Finance fall guys and unsung heroes…

Yet again a finance chief falls on his sword due to accounting errors. Holiday group TUI’s CFO Paul Bowtell has resigned as a result of the revelation that the company had to write off £117m of irreconcilable balances following its merger with First Choice in 2007. The differences, which led to the TUI share price falling 7%, were due to failures in combining the IT systems of the two businesses.

Internal balances are always a problem in large groups. It seems that when dealing with fellow subsidiaries, all good credit control procedures go out the window and internal politics takes over, leaving a trail of unreconciled and unagreed balances that can end up amounting to a sizeable sum of money.

Mind you it is funny how these accounting errors always result in a loss. I don’t recall ever having heard of a CFO being sacked for accounting errors that resulted in a profit even though the system that produced such profits would have been just as faulty as one that produced losses. Maybe they just overlook those sorts of errors (and perhaps the impact on executive bonuses…).

The above of course is a salutary reminder to us FDs how dependent we are on our systems and the people that operate them. Smaller businesses also often get into a mess because their bookkeeper or accounts team does not perform, or does not have sufficient understanding of the business to produce a proper set of numbers.

As an FD you can produce wonderful reports, charts and plans but they are meaningless unless the raw data is accurate and reliable. As I recently said to client, you can have the most sophisticated accounting and reporting system going, but if the input is not controlled, then the figures produced will be worthless. GIGO (Garbage In Garbage Out) in computer speak.

A good reliable accounts team or bookkeeping set up is worth its weight in gold and are the unsung heroes of an effective management reporting and control system. Make sure these people know what they are doing, and more importantly, why they are doing it, and your life as an FD becomes much easier.

Still at least Mr Bowtell did the honourable thing and resigned, as opposed to clinging on and blaming a few underlings. There is a lesson in that for someone somewhere……

Lessons in debt…..

I remember when I got my first credit card. I acquired it when I opened my first bank account as a student. The credit limit was £100, I used it sparingly, and I always paid back the full amount. Of course in those days students received a grant and I was able to deposit mine in a building society account and gain some additional income as the grant balance ran down over the course of a term (those were the days when savers also received a decent rate of interest!).

The upshot of all this was that I was able to emerge debt free from my student days, and save sufficient money to put down a deposit on a flat. A mortgage was therefore my first real experience of debt. However the systems in place at that time regarding multiples of income and percentage of loan to value meant that it was manageable and affordable. I continued to pay back my credit cards on time. Like my parents I believed that debt was to be used sparingly, was only for sensible reasons, and should be comfortably paid back within a reasonable period.  

The reason for the above wave of nostalgia is Lord Browne’s review of higher education funding which was published last week. This raised the prospect of students emerging from higher education with a level of debt that would have been unimaginable to my younger self. On top of this they will probably have an overdraft, credit card borrowings, a car loan and other debts to which they will then be expected to add a mortgage.

The rise of debt fuelled consumption by both individuals and government is blamed by many for the economic struggles that we now face. And yet are we really surprised at this, given that young people are effectively educated to believe that a mountain of debt is a fact of life, and that paying it back is something that will have to wait until resources allow?

There is no easy answer to this. Higher education has reached the stage where it is impossible to fund it without student contribution. Too many students and too many courses are spreading resources far too thinly. And yet I can’t help thinking burdening young people with this level of debt is sending out the wrong message, potentially discouraging able students, and thus storing up even more problems for the future.

Dip and Double-Dip

Drat and double drat as Dick Dastardly used to say. Or should that be dip and double-dip. A Deloitte survey has just revealed that confidence has reached an 18 month low among CFOs in the City, and that more than a third of those questioned believed that the UK was heading for a double-dip recession.

Finance chiefs are not paid to be cheerful (well not until they become CEOs and are magically transformed into over optimistic flag waving cheerleaders for their businesses) so for them to be so pessimistic is clearly par for the course. But there is at best an eerie silence surrounding the economy at the moment as UK plc waits with bated breath for the comprehensive spending review to unveil its conclusions on October 20^th.

There is even a sense within the coalition government that maybe they have managed expectations too well, and Whitehall is now echoing to the sound of ministers furiously back peddling and letting it be known that these cuts may not be as bad as feared, or maybe scaled back if the economy starts tanking again.

Then you have Philip Green saying that the Government is rubbish at buying stuff and could save billions just by better procurement. Great stuff, until you realise that Government buys from the private sector and these "efficiency gains" are actually cuts by another name.

We all recognise that the public sector is living beyond its means, and that spending has to be reined back now to avoid more serious austerity in the future. However the necessary initiatives to help smaller businesses take up the slack are conspicuous by their absence. 

Economies feed off of confidence, and this is a commodity that is in very short supply at the moment. It is particularly frustrating as many businesses are having a good year, and in normal circumstance would probably be planning for further growth. Now all I hear is “well let’s just wait and see how the cuts affect us.”

For what it is worth, most of the evidence I have come across so far is pointing to the fact that we will probably avoid a double dip. However there is a danger that it probably won’t seem like it, which to my mind is the worst of all worlds.

Capitalism really is nice – trust me…

I have been reading a number of political and spy thrillers recently which has coincided nicely with the return of Spooks to our screens. The key element of this form of entertainment is that nobody is as they seem, everybody is out to do the dirty on you, and therefore you can’t trust anybody.

Given all that, it never ceases to amaze me how important trust in business actually is, and, more importantly, how much we take it for granted. For instance granting credit to a customer involves a tremendous amount of trust, and yet it is probably the key component of a functioning business system. Without this trust many of us just would not be able to do business.

Yes of course we all put in place legal contracts and agreements, and operate using standard terms and conditions, but even with these there is still a belief that we in the main are all nice fair people dealing with other nice fair people.

That is why on the odd occasion that you do deal with somebody who shows no trust and is frankly not nice, there is actually a sense of righteous indignation. The fact that this person is acting in their best interests in accordance with whatever agreement you have put in place does not  detract from the feeling that they are not playing fair.

This is why I do get very frustrated when politicians stand up and criticize what they term the excesses of capitalism for all the ills in the world today. I think there is just as much reason to criticize the excesses of politics which have surely played their part in the economic and other problems of the last few years and much more besides.

I remember a sign at one of the anti-capitalism marches a few years ago which proclaimed “Let’s get rid of capitalism and replace it with something much nicer”. I am not sure that any of the other systems that have been tried so far have been much nicer in practice. Vince Cable may still be able to get cheap headlines by lambasting it but capitalism in the main is really quite nice. Trust me. No really trust me…..

Banking on statistics

Last week at the invitation of Barclays Bank I had the opportunity over breakfast to listen to the thoughts of Chris Piper, who is the Bank of England Agent  for Central Southern England. His role, along with his colleagues from the other eleven regions, is to provide the anecdotal evidence to support (or not as the case maybe) the statistical evidence that it gathers.

It was an off the record briefing so I can’t divulge all that he said. However one thing that struck me when he was taking us through the various statistics and forecasts that the Bank produce (and that are freely available on its website) was how dependent the whole direction of policy seemed to be on the completeness and the accuracy of such information.

This worries me somewhat given my past experience of filling out such forms for one of my then employer’s subsidiaries as a very junior accountant. The form I received requested various bits of data concerning the economic output of the company, and came with a stern reminder that this was compulsory under the Statistics Of Trade Act 1947 (which remains the act in force regarding the collection of data for government purposes to this day).

Given this company had specialised in doing projects in Iran under the Shah, and that these returns were being prepared in the late eighties, you can understand why the economic activity that was being reported was somewhat minimal. Even though I consistently reflected this, the returns kept on coming, and threat of non compliance remained.

I am not saying that today’s statistics are not prepared to the highest professional standards, as they clearly are, or that companies and individuals provide deliberately misleading data. It is just that in the battle between fallible human input and sophisticated mathematical processes the former will always win.

Therefore it is not surprising that in the area of crystal ball gazing, the Bank of England are probably as in the dark as the rest of us, in spite of the wealth of data at its disposal. That is why it needs to keep its ear closely to the ground, and why the work of Chris and his colleagues throughout the country is vital in ensuring that policy reflects what is necessary rather than what the numbers say.

Tax means never having to say you are sorry

It is a testament to the sad accountant that I am that the Wayne Rooney story which caught my eye this weekend related not to his attempts to rebuild his marriage after his recently reported indiscretions, but to the fact that he and a number of Premiership footballers and clubs are being chased for as much as £200million in tax over payments in respect of “image rights”.

This was probably due to the fact that HMRC is once again in the news for the wrong reasons, which were not helped by HMRC’s Permanent Secretary, Dave Hartnett’s less than fulsome apology for the coding errors that have led to millions of people dreading a pre Christmas envelop telling them of the extra tax that they will have to pay.

I will leave it to others to blog on the continuing failure of public officials to understand when they are in the wrong and apologise accordingly. What the PAYE fiasco once again shows is that the current tax system is still struggling to cope with demands placed upon it by the growing development of enterprise Britain.

The one job, one employer, one life scenario that PAYE was designed to cope with has been in steady decline for much of this millennium, and it will no doubt be dealt a further blow with the demise of hundreds of thousands of public sector jobs. Second jobs, pension payments whilst continuing to work longer, one off consultancy assignments and portfolio careers are becoming increasing common, and in due course will become the norm.

This will require an HMRC that is dedicated to helping people get it right rather than one that works on the presumption that they have got it wrong. Sadly, in spite of the claims that their new computer systems will ultimately deliver this, the current signs are not promising.

Targeting the small percentage of taxpayers who can afford to have imaginative tax reduction schemes devised for them for investigation is something that the 80:20 rule would suggest was a sensible mix of resource and yield. This is grown up territory, and those who play in it are more than able to look after themselves.

For the rest of us who do our best to comply, and trust in the authorities to at least make a stab at getting it right, it is going to take a significant improvement in performance by HMRC if Dave Hartnett and his successors are not to be constantly practising their use of the ‘S’ word.

15 seconds of fame

Andy Warhol once said that everyone would be famous for 15 minutes. Of course he lived in the more leisurely sixties, and if he was still alive today and coping with our ever decreasing attention spans, he would surely have rejoiced in the fact that everybody’s day in the sun would now be much briefer than he ever would have envisaged.

Anyway my 15 seconds have arrived. I was quoted in parliament yesterday during the budget debate, in a speech made by Mary Macleod, the newly elected MP for Brentford and Isleworth. In true deprecating accountant manner, it was not something I actively sought. I was asked by the Hounslow Chamber of Commerce to provide a suitable comment for inclusion in Ms Macleod’s speech, which I did. The rest, as Andy Warhol would no doubt say, is history.

OK it may have been slightly tarnished by the fact that they got my first name wrong, but that isn’t unusual, and at least they spelt the surname correctly. Maybe the gods of fame might take pity on me and allow me another 15 seconds some other day…