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……