Professional Documents
Culture Documents
Role Evolution
Historically the finance function ensured numbers generation, financial order and enforced management controls. While this is a integral part of the role, the expectations from the function have changed to include, inter alia
- Deep understanding of the business - Strong analytical focus - Knowledge of key operational drivers of success - Processes and systems design and redesign - Knowledge of IT
Value Pyramid:
Responsibility
Role
Financial accounting Core Functional Activities Systems and Procedures Business Analysis and MIS Business and corporate strategy
Value Reporting
Value Preserving
Supervisory/ Direct
Value Augmenting
Direct
> Book keeping, Payroll > Day-to-day financial controls > Management, Group and Statutory Accounts and reconciliations > Adherence to internal and external accounting policies > Treasury
> Involve a great degree of dependence on operations department for inputs and data > Controls and validations can be established mainly with reference to operations data
> Implement check lists for routine and month close activities
> Clearly define boundaries for responsibilities between accounts and operations department
- supported by operating procedures - deadlines for inputs and outputs
> Staff Structure / support > Business Understanding and active involvement
For Systems definition and development for identifying critical areas to be analyzed
> Corrective actions arising out of the review and personal visits to verify cash and stocks at various locations
> understand local laws and regulations and draw up procedures for timely compliance and monitor the same
Migration to these roles is possible if and only if the basic roles are fulfilled effectively. Involves very close interface and constant touch with the operations team hands-off will not help Demands a great degree of understanding and a wider perspective of the product/origin in question Less possibility to systemize or delegate Opportunities for these do not come about often; yet the FM requires the initiative to look for them/sense the need for his involvement and launch himself
FMs Interface
Internal
- Profit center head/BCs - Country management RC/CH - RFC - PFC - PMH
External
Statutory authorities Auditors Bankers
As their customer
- Reliable documents and field reports on a timely basis - State funds requirements in advance changes in business impacting accounts outputs expected and time lines available for discussions and review
As their customer
- Accurate and timely consolidated MIS - facilitate clarifications on CC MIS - clarify specific product related requirements - transfer business related understanding
As their customer
- clarify specific product related requirements - transfer business related understanding
External interface
Statutory authorities Develop relationship with key persons in relevant government departments Keep abreast with developments timely submission of information maintain a state of readiness Auditors Develop relationship with key persons Maintain audit readiness
Accounting Policies
1. Stock Valuation We have different policies for different products but most important aspects are Consistency and relevance
For example : > Timber Specific Identification > Rice/Cocoa / Coffee Bin Identity FIFO/Specific Idenfication/Average
Accounting Policies
2. Direct costs
Direct costs vs Indirects
Guidelines >Fixed for the campaign Overheads
Finance Cost
Interest - Period cost Local Interest - Aim to keep separate Banks for different products - If common accounts, book based on the tracking mechnism - If no tracking mechnism, book based on the average investment for the month
Overseas Interest - Average Investment for the month - At actual Interest rates paid to respective Banks - 0.5% rate being added to cover Various Bank Charges - 0.5% for CCA
Bank Charges - Collection / Remittance / LC treated as direct costs cash basis - Bill Discounting Financing cost
Interest from Customers - Cash basis - Netted off from Interest cost CMA - Period Cost - Incidence : Origin / CC
Stock Provision
Trigger - Stock age over 6 months Classification : After 6 months : Moving,if atleast 10% of the stock is sold in the previous month, else Non Moving After 9 months :, At least 50% of stock left after 6 months is sold by end of 9 months..else Non Moving.
Age 6 9 Month Category Moving Treatment Lower of Cost and Market Price
Non Moving
9 12 months
Moving
> Insurance Claim to be recognised at our assessment value, limited to the actual loss
> Once a settlement offer is received from the Insurance Company, Claim to be revalued to the offer amount
> If there is no offer from the insurance company, Claims to be brought down to : - After 6 months 90% of the Assessment value - After 9 months 75% - After 12 months 50% - After 18 months - Nil
Consolidated Accounts
Local Accounts
Sales Sales Purchase Direct Costs Gross Contribution (Oigins Gross Contribution) Direct Costs Gross Contribution Bank Interest Bank Interest Net Contribution Overheads / Depreciation Bank Interest (Local Net Contribution Overheads/Depreciation (Origin) Salaries Indirects Corporate Charge Total Overheads Total Overheads Purchase (Origins Sale)
Consolidated Accounts
Sources of Funds
- Prepayments - Local Loans basis for charging Inter Product lending interest.
Sources of Funds
- Prepayments - Local Loans basis for charging Inter Product lending interest.
Treasury
> Clean Lines > Structured Lines > Post Shipment Finance > Local Lines > Warranting > CMAs
Treasury
> Determination of Clean and Structured Lines for the Campaign.. Agreeing the same with CC
- Procurement Qty and Value - Timing of Direct cost payments - Cash/Bank Balances in the system / in Transit - Stock warranting time - LBA Financing - Shipment Schedule - Bank Funding amount
> Getting the CMA in place > Coordination with operations team for weekly funds requirement > Coordination with CC for timely remittance of funds > Liaison with the Banks for timely credits keep in mind the Value date > Operational efficiency with the Banks and Transaction costs > Standby Local linen > Warranting management > Lines and Tenure tracking > Total Funds Tracking
Overview of Hedging
Example 1 : Day 1 : Bought stock at USD 1000 when the ruling price is USD 1100 and the Profit margin is USD 100. but the stock is not sold Day 30 : Selling price may be 1100 or 900 or 1300 resulting in a risk called Price position risk
Example 2 : Day 1 : Bought stock at USD 1000 when the ruling price is USD 1100 and the Profit margin is USD 100. but the stock is not sold.. PHYSICALLY Day 1 : Stock is hedged.. Ie sold on the Derivatives Market at market price of 1100. Day 30 : Selling price may be 1100 or 900 or 1300 Day 30 : Physical sale is made at the market prices and hedges are bought back from the derivatives market at market price Net result .. Profit of USD 100.
Solution
Our example : Day 1 : Loan Euro 1000 taken Day 2 : Goods costing Euro 1000 bought. Market Price is USD 1000. Fx 1 Euro : 1 USD Day 3 : Good sold for USD 1100. Day 3 : Fx 1 Euro : 1.20 USD USD 1100 conversion to Euro 917. Loss Euro 83
Currency Cover : Day 2 : Take currency Cover.. Sell 1000 USD, Buy 1000 USD for a future date @ 1:1
Structure at CC
Deptt Shipping Input / Tasks Purchases Deals and Invoices Sales Deals and Invoices Direct Cost System OPS Output Date Trfr to FAS for ORI and DCs Position Statements Responsibilty PMH/Trader
Trading
CCM FUT
Traders
Treasury
Bank Loans
TM
Loans Status Bank Recos On Line Interface w ith Banks Paym ent Status Paym ent Validation Overheads Reports
Treasury Head
PATS
IDM
Accounts
Purchase Sales Data transfer from OPS Direct Costs Data Transfer from OPS and PATS Bank Receipts/Paym ents dow nload through TM and Receipts Application in FAS Payment Application
FAS
ORI Report Direct Cost Reports Debtors updation Trade Creditors/Suppliers advances System P&L / TB / Schedules
PFC
Origin Accounts
Excel
Consolidated Accounts
BRM Process
Deadline 5th 10th 13th 15th Activity Origin Accounts to CC CC Accounts to Origin BRM Files from Origin BRM File to Sunnys office
Functional Role : - Analysis of the actual Accounts - Vetting of M2Ms and EOY Projections - Variance Analysis from Last month M2M/Projections - Returns vis--vis Productivity Norms - Working Capital Analysis - Overhead Variances
M2M Exports
Local Stocks per MT Stock - MT Amt 693 Overseas Stock per MT Amt 265
Local M C Local D C Local Cost C urrency C overs Local Cost - U SD G /U C BP SD over Local Cost - G P B O verseas D C TOTAL FOB COST
152,772,171 4,343,853 157,116,024 140.13 1,121,241 1.7036 658,146 7,145 665,291 GB P GBP GB P U SD 1,370.24 1.7036 804.30 9.92 814.22 363,179 1.7036 213,179 2,630 215,808
G P B G BP G P B
G BP G BP G P B
GBP GBP GB P
G C M E R th nd ate G U C SD
G P B
7.17 1.6800
GB P
77.78 1.6800
U SD
12.05
U SD
130.67
Returns Parameters
Actual NC Overheads : : 100,000 60,000
PBT
Resources Overheads Working Capital VAR NC/OH NC / WC NC/VAR NC
40,000
Actual Tsat 50,000 500,000 25,000 200% 20% 400% 116,667 Tmin 62,500 625,000 31,250 160% 16% 320% 93,333
: : : : : :
> Business Support - Systems and Procedures - Business Analysis and Reports - Exposures Flagging - Decision Making Supports - Determination Role
Imperatives
> Sound Understanding of the Business
> Understanding and being integral part of the operations team and not an outsider. > Planning, Organising, Administrative, Analytical skills, Systems overview and Problem Solving approach. > Sound and Reliable Local Staff Structure > Laid Down Standard Operating Procedures > Understanding of Local Laws and regulations > Support of the Team
Enclosed
> A note on Field Documents > Check List for an Upcountry Unit > A note on Capital Investments > Accounting Policies > A note Overheads Tracking and formats from tracking overheads > SOP for Accounting > Daily, Weekly and Monthly checklist > Covering Note to send to CC > Various Reports Formats, users and deadliness > Various MIS Reports Formats
Weekly Stock reconciliation LBA Exposure Tracking and Flagging Prepayment Reconciliations NIS M2Ms BRM Budgets Returns Parameters
- Expectations identified at the start of the program could we have handled some of these during induction? - Lack of an adequate or no hand-over - Lack of a compiled handout on systems and procedures - List of reports, formats, users and deadlines not clarified - Expectations from operations team at a mismatch with FMs priority - Actions planned
- Library of systems, procedures, reports and deadlines should be domiciled at each origin - FMs initial priorities and incubation time accounts, systems clarify and articulate - Handover standardize routines across origins - Improvements to training modules - Areas to work on, time line identified for each FM
To move forward
> Specific efforts from the Origin Management, Function and HR to make the new joinees comfortable
- Role clarity - ensuring that the handover is proper - ensuring that initial training is adequate - ensuring that Reports formats and deadlines are given
> Training modules to to formalised and to be handed over immediately after joining > A forum to be provided for the new joinees to take functional direction Functional support / hand holding in the initial phase.