You ever go into a client or into the office and wonder if people understand what segregation of duties means? You’d think in the post-Enron era that at least large companies would want to avoid an appearance of impropriety at all costs.
I can’t say for certain if this is true across the board, but there is one particular segregation of duties scenario where people sometimes forget that doing the right thing doesn’t mean doing the easiest thing. That situation is when FP&A starts getting involved in booking financial transactions in the system.
Does the “A” in FP&A not stand for “accounting”?
For those who don’t know FP&A stands for financial planning and analysis, in most cases means this group of people owns the task for forecasting a business’ results. These people usually have some portion of their compensation tied to how well they forecast, so they should NEVER EVER have access to record journal entries to modify actual results…yet I’ve seen it more than a few times over the course of my career
Why Should FP&A and accounting be treated differently?
The issue I have doesn’t stem from the fact that FP&A has the ability book entries because many CPAs who understand accounting exceptionally well go into FP&A roles if they want to move away from the retrospective world of accounting and toward the prospective world of finance (At least, this is how the functions historically have been divided). My problem goes beyond the superficial labels of these two groups of people. The fact that FPA title tends to get more respect for some reason as perceived value creators as opposed to back office cost centers like accounting operations is a topic I’ll save for another day.
My problem, and yours should too if you come across this, relates to segregation of duties. If you aren’t familiar with that term, it just means you (should) have a system of checks and balances in place to prevent fiscal misconduct within a firm. Thinking about it that way, the conflict is obvious. First, most FP&A organizations, at least at large corporations receive a bonus based on forecast accuracy. Now, if your wallet’s health depends on minimizing the gap between actual results and forecasted results, of course you should only have access to change one of these variables. Otherwise, the temptation to create transactions to help boost your bonus may be a burden too heavy to bare over the long term.
The bottom line is if you work in or with a company where everyone wears many hats, you need to ensure the compensation structure matches that organizational structure and incents the desired behavior or you/your client eventually will end up chasing explanations for transactions that never existed.
What do you think? Let me know in the comments.