Fiscal-year end in takeover land is dictated by the requirements of the government; our own company’s year end is in December. We need to accrual all costs we can’t bill before our customer’s funding disappears October 1. We’re not supposed to exceed its budgets in the last week with unexpected charges. Last fiscal year, we managed to report a small surplus.
This year, a deficit appears on the operating statement. One of the people from the earlier contract tries to make his managers aware. They ignore him. The financial reports don’t look like ones they’ve seen before, so they assume they’re wrong. The Excel spreadsheets they keep to track contract metrics show us doing well. Besides if this person was so good, why did the contract change hands, why couldn’t he get a another job like all the other mid-level managers, why were the consultants hired?
They’ve learned not to raise difficult questions. When companies expand with acquisitions, new contracts, men on the fast track develop hierarchies of desirable assignments. Once new opportunities open in the parent company, the second tier moves in. The CFO’s an ex-marine who believes the best manager is the one with the most scalps. Human Resources is aware of his abusive behavior, but cannot intervene until someone complains. No one’s that foolish.
The deficit does not go away, as it sometimes does when work increases before the end of a fiscal year. Again, the accountant tries to tell his managers it must be reported to the customer. It’s in the contract. They don’t believe him. People hunker down.
Thursday before the deadline to report, the customer complains its worse expectations have been exceeded. We just charged them an extra five million dollars, ten million in two days. By coincidence, the deficit is floating around five million. If our budget’s getting cut, our customer’s jobs are at risk. Phone calls are made. A computer problem in the customer’s shop meant financial reports didn’t run, and people tracking expenses the final week didn’t realize they were looking at the same voucher twice. Emails go out assuring the customer there will be no surprises.
Everyone works on Saturday, the day we tell the customer the final number. The CFO wants to know what caused the deficit. No one dares tell him the ratio in absolute payroll dollars between salaried employees and workers has increased 3% in a year, because no one wants to be his solution. If there is a deficit, he wants to know how he can eliminate it, asks if some accruals can be reversed. Emotions run high, people forgather, claim he wants to cook the books.
Torn between people who’ve been there before, who know the customer, and his own requirement to do well, perhaps after a disastrous previous assignment, the CFO finally accepts the word of the new men who feel compelled to tell him what he wants to hear to protect their new benefits. One was hired weeks before his wife’s COBRA ran out. The customer is told our final number is a $200,000 profit.
The accountant can’t sleep. He knows the real number will appear on the confirming report we send the customer on Monday. He comes in on Sunday and calls the now deputy manager, some customers. The deputy general manager calls a key customer, in fact a previous financial director, for a second opinion. Who to believe, his CFO or his accountant? The customer calls the accountant at home and asks, you mean he didn’t use the operating statement?
Monday is the drop dead day for financial reporting to the customer. The deputy general manager calls the CFO aside after the staff meeting, tells him he must report the deficit. He returns to our area, asks the person who sends the final report what makes the number. He tells him he doesn’t know, it’s a simple calculation, the net total on the balance sheet. The CFO tells him if he doesn’t know he’s not an accountant and shouldn’t be working there. He walks away, and wonders what to do after 29 years.
The CFO calls in the general ledger manager and wants to know why it happened. She tells him, she’s not the financial analyst. It’s her job to run the reports, not interpret them. Things get said that shouldn’t. Emotions run higher.
Finally, the CFO, the assistant controllers, the whistleblower, the general ledger manager agree the bottom line is the bottom line. Basic accounting. When we didn’t report the loss on Saturday, we lost the chance to pass it on to the customer. Now journal entries must be done to carry the four million dollar loss over to the new fiscal year, adding to the 15% that needs to be cut from the budget. The customer is less angry over the final numbers, than the fact we took so long to report, we delayed its financial closing.
We come in the next day wondering who’s heads will roll, ours or theirs. We hope we can survive a month to see. The CFO is giddy: he’s dodged another bullet. He didn’t have to tell the customer anything, only confirm what it already knew. Since Iran-Contra, when we either allowed Ronald Reagan to countenance illegal behavior or accepted he didn’t know what was going on, chief executives have had ready-made explanations for their mistakes. At least until Enron and Sarbanes-Oxley.
But clouds gather: the general manager appoints an ethics manager, the customer sends some auditors. The new men promise to fix the reports, talk to the customer, hope to convince them it was all a simple misunderstanding, perhaps give the secret guild handshake and agree mistakes happen when unqualified people work in accounting. There may have been loose talk, but it was all in the spirit of appraising the situation. Nothing wrong was actually done. The customer wasn’t bilked, wrong numbers didn’t go to the SEC. Just office politics and sore losers.
Routine.
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