Centralized vs decentralized acccounting, perspectives and experience

Vernon Reizman's Profile

centralized accounting vs decentralized accountingWe currently run 4 mfg plants of similar size ($25 MM sales, 200 ee's each) in 3 states with a controller  and related accounting functions at each plant reporting into a corporate CFO at the parent. We have a centralized computer system so there is no reason we could not move more accounting functions to corporate other than the plant manager prefers autonomy and keeping this set up. Does the additional cost of having the on site accounting depth outweigh the benefit? Would a plant accountant suffice vs a higher cost cpa or mba controller? Thoughts? I am interested in horror stories or solutions that worked.

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Vernon
My past includes heading up a multi-factory packaging manufacturer, so with that background, here are some thoughts:

1. I see two potentially different roles and skill sets here. First, the plant level finance guy is likely to be a strong operations-focused cost accountant/ controller. He is the Plant Manager's "finance guy" - his focus in on plant operations metrics, not on US GAAP financials produced after month end. Example: integrity of production floor measurement and reporting, utilization levels, variance analysis, trends in finished goods costs, etc. The second role is the accounting controller: is everything allocated to the right GL accounts, vendors paid, revenue recognized, non-plant overhead expense review etc. The CFO wants that person collecting data from the 4 plant managers and reporting US GAAP results etc.

2. My two cost accountants were both qualified/degreed and understood manufacturing cost accounting concepts. We implemented integrated standard costing into our processes and financial reporting and were able to show the CEO and Board each month where our profits came from: sales volume and price variances, production overhead recovery variances, purchase price variances for materials and overhead spend variances (both production and SG&A).

The plant manager may be reluctant to give up his "finance guy" because he realizes how much value he brings to the management of the plant:)

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Proformative has even more discussions about centralized accounting here.

Proformative Advisor
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I am currently in an $800mm packaging and paper manufacturer. We have no issues in having centralized finance with seven plants. We do not have the latest ERP for these plants, but have been able to manage cost accounting, transactional processing as well as financial close, budgeting and analysis from a central location.

In a prior position, we removed all plant controllers and accountants from our plants and went to a hub/spoke system for support. Based on the size of the plants you mentioned, the leap to a centralized finance function doesn’t sound out of reach.

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While moving to a centralized structure might be within reach, to get everyone "on board" you need to make sure that the plant manager is getting the service they need from the centralized group - meaning not just GAAP items and whatever else the centralized group thinks is important, but the operational data that makes his "finance guy" so valuable. Respect the customer's needs and exceed their expectations.

Proformative Advisor
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Len/Pat/David--thank you--appreciate the insights.

Topic Expert
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I have previously headed the corporate level accounting and reporting function for a multi-billion, multi-plant, multi-national packaging company. I have seem both centralized and at least somewhat distributed functions. I strongly prefer the operations oriented finance guy at the plant that Len describes. Transaction processing and corporate reporting/compliance can be centralized as support functions not essential to the operations finance guy. Financial judgment at the point of customer contact and operations is critical to enabling a sound economic business focus and prevent a loss of the needed sense of reality. The completely centralized operation depends on a unchanging, standardized business model, much more rare today than even to succeed with plant operations a "color by the numbers" operation.

Proformative Advisor
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Thanks Barret

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Let me ask it from a different (the other side) perspective....

1. What part of your accounting cycle or business model or transaction that has not yet been charted, documented or experienced before and requires a "CPA" (i mean more "qualifications")?
2. What policies and procedures and maybe internal control that you are hesitant to leave or assign to a lower level Accounting Manager (or Controller)?
3. And finally, is the parent company too far detached that an Accounting Manager (or even a Controller) cannot just pick up the phone (or email) and ask the parent controller (or CFO) for some guidance?

I think you already know what I am getting at.

Having said that.... I also want individual plants (and personnel) to question policies and procedures and to try out new things (or chart out what is best for them). of course having to balance them with the overall setup/structure. I just don't want them to blindly "paint by numbers".

Proformative Advisor
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What is the true assumed cost savings in dollars (personnel replacement, training, additional corporate staff, etc) vs soft costs due to lost benefits; perceived or reality (many which were enumerated by my esteem colleagues in previous posts)?

This is a decision that needs to be fully inclusive of all affected and effected.

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