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CEO's Diary: Auditors
The CEO assesses controls with the audit team
April 30 – Met the audit manager and the audit engagement partner today, together with #3 to bash through issues before the audit starts. The audit manager, otherwise known as AM does have a head start here: she is one of the few who know my real identity, having rumbled me but having decided to be discrete about doing so. It’s not clear that the audit partner does know my online identity.
Either way, I appreciate these meetings. They make me believe two things. The first is that they will want to view the disclosures we make in the context of the business we’re operating. The second is that they will better appreciate the transactions we have undertaken in the context of the business decisions that underpin them. I know this is now their duty but these guys take it further than that, I have the impression they actually believe it useful.
And when I look back over the year I can see why they should be concerned. The ownership has remained consistent, but there’s been radical reform of our operating environment. A new CEO, a new management team, the integration of an acquired business and the expansion of what we’re trying to do all create potential control weaknesses. There’s no doubt that this was of real concern to them, and candidly the discussion on how we had sought to control this was of real benefit, so much so that recommended they seek East’s view on these issues independently since he is a new key player in this process whose ability to understudy me is vital to their effectiveness now that Ops has gone.
And I’m not saying we passed without some issues arising of concern. Devolved responsibility can create weakness. As far as I know none that worry me have arisen, but I can see why this is a focus for the audit team both on the revenue and spending sides. After all, it feels like a long time back but we have had past concerns about employees moonlighting work that should have been ours, as example of issues they raised. We have improved control in this respect. We monitor people’s performance better now. We even monitor use of their vans better (we have to for tax now, for a start when few of them are keen on the new benefit in kind rules). But I’ve got no objection to anyone casting a critical eye over these controls if they can add value as a result.
The meeting took longer than expected. Perhaps I enjoyed it. Sometimes it’s good to be an accountant for a while.
And I also enjoyed discussing the use we intend to make of these accounts. But that’s for another time.
* * *
April 27 – Now here’s a question. It came out of my dining efforts on behalf of the company last night (at a trade event) and was discussed by the team over lunch today. It’s this. How much effort is it worth putting into trade associations? Are they simply means to collaborate against the public interest (as I read recently Adam Smith once said of such things) or do they serve a useful purpose beyond occasionally raising a few quid for charity in the post dinner raffle when everyone has had one too many (unless, like me you make darned sure as a matter of policy that you’re driving)?
As someone who has never got involved in anything social to do with his own profession (sorry chaps, but you just haven’t sold me the benefits) I’m little more inclined to do so for the company. Newc on the other hand loves these things, the Chamber of Commerce and all that goes with it. East covers the golf club bit (and I don’t do that either). Promo is happy to get involved if we want (and I think he has the skills). North wasn’t there, nor Office and #3 is candid, it’s not for her. But that still left me something of the odd man out.
My feeling is this is rather like entertaining in general. It has to be purposeful beyond having a good time, it must never risk causing harm (and talking too much can do that) and positive issues that arise must be followed up or it’s a waste of time.
The result was interesting, and more heated than some discussions, but the outcome was good. #3 has agreed to look at what we have done, and Newc has agreed (as he wants to do these things) to look at what we might do under the marketing heading and to then formulate a plan for this and entertaining plus promo items.
None of that would have happened if we didn’t simply sat down and talk. That’s what I like doing.
* * *
April 26 – I recall an old boss of mine (in the days when they were called MDs) who said at his retirement do that he felt that his job had been to eat and drink for the company.
Today’s one of those days for me. I’m out for lunch and dinner. Apart from being harmful to the waistline, I also have reservations about my ability at this. I know good relations are important, but I’m not the most clubable of men, by which I mean I’m sociable but I tend to like the company of my friends, not that of acquaintances. And it’s not my habit to make customers, suppliers or others in our trade my friends. It’s easier to fall out that way.
But so be it. Being CEO means I must eat and drink for the company, and put a brave face on it. I just hope there are some sausages on the menu that’s all. I do have weakness for them, at least once a day.
* * *
April 25 – Some days are meant to be pleasurable.
Yesterday was one. Having had my bright idea when walking the dog I spent the morning thrashing around it on the web. Enough was garnered to think I was on to something.
Then I spent the afternoon with the stock controller discussing in detail how we refurbish kit now, which is a process not so far removed from making some of it, because the stuff we use is worth enough to recycle large parts of it if it comes off site. He was fascinated by the idea of doing this from scratch. So much so that I asked East (to whom he reports now) if I could put him on a working party on the subject. Stock (as we’ll call him) then recommended a member of West’s team who I know to be a techy who also has a real interest in this stuff, and can make just about anything work in that way I, as a dumb accountant when it comes to these things, find so immensely frustrating.
So I have a working party on manufacture, which is made up of enthusiasts backed up by the reality I can supply (I hope) and a new idea which seems worth investigating. What’s more, I get the chance to work with two people often overlooked here, and that’s always good too.
My tail was wagging almost as fast as the dogs when I made my home-coming last night. I like days like that.
* * *
April 24 – I know I said I thought we should concentrate on internal development for the time being. But I was out walking the dog this morning (usually one of the best bits of the day, and done very early) when, as usual we passed a business that is located by her favourite exit from the park. And although I’ve seen it time and again it suddenly struck me that what they do is a perfect match for what we do. The onsite skill sets must be reasonably similar, the customer base broadly alike, the geographical spread probably as wide.
And it’s got me thinking about expansion. I wish it hadn’t, but it did. Now how do I make contact? I guess the easiest thing is pick up the phone. But I’ll give myself 24 hours to think about it. No meetings this morning so I have a feeling I’ll be scouring the net for ideas on what they’re up to.
The dog, of course, is quite oblivious to the trouble she’s caused.
* * *
April 23 – I realise that sometimes the buck has to stop with me. I like delegation. I think it’s good for me and those I devolve responsibility to, so long as they don’t think I’ve abandoned them. But on occasion I have to be seen to accept responsibility as CEO.
I’ve got a special feeling that this is the case with ‘one off’ projects. The wiki we launched recently won a fan in Office, but I remain project sponsor. And that’s also going to be true of this idea of got that we need to look at manufacturing more of our product ourselves.
I had a think about this over the weekend. East can’t take this on. He’s mentoring West. Newc can’t. he’s helping North and wants to get into marketing more (and I want that too). Office and #3 haven’t the right experience. And you can’t drive a big initiative from below the operational board. It will fail.
So I’ve resolved this one is mine. Now it’s finding someone to do the leg work. You have to recall, at the end of the day am an accountant!
* * *
April 20 – Friday is always the hardest day of the week for this diary. I guess it’s that there’s that urge to get home. It’s also the fact that I try to be here and prefer it to be scheduled as a low stress day. This should create fewer issues. Of course, it does not always work like that.
Today did, by and large. I spent a lot of it with North, in addition to having the now customary lunch with all other managers who were in. For North this was the last day of his formal induction. Next week he (with some support from Newc) will be on his patch, leading his team so I wanted to learn from him what he’d gathered to date, what his impressions are, what problems he envisages and what goals we should be setting.
I think he’s impressed. He wanted to join a team with the opportunity for freedom of action. I think he’s persuaded about that. We’ve convinced him he needs to beef his IT knowledge – but he’s taking that on. He’s not convinced we have some things right. He thinks we’re too rigid on scheduling work for staff. He believes (and he may be right) that if given a target of what to achieve that’s reasonable they can usually schedule this best themselves (assuming you have reasonable staff, and we try to do that). This is curious. When I got here I spent some time tackling this very issue, to aid efficiency but it’s another area we haven’t looked at for 2 or 3 years, and maybe we need to.
But most of all we talked plans. He needs to be motivated. On the other hand I have deliberately moved us away from budgets and specific goals. The reason is simple. I think they stifle initiative. So we’ve agreed some simple goals for now. He has to win his team. He has a set time period to visit his sites. He has to grow business by an agreed percentage, but how he does it is his choice, as is the sector goal. One big new client suits me as well as lots of smaller ones at this moment. The achievement just has to suit the general profile. And it has to be done without losing more than 2% margin for a year and without exceeding an agreed marketing spend. And he mustn’t lose too much existing business on the way unless he can show it’s not earning and never will.
He’s happy, I think. I’m confident. OK, let’s go home.
* * *
April 19 – Down to earth with a bang. We had major problems with our telephones today. The switchboard was down for far too long, and direct lines were even having difficulty because of the way they interact.
I last looked at the phones soon after I got here. VOIP was almost unknown then, and I’ve not given the issue much attention since then even though I see AccountingWEB have been covering the issue in the VoIP blog. Should I do so? Or should I just accept that once in a while these things happen and are meant to try us?
At least our broadband connection remained functional throughout the drama, of course. And I’m mighty pleased about that.
* * *
April 18 – Sometimes I’m like a bear with a sore head. Having thought about production costs I decided I’d take North out with me to meet our main supplier. I arranged it as a ‘courtesy visit’ so he could see round, learn what they do, what the constraints are and so on. But I also told him to feel completely free in advance to ask anything and everything he liked. Some questions are harder to put when you’ve been dealing with someone for a while. He has the advantage of being new.
He lived up to expectation. This courtesy visit became a full blown enquiry into the technical spec of our kit, how it’s constructed, how much they make and how much they sub-contract, why the lead times are as they are at present, and what we could do to cut cost, improve spec and add flexibility.
I’m sure they didn’t expect this sort of grilling, and because they were unprepared for it were more open than I expected. It was invaluable for North. I think it was even more useful for me. It’s clear we can improve things in this area, and candidly, that they don’t really do as much as I thought bar bolt this stuff together. And I wonder if we’re paying too high a margin for them doing just that, especially as they don’t even seem to initiate much product development.
Much to think on.
* * *
April 17 – Management meeting day. It was hopefully the last for a while where we’ll have to introduce a new member. Groups work better with a stable dynamic, and this management group really needs that now. Enthusiasm is one thing, but people who really know each other, respect each other, can even disagree with each other without falling out, are key to making a business work. And we’re not there yet.
So, it’s another ‘get to know you’ session. Thankfully Chair is really good at this sort of thing. He compliments my desire to rush things forward in this area by making sure people who haven’t really get their feet under the desk do get time to speak.
I think I’d be in real trouble without him. If you haven’t got a non-exec, get one, is what I say.
* * *
April 16 – Those who have long memories will recall that a couple of years back we had real problems with one of our suppliers, upon whom we were decidedly over-dependent. We nearly bought them, complicated by the fact they were in Belgium and we had little expertise in managing internationally. As it turned out, with some judicious stock building which eased their cash flow problems we got them and ourselves out of a mess, and rapidly sourced an alternative supplier.
I’ve been keen ever since to make sure we avoid a recurrence of that problem, and so far we have. But I remain unhappy on occasion with the service we get from those ho supply us. It’s true that as a maintenance focused business the biggest part of our direct costs is people, with vehicle running costs being another major concern (especially as we have an insurance renewal coming up, and the claims record is not looking good). But that said, if we didn’t supply kit in the first place the maintenance business from which we make most of our profit would add little value. And I’ve got a feeling that we’ve paid this aspect too little attention, being satisfied that this is, if not a loss leader, not an area from which we hope to make much.
I mentioned my question ‘what is the CEO for?’ last week. Well, when I was heading back on Friday it occurred to me that another question I could ask is ‘are we doing enough, ourselves?’. The reason is this. The kit we supply is unique to us. You can’t buy quite the same combination of components in the same boxed, or with the same control systems from anyone lese. And the remote reporting facility we use remains unusual and still gives us an edge in the market place. But all that being said, I really don’t think much of it is ground breaking frontier stuff. So I wonder why we pay so much for it.
Perhaps the answer is we do not (rather surprisingly) have much design engineering ability in house, at least in a formal sense. We’ve got lots of useful people, but inevitably they’re focused on how to keep kit going, not how to make it, because we’ve never looked for that skill. Suppose we did, I asked myself. Would it make sense? Could we reduce cost? Could we save on spares? Might we recondition stuff to a greater degree than we do now? Could cost of sales be improved by assembling our stuff in house, rather than buying, to some extent when needed?
It’s an alternative I’ve simply never given much time too. Perhaps I should.
* * *
April 13 – I still feel grotty, but I've had to get out. I mean that – I had to get out and about.
It’s one of the real revelations of being CEO that being in the office is not always a good thing. It’s actually quite hard to work out what a CEO really is for. I think not many succeed in answering that question. So they micro-manage their staff and generally get in everyone’s way because they feel comfortable with those things. That’s what I mean about having to get out sometimes. It stops that urge.
But then there’s a need to do real things when you're out. You can see why buying and selling other businesses is also so tempting (said as someone who’s done it recently). It gives a focus to activity. It makes you feel like you’re doing something.
Giving the business direction is what a CEO is really about. That’s much harder to do. It’s also less tangible. And it’s harder to assess success. Sure, getting the team happy is one measure. I happen to be relaxed on that one right now, although I’m aware of some weaknesses. But dealing with the business itself, that’s harder.
I’ve set a strategic direction for us. More of what we already do, but for smaller properties (some owned by existing clients) subject to automating a lot of the processes and providing a default reporting service rather than a positive reporting service. It sounds simple. Well, I think it is. It’s a low risk, relatively high volume way of growing the business whilst keeping margins. Which has to be good.
Except, persuading people to do what I want is the hard thing. Sticks don’t work. And creating voluntary change anywhere is like asking for the impossible. So I go out to see and be seen; to discuss and encourage, to persuade that we should be in slightly unfamiliar territory pitching for work we used to avoid. It takes time. And it sometimes seems frustrating, but I’m not sure how else on occasion to reinforce the strategic direction I’ve set bar doing the miles, seeing our people on site and doing the business with them.
It’s leading from the front by bringing up the rear I sometimes think. I can live with that.
* * *
April 12 – North is doing well. After two days he’s already made a valuable suggestion on the way we structure maintenance visits that shows clear operational insight and thinking and the ability to add value.
He’s also been a personal hit everywhere so far, which always helps.
It’s clear he’s less of an IT whiz than he claimed though. That’s a shame. I wish people were candid on these things. Except, as I sometimes recall my wife telling me when she had a person join her team who thought he was good at IT and was still treating a word-processing package as if it was a manual typewriter, his perception was right in terms of the organisation he’d left. It was just wrong in terms of the organisation he’d joined.
So I’ll be kind, but make sure we get him the support he needs as soon as possible. We can’t afford him to be inefficient on things like this.
* * *
April 11 – Through the fog of ibuprofen, paracetemol, antibiotics and general snivelling that currently surrounds me, I can still bash the keyboard. Such is modern life.
In fact, having spent large parts of today reading and clearing email and other related gubbins from my computer and desk, it occurs to me yet again how futile so much of our communication is.
I bang on time and again to people to think about what they’re trying to say when they deliver any message. I’d love clarity. I’d love people to ask precise questions. Darn it, sometimes I’d just like to know there is a question. And if they’re seeking to answer a question I’d love them to actually address the issue put to them.
All of which, on the basis of the evidence from my inbox is not happening around here right now.
There’s one other thing I’d like. When they ask me for a decision I wish they’d tell me what the options are, as they see them, and not leave me to formulate them as well. Increasingly I simply bounce such requests back to the sender saying ‘can you define the issues for me before asking me what I think?’ I know this annoys some people, but although I’m the boss here I’m seeking to persuade them that this does not mean I’m the only person required to think. This appears to be a revelation to some people. It’s my mission to change that.
* * *
April 10 – What’s the worst thing about going on holiday? It’s the almost certain fact that you’ll be ill.
I have been. The first few days were good, and I really enjoyed the break. Then ‘flu hit. Hard. Not just me, mind you. My wife had it, the eldest had it, but the younger contingent seemed immune (which I suppose was something – except that energy was still required to keep them entertained). So for all who ask, I had a thoroughly miserable weekend and I really don’t feel much better now to be honest. I’m actually on antibiotics, something I hate doing. But I think I’ve got a duty to try to get better and that’s meant being responsible, and taking the medicine.
Mind you, on my return I found I was far from alone. Others have also had it. Oh to be in England in the spring, I sang in response (well, I would have done if I could – but I haven’t got much of a voice).
So whinge over, what else is happening? Remember our chap who had the ‘accident’ before I went away? It turned out he had one of the qualifications he claimed, but not the other. That was fraudulent. So we’ve had to resolve to check all such things in future. And when we rang one of his references again it turned out he’d left there after a dispute about an ‘accident’. No mention in the reference of course, but it looked like he’d tried it on, and they hadn’t believed him. So he’d left in a huff. I wish they’d told us though. Because we’re now quite convinced that we did not have an ‘accident’ either. We had an attempted fraudulent claim for one. So he’s still suspended, we’re preparing the case against him and I have every reason to think he’ll be sacked when we get round to it – if only for claiming a qualification he did not have.
So that’s one person out. And North began today. I wanted to give him more time than I did – but candidly, such is the state of my voice it would not have been wise. So he went off with East after a while and then ended up with Office to learn our admin systems. My instant feeling was we’ve got a good one there though. But I did ask Office to double check all his references, just in case. The higher you are the more reason there is not to be caught out.
* * *
In March some said things seemed to be going almost too well for the CEO. By the end of the month he wan't so sure.
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Number of comments: 7
AccountingWEB.co.uk 30-Apr-2007
Categories: Business Features, CEO's Diary
Times read: 14236
by 2 user(s)
The price of equipment bought in may appear (and probably is ) high, but in many cases, the price can include a component failure guarantee. In the case of railway signals for example, the board may cost £120 from the manufacturer, cost you £2.00 to make, but if it should fail, resultant damage/claims would be covered by the manufacturer assuming the correct parts had been used/replaced. There could obviously be high insurance claims in the event of such a failure with a single death claim now running at £4.5m. Obviously in your line of business, there may be some similar coverage on specific control valves etc., so it is worth looking out for and considering.
what is the added value from the chairman
if you listed 5 points where his advice has been invaluable what would they be and could you qauntify the value thereof
he seems to have been a great help to you
Sadly, it turned out our erstwhile tax bod wasn't an ATII as he had claimed, nor a member of any other Institute. Clearly, our HR types had failed to guard the gate, as it were.
I think you'd benefit from reading about the Care and Feeding of Monkeys. This is a humorous, but very practical tract on managing the flow of tasks between managers and their staff. You'll be seeing monkeys everywhere!
http://www.unlv.edu/faculty/ccochran/hca400/HCA400_web/Monkey.HTM
communication problems you describe are very common, and demonstrate just how much technology depends on people if it is to make a difference. Unfortunately the only effective answer is to indulge in training sessions coupled with very clear policies on how the various communication technologies are to be used. Don't think you can afford to rely on people just "working it out". But I think that if you did that you would very quickly get some benefits.
Yes, Jeremy, both the dishonest claim to a qualification which he did not have and (if it is the case) the dishonest claim to have suffered an accidental electrocution are pretty straightforward examples of "fraud by false representation" contrary to section 2 Fraud Act 2006, the latter presumably with a view to making a claim for sickness benefit or compensation.
The new Fraud Act has made sensible changes to the law, so that the offence relates to the conduct, knowledge and intention of the offender - rather than relating to whether he actually achieves his dishonest aim.
The hope is that now there is actually an offence of "fraud" the Home Office and the police might actually start to take more interest in it - perhaps gathering some statistics on fraud and creating some targets for police related to fraud prosecutions.
However, don't hold your breath! Inspector Knacker of the Yard may not be persuaded that your man's conduct is worthy of any action from the boys in blue.
And yes, your auditors will be obliged to make a report to SOCA (but again that is unlikely to trigger any action from the police).
Jeremy, presumably if your former tax partner was a member of ICAEW or another professional body then he was also subject to disciplinary action or exclusion.
David
www.mlrosupport.co.uk
I presume AM will now be making a report to her MLRO - your oik is likely to have committed an offence (used to be obtaining pecuniary advantage by deception and is now covered by the 2006 Fraud Act, I think) - he's lied on his application form to get a job, and that's fraud. Inspector Knacker might even be persuaded to take an interest - we had a tax partner once who lied about his qualifications and was arrested - later convicted and sentenced to 250 hours' Community Service a few years ago.
