The Controllership function is integral to an organization's finance operations, ensuring compliance and facilitating timely reporting.
The Controllership function is integral to an organization's finance operations, ensuring compliance and facilitating timely reporting.
What, in essence, is a Controller?
Well, the controller works in a function that bridges financial management's operational decisions with its strategic ones.
They work as a steward of all of an organization's financial activities, and from a high level ensure these activities are supporting the organization strategically.
That doesn't mean they work at just a high-level view. From handling intricate processes, to enforcing the most crucial of policies, to ensuring strict compliance, controllers become the foundation of a company's financial operations.
Hiring a full-time Controller is one of the first major hires for a growing accounting department.
As we explore the role of the controllership function, we'll explain how it maintains the financial health of an organization.
To perform their job well, a controller has to do these four things:
So, let's explore each one and see what it entails.
Fundamentally, the position of the controller revolves around financial process management. These financial processes include accounts payable, accounts receivable, budget, and salaries, just to name a few. Typically, a controller will supervise finance personnel like bookkeepers.
The monitoring of this activity enables the controllers to ensure that the activities are carried out in a flawless manner. The activity of the controllers ensures that the financial machinery ticks with correctness.
Some of the responsibilities that the role of Controllership will be charged with are:
Accounts Payable: This process includes handling all the payments that need to be made to suppliers, service providers, and others. In most instances, the controller will make sure that everything is working in order and will also look for ways to get more favorable terms.
The Accounts Receivable department is concerned with managing payments in their entirety and ensuring that said payments are collected in a timely and accurate fashion. They would also be in charge of managing billing transactions, credit controllers, and disputes.
Depending on the size of the company, the Controller could also be in charge of the payroll department. The role involves making sure the employees get their salaries on time. This department also handles confidential information about the financial aspects of the business. These could include tax, social security, or other contributions pertaining to labor laws.
Budgeting is an important activity for organizations. Controllers may be responsible for supervising or being directly involved in the preparation, management, and any changes that need to occur to an organization’s budgets. This includes, but is not limited to, coordinating with various departments on forecasting revenues and expenditures.
Ensuring accurate and decent working capital levels, Controllers oversee cash flow processes that affect this. They forecast demand and cash needs and make recommendations for making short-term investments and borrowing decisions.
Balance sheets, income statements, and company financials. These reports are essential to a business's monthly, quarterly, and yearly financial reporting. Controllers manage the preparation of financial reports to ensure they are error-free, timely, and compliant with accounting standards such as GAAP. They will also perform horizontal and vertical analysis, analyzing trends across the organization.
Many businesses contain significant inventory and production activities, and in this case, controllers oversee cost accounting procedures. This includes the tracking of Cost of Goods Sold, Inventory management, and the analysis of cost trends.
These responsibilities, and other responsibilities, can, of course, be shared among other finance functions, and this depends on the organization's size, complexity, and structure. For smaller organizations, the Controller can interact with all areas of the organization, while for large organizations, there can be various controllers for important areas.
These controls will include supporting the integrity of financial information, promoting accountability across organizations, and helping to prevent fraud. Controllers have direct oversight over a company's internal controls and environment. Their role is to properly develop, maintain, and approve all internal controls. Many organizations choose to follow the COSO framework as it provides a comprehensive and widely accepted approach to internal control.
The controllership function ensures that companies comply with all relevant laws, regulations, standards, and internal policies. This often affects financial reporting, taxes, internal audits, and more. This also includes what we will discuss more below, which is ensuring that internal policies such as ethics standards and codes of conduct are adhered to.
Last but certainly not least, Controllers ensure financial policies are adhered to. These can be anything from investment guidelines to reporting and security protocols to department communication policies, which form the backbones of the inner workings of the organization.
As the one who oversees these policies, Controllers must ensure they are correctly carried out as well as communicate with their teams. This enforcement ensures procedural uniformity, minimizes risk, and boosts organizational integrity. The Controller may not be the sole author of these policies; thus, they must proactively identify the correct team members to collaborate with in drafting a policy.
Common Financial policy examples include, but are not limited to:
When looking at the four main responsibilities of a controller, we mentioned that at the top of that list was overseeing financial processes, which included managing financial reporting. Now, given the impact of financial reports on the fate of any company, both big and small, it is worth taking a minute to explore how a controller can play an integral role throughout the whole reporting process.
Whether it's financial data for board meetings, shareholders, or the general public, stakeholders require timely and accurate financial information. Controllers ensure that financial statements, annual reports, and other documents are done on time, error-free free and adhere to the principles of transparency and accountability.
Nearly all organizations, be it small or large, will be involved in month-end close activities. Actually, a smooth month-end close process forms a crucial backbone for almost all kinds of organizations. Generally, public companies, as well as private ones, will always have tight financial reporting demands.
There will be a need for a quick and smooth close process, normally some 5 to 10 days after closing. If a problem arises with a specific financial document, this is where a controller will be engaged to make sure all financial statements are up-to-date and reconciled by liaising with the accountants.
For publicly traded companies, reporting to the Securities and Exchange Commission (SEC) is critical to external reporting. The Controller helps ensure these reports are accurate, complete, and submitted promptly. SEC reports are more than just regulatory obligations—they're an opportunity for companies to present their financial health and success to potential investors.
Internal reporting is equally important in this case. Being in a position to deliver critical information to key decision makers, such as stakeholders and employees, will ensure that the organization functions in a coordinated setting. Controllers will make sure these reports are thorough, precise, and understandable, containing information for important business decisions such as strategic planning and budgeting.
Another critical pillar covered by a controller is ensuring compliance. And this includes navigating the intricate web of taxation, which is no easy feat. From income tax to sales tax, payroll tax to corporate tax, the tax landscape is complex and often fraught with potential pitfalls.
Strategic tax planning is integral to this role. As controllers sift through financial statements and data, they must actively plan for how the company can best optimize its tax assets and reduce its tax liability. They will often collaborate alongside tax consultants to ensure that the company navigates the landscape of business structures, investments, special credits, and operational strategies to its best legal advantage.
As discussed previously, the role of the Controller will involve close collaboration with external consultants/specialists assisting with the tax processes of the company. They will act as the point of contact with tax authorities, responding to them and supplying necessary documents whenever the need arises.
The tax code has the ability to change, and that can significantly impact the company's tax strategy. The Controller will either need to remain apprised of upcoming changes or work closely with outside experts who can advise on future changes in a timely manner. The IRS has several helpful suggestions on staying informed about current and upcoming changes to the law.
One of the most critical aspects of the role of controllership involves the enforcement of effective internal controls: systems that should protect the company's property as well as the integrity of the accounting records.
Controls are effective in managing risk, eliminating fraud, and encouraging compliance with policies and procedures. These controls may be needed for all aspects, ranging from financial system entry controls to spending controls. These controls help in the detection or prevention of fraud and errors.
Examples of preventive controls may include:
Some examples of Detective Control are:
Where possible, these controls should be enforced through the use of technology. With segregation of duties, for example, the financial system should not be fully open to all users, and defined access areas should be established.
Internal controls should be continually tested for deficiencies. When deficiencies are identified, the Controller's responsibility is to act quickly to correct them and enhance the control system's effectiveness. Audits are an opportunity to test the strength of these internal controls. They can make the life of the Controller easier as the auditors will make recommendations on how to improve these controls. The Controller must ensure that controls are reliable and comply with relevant laws and regulations.
Being an effective controller isn't just about what you do; it's also about how you do it. By following these best practices, controllers can ensure they're fulfilling their duties effectively and efficiently.
Financial processes are not static. They change the same way business policies do. Rather, financial processes and policies need to change and adapt to an organization and the environment around it. Controllers can and should review all processes and policies from time to time and find areas where changes might benefit them.
Controllers should instead be proactive and responsive to developments taking place in the area of compliance. This includes keeping abreast of laws, regulations, tax obligations, and making changes to financial reporting well ahead of time. By doing so, it can be ensured that companies are not just cleaning up their acts, but instead, they can be ready for anything that comes their way from the outside environment.
Handling the external environment is one thing, but internal controls are completely within the realm of what a Controller can control, and internal controls are an essential part of protecting an organization from financial mismanagement and fraud. Proper employee training and development on internal controls is quintessential to success.
Technology supports every facet of the company's financial operations, and new developments can significantly impact processes. The Controller and every other business leader are responsible for continually looking for opportunities where technology can be leveraged to improve processes. Staying educated on the offerings of large enterprise software players, like Oracle, can help you discover opportunities for your business.
As we look to the future, the role of controllership is poised to change as much as any within the finance function. These changes are already underway and will only continue to accelerate into the future.
Some functions in finance are more affected by changes in technology than others. The controllership function is heavily and immediately affected by new technological developments. With an array of repetitive processes, there is ample opportunity for automation and intelligent technologies. The booming popularity of language models like OpenAI's GPT-3 has made AI an even larger topic of discussion than it was previously. This draws more attention to the pressures put on businesses to find creative ways to stay ahead of the curve.
In the soon-to-be-arriving future, the Controllers will no longer be required to be knowledgeable in the applications and developments of such technologies, but they will be expected to be fully versed in their applications. The role of the Controller involves being a main leader in the application of the technology across the business, since the task of the Controller influences almost all business aspects.
These individuals work with financial information, so they understand the opportunity space a cybercriminal can exploit, along with the risk they can pose to the business. This role can also be used to work toward protecting the most important assets from being compromised, as well as develop a plan to mitigate cybersecurity risks to the business. The controls developed and managed by the Controller can be considered the most important protection for a company against threats from cybercriminals. This increased role of the Controller concerning cybersecurity is part of the overall trend involving the Controller/IT relationship.
So long as stakeholders want to have clarity into the financial health of the organization, controllership will remain vital to operations.
The controllership function is core to the role of the CFO and represents one of McCracken's Ten Pillars of Finance.
In organizations without a Controller, the CFO manages the duties we covered in this article directly.
A Controller supporting a CFO has more of an opportunity than ever to add value to the business and make an impact with their role.
For help running or evaluating the health of your controllership function, feel free to contact us.
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