departments need financial information in almost every decision they make, though few of them really understand the resources they have available and how to use them.

People who don’t work in finance are often completely intimidated by the financial department and the work they do. The goal is really to demystify finance and make it clear that everyone can – and should – learn the basics. Get yours today at http://www.genesiciliano.com/

Real estate investors beware!

I am not an expert in real estate investing. So I pay attention to those who are when making my investment decisions. The best expert I know on California real estate is The Norris Group, a Riverside-based real estate training, consulting and publishing firm (http://www.thenorrisgroup.com/). Their predictions of real estate trends and expectations have generally been very accurate from what I have read, and they base much of their thinking these days on statistical relationships between things like personal income, house prices, foreclosure and default rates, and the like. Here is an alarming quote from their latest quarterly newsletter:


"According to some, the worst is almost over, and the (real estate) market is beginning to stabilize. That conclusion defies logic. The exact opposite is about to occur.


DataQuick (a real estate data provider) just came out with their foreclosure numbers for the first quarter of 2008. For California, it reported 47,171 trustee sales in the first quarter, an all-time record. The conversion percentage of the Notices of Default going to trustee sale is now 68%, also an all-time record. Therefore, according to Data Quick, there must have been 69,369 NODs that converted 68% of the time to 47,171 trustee sales. The number
of Notices of Default for the first quarter 2008 was 110,000! If the conversion ratio stays the same, 75,480 trustee sales should record in the third quarter 2008. That represents a 60% increase from an already record number of trustee sales.


Furthermore, DataQuick reports that 38% of all resales in California were lender-owned properties in March, 2008. By the third quarter, the percentage for the entire state will fly by 50% lender sales."


So if you're interested in California real estate investing today, get friendly with your local banker. They're going to be holding some mighty big sales in the months to come.

Make up your mind and mean it!

When you decide to improve how your business runs, that means you have to make changes. Change is traumatic, scary, unsettling, uncomfortable, etc. Whatever words you want to put on it, your employees will double it in their minds, and likely resist the discomfort as long as possible. In fact, they'll resist it indefinitely unless the CEO make a clear statement of active support for the change. Clear means unequivocal, and active means you do it too ("do as I say, not as I do" is not allowed here). They will wait until they're sure they've seen that.

Example: I have a client attempting to turn around a losing business. The business needs internal structure to guide the way they do business and they need more sales. My role is helping them create the infrastructure so that new business will be profitable. It will enable them to lower costs and stop reinventing the wheel when it comes to things like business promotion, measuring profitability of what they sell, lowering time spent in administrative trivia, lowering labor cost per dollar of revenue, etc. It means change for the better, but it means change. All say they want it, but discussions center around how to adapt process to incorporate the predominance of exceptions, rather than removing the exceptions. No one is convinced that the CEO intends with certainty to make the change. Here's a clue, folks:

If you do what you've always done before, you'll get what you always got before. If nothing changes, nothing changes.

I welcome your comments.

What do the world's CFOs think of the economy?

You can't open a newspaper or turn on the TV these days without reading what some reporter, pundit or politician thinks about the health of the economy. Are we going into a deep recession? Is the consumer going to hibernate and sink the economy? Will more bank failures cause the collapse of the entire banking system?

So it was interesting to read what nearly 600 CFOs across the globe told Duke University about their top economic concerns. In a survey sponsored and reported by CFO Magazine (http://www.cfo.com/article.cfm/3734859) the top concerns of CFOs outside the US were the cost of labor and the shortage of skilled labor, not issues typically associated with a recession. In the US, while consumer demand topped the list the cost of skilled labor came in a close second. Hey, I can remember when recessions were about having too much labor around and having to lay off unneeded workers.

We have clients today looking for skilled accounting personnel and finding it can take months to find one that actually has the skills that appear on their resume. And by the way, while one or two of these businesses are retrenching a bit, most of them are building infrastructure for growth and none of them is worrying about their survival as a going concern. Y'know, you just don't get recessions like the good old days. Unless you're in the mortgage business.

We welcome your thoughts...