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MANAGEMENTACCOUNTINGEPUBLISHED BY INSTITUTE OF MANAGEMENT ACCOUNTANTS

22COLLIER-JACKSONSHIFTS ITS VISIONBY KATHY WILLIAMSAND JAMES HARTWarren D. Fletcher,general manager ofGeac /Collier - Jackson, tellshow his company refocusedfrom a mainframehost -based computercompany to a PC -basedclient/server company. Hesays the shift will putfinancial executives incontrol of their own destiny.

29SHEDDING THE BEANCOUNTER IMAGEBY WILLIAM M. BAKER,CMAABC, scorecards, andexecutive informationsystems have changedaccountants' daily routine,but it is still bean counting.This article exploresshedding the traditionalrole through participation insystem design.

32ATLANTIC DRYDOCK'S UNIQUE COSTESTIMATION SYSTEMBY THOMAS L. BARTON,CPA, AND FREDERICK M.COLE, CPAThe bid for the job is thesame as the budget at aJacksonvile, Fla., drydockcompany. The integrationof the estimating systemwith the budgeting processis made more efficient bycomputerization.

41WHO'S IN CHARGE:CIO OR CFO?BY SHELDON R.GAWISERChief information officersand chief financial officersneed to forge a newworking relationship —cooperation. Financialexecutives should be on theteam that decides whattechnology their companieswant to pursue.

OCTOBER 1994 /VOL. LXXVI No. 4

45OUTSMARTING THEBANDITSBY JAMES L. LOOMISUnless a company can show"due diligence" inprevention or correctiveaction in determining checkfraud, it can incur hugecosts once borne only bybanks. Here are severaltried and true strategiesthat financial managers canuse to combat check fraud.

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MANAGEMENTACCOUNTING%PUBLISHED BY INSTITUTE OF MANAGEMENT ACCOUNTANTS

49BACKUP ANDRECOVERYBY JACK M. CATHEY,CPA, AND ROBERT H.PHILLIPS, JR.Hard drives often fail, so itis important to back up dataproperly. Here is a practicalguide to backup andrecovery strategies andsoftware systems withvendor phone numbers.

SSTOOLING UPBY NEIL R STEWART'As reengineering movesthrough American industry,eliminating thousands ofjobs, managementaccountants mustreengineer their ownrole to survive.

OCTOBER 1994 /VOL. LXXVI No. 4

60 COLUMNS DEPARTMENTS1993.94 ANNUALREPORT SUMMARY PERSPECTIVES LETTERS 81993 -94 President Leo M.Loiselle reports on IMA's Continuing professional

NEWS 20fiscal year just ended. educeducation—a bridge to thefuture.

IMA NEWS 5912WASHINGTON COMPUTERS&

REPORT ACCOUNTING 62Banking agencies andFASB reach agreement-

OFFICE14 TECHNOLOGY 64MANAGING YOURCAREER TRENDS IN`How can I survive a new MANAGEMENTCEO's cut ?'

ACCOUNTING 6616FINANCIAL MANAGER TRENDS INIPOs aren't the buyer's pot EDUCATION 69of gold.

18 CLASSIFIED 70TAXESThe IRS nonfiler initiative. ADVERTISERS'INDEX 7168ETHICS IN THE LIBRARY 72

Views expressed herein are authors' and do not represent Institute policy unless so stated. Publicationof paid advertising and new product and service in-formation does not constitute an endorsement by theInstitute of the advertiser or the product or service.

MANAGEMENT ACCOUNTING(g) is indexed in the Ac-countants' Indexand also in the on -line database ofthe same name. This publication is available in otherforms of media through Information Access Compa-ny and through University Microfilms. Inc., andABI /INFORM (313)761 -4700. For more information

Ethics cases from academe.

call (800)227.8431. The full text of MANAGEMENTACCOUNTING* is also available in the electronic ver-sions of the Business PeriodicalsIndex.

Permission is granted to reproduce any of the con-tents of this issue for use in courses of instruction,so long as the source and Institute of ManagementAccountants' copyright are indicated in any such re-productions. Written application must be made to theEditor for permission to reproduce any of the con-tents of this issue for use in other than courses ofinstruction —e.g., textbooks and books of readings

or cases. Except as otherwise noted, the copyrighthas been transferred to the Institute of ManagementAccountants for all items appearing in this magazine.For those items for which the copyright has not beentransferred, permission to reproduce must be ob-tained directly from the author or from the personor organization given at the end of the article.

(quantity reprbtts of any article in MANAGEMENTAC-COUNMNG% or back issues (subject to availability)may be obtained from Special Order Department,IMA, 10 Paragon Drive, Montvale, NJ 07645 -1760.

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PERSPECTIVESCONTINUING PROFESSIONALEDUCATION -A BRIDGE TO THE FUTURE

Last month's column was devoted to "A Bridge to the Ac-ademic Community." There will be considerable activity onthis topic in the coming year. In September, we hosted anAccounting Education Summit meeting, which was attend-ed by representatives of the appropriate stakeholdergroups. We will work together to make the changes neededin education for careers in management accounting.

This month, I want to talk about the critical importanceof Continuing Professional Education (CPE) in "BuildingBridges" to our future.

The professor who taught my first accounting coursewas one of the best teachers I had in college. He constantlytold us that we should view education not as an objectiveor goal to be attained but as a way of life. He stressed that

the most we can expect to take from a class is a basic foundation of current knowl-edge at a point in time. The world of business and the field of accounting are con-stantly evolving beyond that point. If we do not continuously add to and modifyour knowledge and skill base, we quickly become obsolete as the world and thefield of accounting rapidly move ahead. There is no such thing as standing still;we either more forward or we are left behind.

The pace of change today is much faster than it was just a decade ago. Thethings we do and the ways we do them are evolving so rapidly that accountantswho do not view education as a way of life are increasingly less valuable in themarketplace. It is a fact that we are entering an era in which employers are fre-quently asking if we add enough value to justify our cost. Transaction handlingrequires fewer people each year as organizations reengineer their accounting pro-cesses. We face a future job market that demands fewer but much more highlyskilled accountants than today.

The IMA leadership sincerely cares about your professional future and the pro-fessional image of our organization in the business community. This is why yourBoard of Directors recently adopted Bylaw provisions which established CPE stan-dards for most members. This CPE standard is 10 hours per year for regular mem-bers starting January 1, 1996. The standard rises to 20 hours per year on January1, 1998. Leaders should set a good example, so there is a 20- hour - per -year standardeffective January 1, 1994, for members serving at the national level. The require-ment of 30 hours per year for CMAs is not changed. When employers were askedtheir opinions of IMA's newest CPE requirement, they expressed unanimous sup-port, indicating that it will add significant value to an IMA membership. We nowcan proudly say that we are an organization whose members are committed tocontinuous professional improvement.

We have not done a good job of communicating the important benefits of thenew CPE standards. There is speculation that some of our members will resignfrom the IMA rather than accept the new standards. I do not accept such a positionand firmly believe that every regular member of IMA expects to do, and will do,whatever is needed to remain a `value- adding" professional. We will move acrossthe "CPE Bridge to the Future" together because we know education must be a"way of life" for the IMA and its members.

K iG.t...1./ t

KEITH BRYANT,JR, CMAPresident, 199495

MANAGEMENTACCOt1NTING■

(USPS 327 -160)

VOL LXXVI NO.4 OCTOBER 1994

EDITOR / Robert F. Randall

MANAGING EDITOR / Kathy Williams

TECHNICAL EDITOR / Karen S. Bell

SENIOR EDITOR / Claire Barth

PRODUC'nON / Lisa NasutaPatricia L. Keeley

EDITORIAL ASSISTANT / Gloria Discini

CIRCULATION / Alice Schulman

EDITORIAL ADVISORY BOARDLouis Bisgay, CPA; Germain Boer; Robert Boyle,CMA, CPA; James Bulloch, CMA; Joseph V,Carcello, CMA, CPA; Anthony Joseph Cataldo,CMA, CPA; Anthony Curatola; Robert A Czekanski,CMA; Rebecca Dillard, CMA, CPA;- Julian Freedman,CMA, CPA, CPIM; Bridgette Hobart, CPA; SusanJayson, CFP; Thomas J. Jordan, CMA; Siraj Khan,CPA. Alfred M. King, CMA; Edward J. McCracken;C. Mike Metz, CMA, CPA; John G. Mezquita, CPA:J.T. Marty O'Malley, CMA, CPA; Michael D. Osher-off, William L. Paladin; Susan P ierce, CMA, CPA;William C . Rogers , CMA, CPA; Patrick Ro mano,CMA, CPA; Annette West, CMA.

official publication of the

INSTITUTE of

MANAGEMENTACCOUNTANTSI'CIRIP1rD 11AINA4CMi71T ACCULT7A Mr M((1GHAM

10 Paragon Drive, Montvale, NJ 07645

PUBLISHERGary M. Scopes, CAE

ADVERTISING REPRESENTATIVES

I.P.C. Enterprises, New York, NYPeter Mc Grath, Senior Partner

Jim Hart, Senio r PartnerTel: (212) 575.3100

Midwest Representatives: SIR Publications213 West Institute Place, Suite 311

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Authorization to photocopy items for intemal or per-sonal use, or the internal or personal use of specificclients, is granted by the IMA to libraries and otherusers registered with the Cop yright Clearance Cen-ter (CCC) Transactional Reporting Service, providedthat the base fee of S2.00 per copy, plus 20C per page,is paid directly to CCC, 222 Rosewood Drive, Dan.vers, MA 01923. 00'25 - 1690/90 S2.00 + 2M.

Copyright 0— 1994 bythe Institute of Management Accountants

MANAGEMENTACCOUNTING /OCTOBER 1994

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LETTERSTO THE EDITOR

ROBERT F. RANDALL, EDITOR

A REBUTTAL TO 5 MYTHS

ermain Boer's recent article,"Five Modern Management Ac-counting Myths," January 1994,

raises serious questions concerningthe foundations on which activity-based costing and management(ABCM) has been developed. Due tothe rapid spread of ABCM systemadoptions throughout industry,' it iscrucial that a balanced view of thesesystems be maintained. Exaggeratedpositions (on either side of the debate)will only serve to confuse the debatefurther.

Rebuttal 1: Labor costs have been rel-atively significant in the past and over-head costs have increased dramaticallyin recent years. Dr. Boer argues that"the notion that at some time in thepast labor was relatively significant"and that the idea of a dramatic in-crease in overhead costs during re-cent years are just myths. Rather, hestates that his overhead data "indicatea tremendous diversity in overheadcosts across industries in 1987 and a

steady rise in overhead across all in-dustries going back to the 1920s. How-ever, this analysis does not properlyemphasize the importance of the rela-tive relationship between labor andoverhead costs. When discussingwhether or not labor was ever a signif-icant cost factor, it is important that thequestion be placed in context. A morepowerful question might be: "Have therelationships between, and relative siz-es of, labor and overhead changed sig-nificantly over time ?" Early researchby Jeffrey Miller and Thomas Voll-mann2 also indicates that while directlabor as a percentage of value addedhas decreased dramatically, overheadas a percentage of value added has in-creased correspondingly. The authorsargue that, as a result, overhead rateshave exploded. Using Dr. Boer's data,we can perform an analogous compar-ison of the change in overhead rates.

The chart below shows a compari-son of the overhead and production la-bor costs that were given for 1849 and1987. Using the fact that "material costhas remained at approximately 55% ofsales for all manufacturing firms from1849 through 1987," we can calculatethe rough effect of therelative shift be-tween production labor and overheadcosts. Unfortunately, neither we norDr. Boer have data to separate over-head and profit, so the calculations areperformed on the combined figures.Cost Categories 1849 1987 % change fromas a%d Sales 1849

Production labor 23% 10% 57% decease(direct & Indirect)

mat" Costs 55% 55% —

NorA -abor 2296 35% 59% increaseOverhead & Profit

Overhead & Profit 96% 350% 26s%rcreaseRate (as a % ofProduction Labor)

MANAGEMENT ACCOUNTING IS SEEKING ARTICLES!The impact of the expanding global economy on accounting and reporting issues is asubject that MANAGEMENT ACCOUNTING® would like to explore in depth. We arelooking for articles pertaining to U.S. companies' growth in international markets, move-ment of international companies to the U.S., the EEC, NAFTA, and other trade agree-ments impacting U.S. companies, or any idea dealing with the dynamic of the interna-tional exchange of accounting trends and practices.

MANAGEMENT ACCOUNTING® also is seeking manuscripts covering the changing ac-counting environment. Specifically, we would like to explore the concerns raised bythe IMA /FEI survey pertaining to what Corporate America wants in entry level accoun-tants published in the September issue. The decrease in hiring of accounting graduatesat the Big b and the issues uncovered in the survey are areas for coverage.

The deadline for submissions is December 31, 1994. Please send all submissions toKaren S. Bell, technical editor.

Dr. Boer argues that production la-bor has never been relatively signifi-cant However, when we consider thatproduction labor was 23% of sales in1849, we believe that the significanceof production labor is a subjective judg-ment. When production labor is (1) ofthe same magnitude as the combinedtotal of overhead and profit and (2) rep-resents almost one - quarter of totalcost, we view it as a relatively signifi-cant cost.

The table shows that while Produc-tion Labor has decreased during theperiod, overhead has increased. Addi-tionally, in 1849, it is crucial to note thatProduction Labor was only slightlylarger than the combined total of Over-head and Profit. This relationship isdramatically different in 1987, whenProduction Labor represents less than30% of the combined total of Overheadand Profit. This shift of cost from Pro-duction Labor to Overhead has also re-sulted in a tremendous increase in theaverage overhead rate from 96% to350% of Production Labor!

The shift in overhead rates (as a per-cent of labor) is also recognized by Dr.Boer, who states that "[t] hese writersargue (rightfully, I might add) thatoverhead is now so much larger thandirect labor cost that managers shouldfocus more attention on managingoverhead instead of on managing laborcost." However, he goes on to arguethat the increase in overhead is char-acterized as "a steady rise in overheadacross all industries going back to the1920s" and that the "big bang" in over-head costs is just another managementaccounting myth. This statement ismade based upon a Computed TrendLine of Overhead as a Percent of Salesover a 40 -year period (1947 -1987) ...

We would suggest that the shape ofthe datacurveindicatesa very strong in-creasein overhead as a percent of salesfrom 1980 through 1990. However, byreviewing the slope of the actual dataover various periods of time, we cansee that the last decade shows an ex-tremely sharp increase in the overheadrate as compared to previous periods.The data, therefore, may actually indi-cate that a tremendous increase or "bigbang" in overhead costs has takenplace in recent years.

Rebuttal 2: Product cost does influ-ence product price.There are manyways that we can view the relationshipbetween product cost and productprice. Generally, the cost of a productis viewed as the "floor" or bottom priceat which a firm could price its productin the long run. Obviously, if the mar-

MANAGEMENT ACCOUNTING /OCTOBER 1994

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ket price exceeds the bottom -price, arational manager would price a prod-uct at the market price. This does notimply, however, that prices and costsare unrelated in the long run; rather,it implies that the relationship is acomplicated and multifaceted one.

Dr. Boer presents two months ofdata regarding the price of corn andthe price of feeder steers to demon-strate that "product cost does not in-fluence product price." This may betrue in the short run;however, manag-ers strategically price products pri-marily in the long run, and those pric-es reflect multiple factors (includingbut not limited to cost) ...

The author is right: pricing is acomplex issue. However, it is crucialto realize that pricing depends onproduct cost, but not necessarily in aconstant way over time. Corn cost isnot the only factor in the pricing offeeder cattle futures contracts. Theprices of these contracts depend on(to name a few of the more importantfactors): future contract prices for livecattle, seasonal effects concerningfeed and the cattle themselves, weath-er, disease, substitutes for beef...

We have examined the complex offeeder cattle future contract prices andthe complex of corn futures contractprices for the past 15 years. It is possi-ble to find for a two-month period (ora three -month period or a four -monthperiod) virtually any pattern that wemay desire. The period of time and theparticular series chosen by the authorjust happen to be consistent with thepoint argued for.

While Dr. Boer's analysis is mis-leading and technically incorrect,there is much merit in the discussion.The relationship between productcosts and product price may varythrough time, possibly with ever -changing structure, in such a way thata satisfying accounting relationshipcannot be obtained...

This does not however, [imply]that cost is irrelevant in price determi-nation, but rather that a simple linearrelationship between cost and pricedoes not usually exist either over timeor at a single point in time.Albert S. PaulsonKatherine J. SilvesterRensselaer Polytechnic InstituteTroy, N.Y.

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NO HARD AND FAST RULESFOR SOFTWAREThe article "Software —The Unrecord-ed Cost" in your August 1994 issue wastimely. In a recent informal search, Icame away empty handed in an at-tempt to find uniform practices amonglarge firms on how they account forsoftware. Hence I recognize the voidthat the authors have identified.

However, I disagree with some oftheir conclusions and wonder aboutthe relevance of the population used intheir sample. The investment and con-trol arguments cited in the article maysupport capitalizing software costs.But the other reasons — product cost-ing and performance evaluation —aresomewhat more tenuous.

Sunk software costs have littlebearing on product decisions. Suchdecisions will be based on whetheror not the market will pay a highenough price to cover the costs of theproduct. The relevant costs, exceptfor a few lucky monopolies, are incre-mental costs and a return require-ment to compensate for risk and lostopportunities.

Contrary to the assumptions in thearticle, performance measurementcalls for expensing, not capitalizing,software costs. To future employeesand shareholders, who did not makethe original decision to acquire soft-ware, capitalization and amortizationresembles taxation without represen-tation, unless the software also has fu-ture benefits. There is less certaintywith software than with buildings (theexample in the article) that these fu-ture benefits truly exist.

Ironically, accounting firms, whichthe authors chose to survey, havegood reasons for not capitalizing soft-ware. Tax software, for instance, is on-ly as good as the next few changes inthe tax code. Consulting software hasto be modified with every manage-ment fad. And all software becomesobsolete at the same dizzying rate ashardware (8088, 80286 all the way toPentiums) and systems (DOS ver-sions, Windows, OS /2, and, soon,Chicago).

And finally, it is not such a bad ideathat the FASB has not produced anyclearer guidance than in SFAS 86. Giv-en that software lives are dependent ontype of industry—short for accountingfirms, but long for more stable manu-facturing industries —any FASB pro-nouncement will be at best arbitrary.Newton L Owi, CMAChicago Chapter

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WASHINGTON REPORT

STEPHEN BARLAS, EDITOR

BANKINGAGENCIES ANDFASB REACHAGREEMENT

our of the five federal financialagencies represented in theFederal Financial Institutions

Examination Council have sent out amemorandum to chief executives ofU.S. banks clarifying the handling ofnonhigh -risk mortgage securities in fi-nancial statements. The operative lan-guage in that statement says: "Themere existence of examiners' divesti-ture authority for high -risk mortgagesecurities should not preclude an insti-tution from concluding it has the intentand ability to hold to maturity those se-curities that were nonhigh -risk whenacquired." The agencies are the Comp-troller of the Currency, Federal Depos-it Insurance Corp., Office of Thrift Su-pervision, and Federal Reserve Board.These agencies adopted a policy on ac-counting for so- called collateralizedmortgage obligations (CMO) early in1992. That policy basically said thatwhen a security failed any of threestress tests, it could not be considered"held to maturity." But when the FASBcame out with Statement 115, "Ac-counting for Certain Investments inDebt and Equity Securities," in May1993, it made the policy statementadopted by the FFIEC untenable. Inmid -April 1994, the FFIEC came upwith a draft revision of its policy andpresented it to FASB. The EmergingIssues Task Force of FASB refused tosign off on the FFIEC revision. Addi-tional changes were made by theFFIEC, and, finally, at an EITF meetingon July 21, FASB gave its approv-al —with a small reservation —to thestatement the four FFIEC agencieswanted to send to bank executives.

James A. Kaitz

BUSINESS GROUPSUNHAPPY WITHPENSION REFORMBILLA bill tightening corporate responsibil-ities toward pension funds (H.R. 3396)is heading toward congressional ap-proval despite the objections of groupssuch as the Financial Executives Insti-tute (FED. The bill passed the Ways &Means Committee on July 22 and thenthe House Education and Labor Com-mittee on August 11. There has beenno action in the Senate. But becausethe bill would raise nearly $1 billion viacorporate fee increases and tax chang-es, the Clinton administration wants totack it onto the GATT trade bill, which,because of its elimination of tariffs, willcost the federal government about $12billion over five years. The pension billwould help recoup those federal reve-nue losses. If the pension bill is at-tached to the GATT bill, the Senate

would not have to approve H.R. 3396.Jim Kaitz, FEI vice president, govern-ment relations, says H.R. 3396 hasthree major weaknesses, including itsprovisions on interest rate corridors,mortality tables, and mergers and ac-quisitions. "Phis bill gives the PensionBenefit Guaranty Corporation (PBGC)new, unprecedented authority to stopa merger or acquisition," Kaitz ex-plains. The PBGC could ostensiblystop a merger or acquisition when ag-gregate underfunded pension liabil-ities for both companies exceeded $50million. Lisa Winton of the AmericanInstitute of CPAs, which expressed nu-merous concerns during hearings inWays & Means, says her group doesnot have a position on H.R. 3396.

SEC /EPANEGOTIATINGAGREEMENTThe Securities & Exchange Commis-sion (SEC) and Environmental Protec-tion Agency (EPA) are negotiating amemorandum that would formalizeand expand their existing relationship.That relationship involves the EPA'spassing information on prospective Su-perfund enforcement actions andsome EPA rule makings, such as CleanAir technology improvement orders,to the SEC. The SEC checks to seewhether a company has mentioned aSuperfund enforcement action in itsMD&A and, if not, writes a letter ask-ing the company to explain that omis-sion. Sometimes the SEC sends thatletter to the EPA to check the reason-ing in the letter. Rick Roberts, one ofthe SEC commissioners, has beenmeeting with officials in an effort toagree on a Memorandum of Under-standing. Mike Northridge, an officialin the EPA office of enforcement, sayshe hopes a memorandum will besigned this fall. In speeches, Robertshas said that Arthur Levitt, Jr., the SECchairman, has put a high priority onEPA/SEC cooperation. Some coopera-tion goes on now, but it is informal.Northridge says he hopes the memo-randum will expand the current areasof cooperation but declines to specifywhat new areas might be covered. TheEPA has been increasingly interestedin encouraging corporations to adopttotal cost accounting. ■

Stephen Barlas is a journalist with morethan 15 years of experience reportingfrom Washington, D.C.

12 MANAGEMENT ACCOUNTING /OCTOBER 1994

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MANAGING YOUR CAREERH̀OW CAN I SURVIVE A NEW CEO'S CUT?'

ROBERT HALF, EDITOR

Ourcompany hired a new president three months ago, and last month he asked for

my resignation. I wasn't the only one to go. I was close with the previous president,who fell into disfavor with the boardofdirectors, so 1 suppose 1 shouldn't have beensurprised. However, I thought —still think —I was doing a great job. The worst partwas that the new president asked me to leave the same day, asif 1had mishandledfunds or might try to damage the company before my departure. I'm still shell- shockedand keep wondering what I should have done to keep from losing my job. The newpresident was impossible to read —he had no expression on his face —and every time1 tried to reach him, he was out of the office. I know it's not productive to stew aboutit, but 1'd appreciate your advice so 1 can keep this from happening again should 1find myself in a similar position.

is always difficult when newleadership takes over a com-pany. Inevitably, people arelet go as new presidents de-velop their own staffs in theimage of what they think isneeded. Often, as you have

learned, good people are asked toleave, sometimes simply because theydon't fit that image. And, in many cas-es, corporate lawyers insist that de-parting employees leave right away, es-pecially if they have access to companyfunds, sensitive information, or aredeemed likely to be a disruptive forceif allowed to linger on the job.

The reengineering of America'scorporations has put a lot of people inyour position. New presidents or chair-men are hired by boards of directorsto come in and "turn the companyaround." That often means that theycome in with a mandate from the boardto reduce expenses wherever possible.

Nevertheless, the quickest way tomake an impact on the bottomline —and prove to the board that im-mediate action is being taken— unfor-tunately is to cut the staff.

Your new boss gave you some cluesthat this was in the works. He was non-committal in his reactions to you andkept himself unavailable. By keepingstaff at a distance, he avoided develop-ing a personal relationship with any-one. In this way, not only could hejudge performance objectively, it madeit easier to fire people he hadn't gottento know and like.

In addition, your new presidentspent a lot of time out of the office.

While his absence could be explainedby meetings with colleagues as he fa-miliarized himself with his new compa-ny, it also could mean—and probablydid —that he was being circumspectabout interviewing job candidates.

A friend of mine, who took over ascontroller at a food division of a largemultinational, spent half her time dur-ing her first few months conducting in-terviews at her university club. Shetold me that if she talked with prospec-tive employees back in her office, itwould have had a negative impact onthe productivity of her staff. "I'd end upgetting the rumor mill going," shesaid. "People don't work well whenthey're absorbed in worrying whereand when the ax is going to fall."

Of course, when new superiorskeep their distance to maintain objec-tivity, and are out of the office a lot,

Unplanned obsolescence.

they also lose the advantage of beingable to observe the fine work the cur-rent staff is doing, and would continueto do if motivated by job security.

Here are some things to do the nexttime a new leader takes over:

Don't be modest. Seek proper cred-it when you and /or your departmentaccomplish something important, andmake sure everyone hears about it.Consider it as personal public rela-tions. All effective public relations iscumulative. Personal PR will pay offwhen word of your success expandsbeyond your fellow employees andreaches your boss, perhaps even theboard of directors.

When a new administration comesin, write up your job description. Thisact will help you to organize yourthoughts and be prepared when you'reasked to explain your responsibilities.Such a written description will giveyour new supervisor a concise pictureof everything you do. At the same time,it gives you a chance to review whatyou've written to ensure you haven'tforgotten anything significant.

Get out of your office, walk around,make your own copies, get your owncoffee. You may meet the new boss inthe hall. If so, use it as an opportunityto get points across and to impresswith your efficiency.

Be a team player. It's harder to dis-miss an employee who has establishedstrong, productive relationships withother departments.

Invite your new president for a tourof your department. Offer to walk himor her around and introduce others inyour department to their new leader.

Above all, keep in mind that achange of administration often meansa change of staff as well. Good peoplelike yourself might be asked to leavethrough no fault of your own.

Do your best to impress a new boss.If it doesn't work, don't take your dis-missal personally. Instead, understandthat there were dynamics at work thatwere beyond your control, put yourjob - seeking house in order, and mar -shall your energies toward finding andkeeping anew and even better job. ■

Robert Half, CPA, is the founder of Rob-ert Half International, Inc., the world'sfirst and largest staffing serviee firm spe-cializing in the accounting, finance, andinformation systems fields. There aremore than 160 Robert Half and Aceoun-temps offices on three continents. His lat-est book is Finding, Hiring and Keepingthe Best Employees (John Wiley &Sons).

14 MANAGEMENTACCOUNTING /OCTOBER 1994

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Process vs. productsThrough its Windows interface, NetProphetallows you to look at your business in a common-sense, graphical process view. Columns and rowsof numbers may be fine for the accountants, butwhat about the rest of your organization?NetProphet gives everyone a picture that theycan understand and use.

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FINANCIAL MANAGER

T. CARTER HAGAMAN, EDITOR

IPOS AREN'TTHE BUYER'S POTOF GOLD

ince 1960, more than10,000 IPOs— initialpublic offerings— haveraised more than $140billion, a small but criti-cal niche in capital fi-nancing. Most compa-

nies get their start by raising equityprivately from a few investors who takea large risk, hoping the company willsucceed. If it fails, there's no liquidityfor their investment. If the companydoes succeed, it's likely to need stillmore capital, which it can get in twoways: sale of the business or throughan IPO. IPOs provide a powerful in-ducement to bring risk capital intobusinesses from a broad array of addi-tional investors.

Only a minority of private compa-nies qualify as IPOs because there hasto be enough promise to attract an in-vestment banker and interest stock-brokers. Frequently this means a"growth company" or a company withexotic potential. The fees for a success-ful IPO are high — sometimes as muchas 10% of the offering. A major studyby Ibbotson, Sindelar, and Ritter'makes three points: First -day returnsfrom IPOs typically are high; the op-portunity to bring an IPO to market ishighly cyclical; and average long -terminvestment performance of IPOs lagsother securities of comparable risk.

Pricing the IPO is an educatedguess based on market performance ofcomparable companies, the receptiongiven other recent IPOs, market con-ditions, and, above all, indications ofbuying interest (the "book ") built bythe army of brokers in the sellinggroup. A successful offering is defined

16

as one in which the market price staysabove the offering price at least for atime. The underwriter tries to set aprice that will assure this outcome.Pricing is a negotiation between theunderwriter and the company, butmost of the bargaining power and allof the market information is in thehands of the underwriter. If the com-pany walks, it may not get another un-derwriter and the money it needs.IPOs are priced with the intention ofsecuring a market gain for the initial in-vestor. Success, however, also dependson the "aftermarket" or subsequenttrading, which depends on a continuityof market interest in the stock.

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during bear markets explain the cycli-cality of IPOs. Volume varies dramati-cally from year to year —for example,only nine offerings in all of 1974 versusnearly 1,000 in 1985. In hot markets,judgment vanishes, and both initialpricing and subsequent market activitycan bear little relationship to invest-ment fundamentals. The market forIPOs thus parallels the market for highP/E growth stocks and little -knowncompanies already in the marketplace.Research has shown that few investorsin IPOs do any security analysis. In onesurvey, only a quarter of the respon-dents claimed that they looked at therelationship between the stock priceand the firm's underlying value.

The hope of quick gains and the ab-sence of analysis help to explain whyIPOs perform poorly over the longhaul. Because most 1POs are sold inhot markets, they are sold at an aver-age price higher than the long -term av-erage including both bull and bearmarkets. But the return to investors isbased on the price the investor paid.Therefore, total return will be lowerthan what could be obtained from asimilar portfolio acquired at the aver-age price.

IPOs are likely to be a good deal on-ly if you can get on the gravy train anddon't ride too long, which means youneed to qualify for initial allocations of"hot issues" and avoid the others. Im-portant customers of the selling firmsand some politicians are in this posi-tion; most ordinary folk are not. Thereare many chances to buy into question-able deals, but the good ones are high-ly rationed. If you buy after the initialoffering, as many people must for amarket to exist, you need to be both as-tute and lucky. You won't get advice ofthis sort from stockbrokers becausethey make extra money selling newstocks. Further, if you hold the stocksfor the long pull, the statistical odds areagainst your receiving a return as highas you could get with other stocks ofsimilar risk. Thus, success with IPOsdepends on initial preference, skillfulreading of market psychology, and adollop of luck. ■

T. Carter Hagaman is an independentinvestment analyst. He teaches at KeanCollege oflVew jersey and can be reachedat (201) 762 -6378.

tIbbotson, Sindelar, and Ritter,'Me Market's Prob-lems with the Pricing of Initial Public Offerings,"Journal ofAppiied Corporate Finance,Spring 1994.

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TAXESTHE IRS NONFILERINITIATIVE

ANTHONY P. CURATOIA, EDITOR

W. RICHARD SHERMAN, CPA,AND WAQAR I. GHANI

And He said to them, "Render untoCaesar that which is Caesar's... "Luke 20.22 -25.

hile almost all in-dividuals knowthat if their in-come level ex-ceeds specifiedthresholds theyare legally re-

quired to file a tax return and pay tax-es, an estimated 10 million taxpayers(7.2 million individuals) fail to file.These nonfilers represent a large por-tion of the 19% noncompliance rate andthe estimated $20 billion of legalsource income that goes unreportedannually. (Estimates for total unreport-ed income, illegal as well as legal,range as high as $176 billion per year.)

Since October 1992, as part of itsCompliance 2000 Program, the IRS hasbeen doing its best to bring delinquenttaxpayers back into the fold. Althoughnot intended as a tax amnesty pro-gram, the "voluntary disclosure" prac-tice allows delinquent taxpayers to for-go criminal prosecution and, in somecases, the civil penalties normally con-nected with not filing. There are con-ditions, however, that must be met.

First of all, the taxpayer (or, moreaccurately, nontaxpayer) must initiatecontact with the IRS.' This action isboth a condition and an incentive. If theindividual continues to evade the taxsystem, and the IRS makes the firstcontact, all bets are off. The Servicewill proceed to impose all availablepenalties —civil and criminal.

A second condition is that the tax-payer must have only legal source in-come to report. Compliance 2000 is in-tended for individuals who, despite

their noncompliance with the tax laws,are law- abiding citizens. IRS studieshave found that often a traumatic eventsuch as divorce, the death of a lovedone, or other personal or economicproblems precipitate nonfiling.

A third requirement, as would beexpected, is that the individual mustfile a "true and correct" tax return ormust cooperate with the IRS in at-tempting to determine his or her cor-rect liability. In short, the program re-quires the nonfiler to become a filer.Furthermore, the IRS has been requir-ing that nonfilers go back and file re-turns for the previous six years if theyalready have not done so. This condi-tion may require a taxpayer to try andreconstruct income and deductions foryears in which record keeping was atbest spotty and maybe even nonexis-tent. Nonetheless, the nonfiler mustmake a good faith, "best efforts" at-tempt to complete an accurate tax re-turn for those years.

Finally, the individual must make afull payment of all the taxes, interest,and penalties due or must arrange anacceptable payment schedule with theIRS. In the latter instance, the IRS hasauthorized revenue agents to enter in-to installment agreements if the tax li-ability is less than $10,000. If the defi-ciency exceeds $10,000, the IRS hassimplified its procedures for extendedinstallment agreements between thetaxpayer and the HZS Collections Divi-sion. If either the collectability or theexistence of the tax liability is doubtful,the Service may be willing to accept an"offer in compromise." Such an offersettles the taxpayer's account forsomething less than the balance due asoriginally determined by the IRS. Toapply for an offer in compromise, thetaxpayer must file Form 656 (Offer inCompromise) and Form 433-A or 433 -B (Collection Information Statement).

Nonfilers who participate in the vol-untary disclosure program do not in-crease the chance of an income tax au-dit. The IRS has stated publicly that thereturns filed under this program arenot audited automatically. The returnswill be subject to the normal reviewand selection criteria as all other re-turns, but because they are usuallyoutof syncwith the usual IRS examinationcycle there is a lower probability thedelinquent returns will be selected forexamination.

The IRS intends to prosecute themore abusive nonfiler cases aggres-sively, with close coordination be-tween its Criminal Investigation Divi-sion and the Department of Justice.

The IRS has been using computers tomatch more rigorously W2 and 1099information with filed returns, a pro-cess that easily identifies nonfilers. Inaddition, because an estimated 64% ofnonfilers are self - employed individualswho are not subject to withholding tax,the IRS has been targeting specific oc-cupations for closer examination. TheChicago IRS office has been siftingthrough the list of Illinois - licensedCPAs in order to identify nonfilers.A similar tactic is being pursued inPennsylvania for all state - licensed at-torneys.

At the state level (but not yet in ev-ery state), programs encourage nonfil-ers to come clean with the govern-ment. Pennsylvania, for example, hasadopted a policy of accepting threeyears of taxes and interest without pen-alties for those who comply voluntarily.Furthermore, these taxpayers cancome forward on an unnamed basisuntil a settlement with the state hasbeen reached. The state offers a de-ferred payment plan for taxpayers thatqualify.

In many ways, the nonfiler programis nothing more than a continuation ofprior IRS policy. Since 1952, before rec-ommending criminal prosecution theIRS has taken into consideration thatthe taxpayer has come forward volun-tarily. Compliance 2000, however, rep-resents a closer cooperative effort bythe Examination and Collection Divi-sion with increased support by thePublic Affairs Office, Criminal Investi-gation, and Taxpayer Service to makethe program more visible and more ac-cessible. A more equitable system willbe promoted if nonfilers assume re-sponsibility and render unto Caesarthat which is Caesar's. ■

W. Richard Sherman, a member ofIMA's Philadelphia Chapter, is asso-ciate professor, Department ofAccount-ing,Saint Joseph's University, Philadel-phia, Pa. He can be reached at (610)660 -1662.

Waqar L Ghani, Ph.D., is assistantProfessor, Department of Accounting,Saintjoseph's University. He can be con-tacted at (610) 660-1661.

Anthony P. Curatola, Ph.D., is theJo-seph F. Ford Professor, Drexel University,Philadelphia, Pa. He can be reached at(215) 895 -1453.

'Who initiated contact is so critical that it is in thetaxpayers best interest to keep careful records ofall contacts with the IRS. A formal meeting is notnecessary for establishing the initial contact. Thetelephone, electronic, or written communicationswill suffice.

18 MANAGEMENT ACCOUNTING/OCTOBER 1994

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Circle No. 30

NEWS

KATHY WILLIAMS, EDITOR

IHLANFELDT NAMED TO FASAC

illiam J. Ihlanfeldt, CPA, re-tired assistant controller ofShell Oil Company and presi-

dent -elect of IMA, has been named tothe Financial Accounting StandardsAdvisory Council. FASAC's members,who are broadly representative of theFinancial Accounting StandardsBoard's constituency, offer advice tothe FASB regarding what issues to puton its agenda and comment on the sta-tus of its current projects.

Mr. Ihlanfeldt, a member of theHouston Chapter, was IMA vice presi-dent, professional relations, in 1993 -94.He also has served as chairman of theManagement Accounting PracticesCommittee and has been a member ofthe Executive Committee, NationalBoard, Planning Committee, and Bud-get Committee.

CD -ROM USE IS ON THE RISE

ccording to the results of the faxsurvey in the August issue ofMANAGEMENT ACCOUNT -

ING@, members' use of CD -ROM tech-nology is on the upswing. Of those in-dividuals using the CD -ROM, most useit at home for entertainment/encyclo-pedia applications. The second great-est use is at work for accounting /taxtopics. (We won't include any percent-ages as this survey was not a randomsample.)

Both at home and at work, most re-spondents use at least an IBM or com-patible 386 with Windows and /orDOS. About a third are on networks atthe office. Extras: Respondents have aCD -ROM drive, a 2400 bps or highermodem, and a fax /modem in both plac-es. Not many are online yet, but ofthose who are, most use CompuServeat work and CompuServe and America

20

Online at home.When asked what services IMA

might provide on CD -ROM, the great-est number of respondents requestededucation /training and "best prac-tices" information to use at the office.For home, it was education /training.

IMA thanks readers for their inputand will keep them posted on the sta-tus of the CD-ROM project.

FINANCIAL HIRINGWILLREMAIN STEADY, CFOS SAY

he hiring of finance and account-ing professionals will remain sta-ble in the fourth quarter, CFOs

who responded to Robert Half's latestsurvey said. Ten percent of the respon-dents said their companies plan to addstaff, 81% anticipated no change, and4% expected to decrease staff. One no-table change has occurred: The Moun-tain region (Montana, Idaho, Wyo-ming, Colorado, Arizona, Utah, NewMexico, Nevada) anticipates a 17% in-crease in financial hiring, which is up10 percentage points from last quar-ter's projections. The Mid - Atlantic re-gion also will see a small increase.

The construction industry is show-ing the most growth, with 13% of therespondents expecting to hire. Sevenpercent of the CFOs in the retail andprofessional and business services al-so expect a hiring increase.

Robert Half International surveyed1,000 of the nation's CFOs in compa-nies with 20 or more employees. Forinformation about the entire survey,

William J. Ihlanfeldt

contact Steve Pehanich at (415) 8549700 or Marc Silbert at (516) 767 -3700.

WORKPLACE SUBSTANCEABUSE INFORMATION KITSARE AVAILABLE

t has been estimated that sub-stance abuse in the workplacecosts American businesses be-

tween $44 and $200 billion a year in lostproductivity, increased health carecosts, absenteeism, and accidents. Inaddition, the federal government hasfound that nearly 66% of all drug usersare employed, most of them full -time.

Although many larger corporationsconduct their own programs on sub-stance abuse, smaller companies with100 or fewer employees may not haveadequate information or resources toaddress the problem. In an effort tohelp small businesses cover this issue,the U.S. Department of Labor, througha private and public sector initiativecalled Working Partners, is makingworkplace substance abuse informa-tion kits available. For details, callKaren Herson at (703) 267 -3547.

TEMP WORK A BENEFIT

eventy-eight percent of execu-tives polled by OfficeTeam sayconsistent temporary employ-

ment is comparable to full-time work,so having temporary positions on a re-sume doesn't seem like a gap in em-ployment. This takes the pressures offjob seekers who have felt they musttake any full-time job –maven the wrongone—to have a consistent record.

WHAT WOULD YOU DO IF YOUWERE LET GO TOMORROW?

orty -nine percent of Americanworkers who responded to an Ac-countants On Call poll said they

would look for a job in the same field.Fourteen percent said they would takesome time off temporarily to think orrest, 13% would start their own busi-ness, 9% would look for a job in anotherfield, 7% would go back to school, 4%said they would retire or never workagain, and 4% couldn't decide.

The survey was the next in the"Profile of the American Worker" se-ries conducted by Accountants OnCall. For complete survey details,contact Debbie Buchsbaum at(201) 843 -0006. ■

MANAGEMENT ACCOUNTING /OCTOBER 1994

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COLLIER=JACKSONSHIFTS ITS VISION

BY KATHY WILLIAMSAND JAMES HART

arren Fletcher admits hesounds evangelisticwhen he says Geac /Col-lier- Jackson's software

applications will put financial execu-tives "in control of their own destiny."With VisconShift, information neverbefore available to them will be at theirfingertips. With this brand new suite ofaccounting, human resources, and dis-tribution client /server applicationsjust unveiled, they'll be able to performall the usual accounting and financefunctions with the click of a mouse,then send information throughout thecompany with a touch of a button. In-stead of walking around the companyin search of information or siftingthrough piles of paper reports, theywill point at the computer screen andaccess information through visual im-ages. Financial executives will be ableto do the job for which they've beentrained — analyzing financial data orcreating data to analyze —and makestrategic decisions almost instantly.

Calling himself a "hybrid" who isn'ta real techie but who understands tech-nology and the business of money,General Manager Fletcher (presidentin other companies) has just seenGeac /Collier- Jackson through a com-plete change of focus and a merger.What once was a mainframe host -based computer company that wroteprograms is now a PC -based cli-ent /server company that builds appli-cations to solve business problemsfrom the desktop. Gone are code-driv-en functions that only data processingexperts can understand. Now it's an of-fice on a computer screen, completewith visual images of file drawers,spreadsheets, graphs, and other worktools that users manipulate electroni-cally. Through a partnership with Mi-

22

General ManagerWarren Fletcher

changes hiscompany'sfocus to

PCs andpartnerships.

crosoft, Geac /Collier- Jackson is de-signing these accounting, human re-sources, and distribution applica-tions /solutions for Microsoft Officeproducts. Through its acquisition byGeac Computer Corporation Limited,it will gain a global presence.

In this second in a series of talkswith accounting software leaders, War-ren Fletcher gives management ac-countants a clear- sighted vision oftheir future.

You've been with Collier Jackson14 years and have headed it forfive. What brought you there?

Well, I'm from the old IBM, Big Bluemainframe days of service bureau

computing. My educational back-ground is accounting, finance, and anMBA. Initially out of school I fell intoa job with a subsidiary of The HartfordInsurance Group as an assistant to thepresident, who wanted an MBA tocome in and solve his business prob-lems. That was an absolute joke —thatan MBA could come in out of schooland solve any business problem. So af-ter about six months I went back toschool at night and took more coursesin data processing. We were doing ac-counting systems, and I had an ac-counting background, so I startedshowing programmers how you de-sign accounting systems and how ac-countants think. As a service bureaufor independent insurance agents na-tionwide, we got the typical packagesevery Friday and had a room full ofkey - to-tape machines and key - to-diskmachines, and we batched everythingup and ran it through the computer andshipped out reports.

IQQWere you doing claims?

No. We were doing accountingfor their fees and agency com-

missions and doing all their commis-sion reports so they could pay theirsalesmen. We did all their general led-ger and their receivables —we provid-ed a whole accounting service for in-dependent insurance agents. And wedid all this on IBM mainframes.

Then we were bought by our big-gest competitor. I was invited to stay,but I went to work for GTE Data Ser-vices and got into HP 3000s. I designedcircuit systems. I got good databaseexposure. That was around 1978 whenHewlett- Packard had the best businesscomputer in the world, but nobodyknew it. The HP 3000 in the late '70sand early '80s was probably the besttransaction business midrange com-puter out, but it was not well known.

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In late 1978 I got an offer from Col-Her-Jackson to design a circulation sys-tem for Knight-Ridder newspapers,which were using HP 3000 computers.That was a successful project for Col-lier- Jackson. Then I got an offer fromData General Corp. to be a systems en-gineer for the Southeast. I wanted toget technically educated, and I thoughtthe best place to do it was in a mid-range computer business. During thetwo years I worked there I spent a yearand a half in school —at Data Generalschool, studying operating systems,communications, file manage-ment —all the basics about computersand computer hardware. Then I wentback into application development.

Collier Jackson rehired me to de-sign an advertising system for Knight-Ridder. It was a unique system fornewspapers that included order entry,accounting, receivables, the contractmanagement area, statistical report-ing —the whole back end of a newspa-per environment integrated with thegeneral ledger, payables, human re-sources— systems that are critical tothe business. I've been there since1980, designing and managing, really,almost all the implementation and allthe systems we've ever built. I ve beengeneral manager of Collier Jackson(now Geac /Collier Jackson) since1989.

Q�̀ C What has been the secret of yoursuccess at Collier Jackson?

Understanding the business. Ithink that understanding the technol-ogy and understanding what peopleare doing is important. If you don't un-derstand their problems or the issuesthey are facing, you are going to getsnowed by a technical person wantingto invent something for which there isno market.

FQDoes that happen quite a bit?

Probably more than any soft-ware company would like, but

we try very hard not to. In today's mar-ket, you can't afford to make too manymistakes. We're flying one or two mis-takes high most of the time. Equate itto a pilot —one mistake you may getaway with. Two and you may end updinging the plane. It doesn't meanyou're going out of business, but itmeans you have to be careful becauseyou have limited resources. Things arechanging rapidly. If you've made a mis-take, you'd better cut your losses andget on to something that is profitable

or —look out you're going to be introuble.

I think a lot of companies today arein trouble because of rapidchange —not just because they madesuch bad decisions. But how do youturn a ship quickly? That's one of thebig issues. Technical people likethings that are neat. They like thingsthat interest them. I guess I'm guilty ofthat like everybody else, but, at thesame time, responsibility says, "Thatmay be neat, but can you sell it? Doesit solve a business need ?" Those arethe two critical questions.

IQQSo, then, at Collier-Jackson youhave structured your softwareand your programs to solvebusi-ness needs?

That's right, and it's why our new ac-counting software suite runs on thedesktop. We want to leverage the in-vestments corporations are making inclient /server technology and allowthem to take advantage of networksand distributive software.

F What is Collier Jackson doing inthe accounting realm?

About 65% of our business is inaccounting systems. We've been a VAR

Bob Gront

(value -added reseller) for Hewlett -Packard since 1978, selling and resell-ing their equipment and working withthem as a software partner. In the early1980s, DEC (Digital Equipment Corpo-ration) asked us to move our softwareto the DEC environment, and we be-came a VAR for them as well.

Throughout the '80s we were suc-cessful where HP and DEC were suc-cessful— manufacturing, distribution,and newspapers. (Today our customerbase is largely the same, and we sell tocompanies doing $50 million and up.)In the late '80s we moved our softwareto the HP and DEC versions of UNIX,and IBM approached us to port oursoftware to their UNIX box as an indus-try remarketer. This was the advent ofclient /server and open computing. Iwatched the technology closely. It be-came clear that we needed to engineerour new products from scratch and notport our existing systems. If we weregoing to have true third- generation cli-ent /server products, we needed towrite our systems on the client side,where processing takes place, and takeadvantage of the power of the PC. Thatchanged Collier - Jackson's culture.

That's called learning from your ex-periences and learning how to dothings faster and cheaper so you canstay in business. We decided to be in-dependent. We view ourselves as appli-cations providers. We do not invent anytechnology; we do not want to inventany technology; we want to partnerwith people that have technology. Thelast thing we ever do is try to writesomething new and unique. We want touse tools that are available to the gen-eral marketplace to provide solutions.Period.

We took a pretty bold step in decid-ing not to do host -based computinganymore but to concentrate every dol-lar of R&D on client /server, desktopcomputing —the way we think peoplewant to compute. If we didn't changethe focus of our business, we wouldn'tbe in business in three to four years.We saw a couple of key things happen-ing in the industry. One was the pro-liferation of PCs. Within the next fiveyears, every profitable business willreautomate. Period. They will reauto-mate because they have to to be com-petitive— because the level of serviceand productivity they are going to gainwill be such that they have to. Thetechnology has moved so rapidly inthe last 36 months that what you'veseen in the last 36 is nothing com-pared to what you'll see in the next 36.Price - performance curves will contin-

24 MANAGEMENT ACCOUNTING /OCTOBER 1994

ue to be in that realm of 50% to 100%per year. What you buy next year willcost the same price for twice the per-formance of what you just bought.That's going to continue and maybeeven accelerate.

People want personal computing,whether it's enterprise wide or wheth-er it really is just desktop. But the rev-olution that's taking place is the one ofPC and the price performance curveand acceleration of the price perfor-mance curve. With the introduction ofthe 486, the price performance curvetook a dramatic leap. It also was thefirst time we had enough power on edesktopdesktop to write commercial applica-tions: not CAD /CAM but the 1/0 in-tensive, the interface intensive, thetransactional nature of applications forbusiness. So we took a quantum leapand went with Microsoft.

What will this partnership withMicrosoft mean forthe end user,forour readers?

It means our accounting software —general ledger, accounts payable, andaccounts receivable —are integratedwith the Microsoft Office and will havethe same look and feel as MicrosoftWord, Excel, Mail, and Project. Ifyou're buying an accounting systemfor the '90s and beyond, you're goingto want it to integrate with all the desk-top enablers — )-mail, word process-ing, spreadsheet, and project soft-ware—to increase productivity. Whatif, sitting at your desk and pointing toyour computer screen, you could bringup a mail form, request an expensecheck, send it off and get it approved,with nobody ever touching it exceptyou see your check show up? Wouldthat make you more productive? Whatmakes you productive? Your word pro-cessor, your scheduling system? Yourlife, basically, is on that computer. Whynot integrate your life —and your per-sonal manager and your tools —withyour financial systems? That's produc-tivity. That's what we're doing with ourproducts — integrating them with thedesktop — making them more than justclient /server.

101 Will everybody have access to theI same data, then?

According to how we secure it.Obviously, there will be security re-strictions on who can see what. In ad-dition, think about general ledger. Howmany general ledgers are there in theworld? Some unique things about our

general ledger are that it's completelyconfigurable, it has unlimited numberof segments, unlimited number of seg-ment sizes, so you can roll your owngeneral ledger. We've built a tool tobuild your general ledger. We can giveyou a standard set, but you, as a cus-tomer, can look at that general ledgerand with a little consulting help canbuild one and actually customize thatgeneral ledger for your environment,and we never change the code. We'reactually taking a tool and building atool so you can build a general ledger.

IQQ In your literature, you talkabout automatically devised seg-ments. What is it that you'rereally talking about?

Let's translate segments into account-ing terminology: companies, divisions,products, departments, regions, terri-tories —all the things you would put in-to an account number so that you canreport, summarize, and analyze the da-ta. We ask, "How do you structure yourbusiness ?" We don't say, "Here is ourstructure; see if you can fit in it." That'sthe old way of doing things. The newway of doing things is: "How do yourun your business, customer ?" Webuild to suit. Then your ability is unlim-ited. Once you've done your accountstructure —how you're going to runyour business —you punch a buttonand it generates all the screens andforms for you, customized to your en-vironment.

Our competitive ad-vantage is: You want tocustomize it? It doesn'tcost you a dime to do allthe things you want to do,to build the structure youwant. We think we're go-ing to eliminate tremen-dous amounts of custom-ization, especially on the basicbusiness setup. This general ledgerwill look different everywhere it runsif you have a different way of lookingat your business.

Fol Is this the VisionShift line?

Yes, this is all the VisionShiftline. Now, what happens if your

business changes? Pretty neat—justredo it. We'll take care of changing itand reconverting the data for you.Maybe you've sold a division or you'renot going to do departments anymore.Well get rid of those, restructure, con-vert all the data back, and you71 havea whole new general ledger.

Our first goal is tomake our productsso people can definethe general ledgerthat fits their busi-ness with our tools,but our motto is wellnever get in the way of you doing orchanging business. Our productswon't. That's a tall order. Is that a 100%?No. I'll bet it's 90% today.

Second: We're going to do it in atechnology you can buy in a computerstore. You can go down and buy the ex-act same things we're doing this with,at the computer store. Now, do youhave the people who are trained to takeit to the extent that we have? No. Youdon't need to. But maybe you want toextend it with a report or a customizedreporting tool out of ACCESS, or may-be you want to buy a desktop extensiontool for reporting that you can buy forsignificantly less than you could a fewyears ago.

Now you've reached thefrfghten-ing theoretical, which is thatyoucan buy them at the computerstore.

You can't. You can buy thetools.What'sour value added? It's coming in andsolving your business problems. It'shaving somebody to call. Having some-body to support this software. Havingsomebody to talk to about how to getwhat you want out of this package. Thevalue we provide is the services. We're

there for the long run to helpyou as a business. Is buying soft-ware cheaper than writing it?Absolutely. Could you ever in-vent this and do all this workwith this cutting -edge technol-ogy? Not unless you investedthe kind of money Geac /Collier-Jackson is investing. So we're

going to bring it to the marketplace atvery reasonable prices. But the realvalue of us as a company is the servicewe provide behind the scenes: the in-stallation, the training, the consulting,just solving the business prob-lems —that's what we bring to the ta-ble. We make it look like the way youdo business.

IQQthe VisionShift suites you'rerolling out. What's the timeframe?

General Ledger and Accounts Payablerolled out this month. By the first quar-ter of 1995, Accounts Receivable willbe coming out. Then we have plans to

MANAGEMENT ACCOUNTING /OCTOBER 1994 25

ABOUT GEAC /COLLIER JACKSON

H eadquartered in Tampa, Fla., Collier Jackson was started in 1975 asa computer consulting company that also designed accounting, hu-

man resources, and distribution programs. In 1987 it was sold to Compu-Serve, an H &R Block company, which wanted to start a software division.In October 1993, Collier Jackson became a member of the Microsoft So-lutions Provider Program, which means it creates software that will be usedon the Microsoft Office line of products. In June 1994, Geac Computer Cor-poration Limited of Toronto, Canada, bought Collier - Jackson, which nowoperates under the name Geac /Collier Jackson.

do a whole distribution model and pur-chasing —everything but fixed assets.General ledger and accounts payableaffect the whole organization and ridethrough every department —and pur-chasing, and receivables —those areall business products that not only af-fect the accounting department, but allthe other departments have to dealwith it.

IQQWill management accountantsfind these products differentfrom otherfinancial software?

Yes, because these new products arevisual. If it's visual, you can see it, andif you can see it, you can understandit, and if you can understand it, youdon't need as much training, and if youcan understand your job and see theseproducts, it's more fun. You can actu-ally have a general ledger that peoplelike. That's an invention. But thinkabout it. If you can make accountingfun or understandable —the marriageof accounting with computers —towhat I'd call the staff accountant, sothat they aren't frustrated by how tooperate it what a quantum leap intechnology.

When they see it operate, accoun-tants say, "That's what I want." Andthat's a powerful statement from ac-countants and from managers andfrom controllers. Are there obstaclesin the way? You bet there are as far asgetting it rolled out in the marketplaceand achieving success, but if our con-tact with customers and prospects isany indication, then well solve thoseproblems because it is what they want.

Could you focus that in terms ofthe vision for Collier-Jacksonand Geac and the future?

If you ask CEO Steve Sadler, Geac's vi-sion for and commitment to the futureis to provide a total solution —hard-

ware, software, service, and sup -port—to give our customers a compet-itive advantage and a single source forinformation. With networks, servers,desktop PCs and a variety of cli-ent /server software, the need for a sin-gle source of consistent and compre-hensive support is critical. Geac sellshardware, hardware maintenance,software, consulting services, installa-tion, training —all after the sale sup-port. Geac and Collier Jackson arecommitted to adding new products andservices to meet the changing needs ofcustomers.

Because Geac is a software compa-ny specializing in vertical marketssuch as libraries, hotels, distribution,manufacturing, newspapers, and con-struction, they bring a special full -ser-vice focus to our organization. Webring to them our VisionShift technol-ogy and Microsoft relationship, whichcan be leveraged throughout the orga-nization. Geac also has a Microsoft Of-fice direction and is using Microsofttechnology, so we're a perfect fit.

Another big plus for Collier- Jacksonis Geac's global strategy. They are con-stantly reminding us to think globally.Don't think U.S. or Canada anymore.Think England, think Australia, thinkLatin America.

1 What about financial manage-Q1ment in terms of the future?What are some of the things thatmight surprise management ac-

countants? What will their jobs do orwon't do anymore?

The number one thing that will changewith new technology is they will thinkthey are doing much less mundanetasks and a lot more productive tasksbecause the availability and the accessto information is at their fingertips.They've never had it before. They've al-ways had a piece here, a piece there,figure out, go get paper, whatever it

was, they've never had it. And this willblow them away. They will be muchmore productive and will be able towork on what they were trained todo—and that's analyze financial infor-mation and /or create information toanalyze. They've been able to ask theDP department for it and sometimesget it in two or three weeks or twoyears or never. But this puts financialinformation at their fingertips in a ba-sically unlimited way. Their jobs willchange in that they will have to under-stand the technology —how to usetools to their advantage. It's no longergood enough to understand debits andcredits. You've got to understand thetools you're working with. And that'syour personal computer and thafs of-fice technology. It's going to grow andexpand dramatically within the nextthree to four years. How's their job go-ing to change? They will be in controlof their own destiny.

We're taking what used to be themost secretive world of data process-ing and opening it up to the standardfinancial analyst or anybody in the cor-poration in that they can be in controlof their own life and their own destiny.What's going to change as a result ofthat: I as a manager or you as a man-ager are going to expect results andare going to expect them now. Youaren't going to accept any excuses thatit's not available, or I'm waiting on Joe.It is your job now because there's notgoing to be a Joe to get it for you. Joe'sgone.

It's their job. They are going to haveto provide information faster and bet-ter and in more readable formats thanthey ever had before. If I were a CFOand I were after information and I hadVisionShift, I'd take no excuses for in-formation not being available.

Then the CFO has to understand VisionShift?

Yes. That CFO might not havea Joe either in the future. He or shemay have it on his or her desk. Vision -Shift allows people to concentrate onmore important items. That's why wecall it VisionShift. It's a totally differentvision of how you're going to do busi-ness and where that information re-sides and what the accessibility to it is.It's all driven by the power of desktop.That is redefining the marketplace. Wethink we've guessed right. ■Is this article of interest Yes Noto you? If so, circle 98 99appropriate number onReader service Card.

26 MANAGEMENTACCOUNI7NG /OCTOBER 1994

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SHEDDINGTHE BEANCOUNTERIMAGEBecome an active participant in informationsystems design.

BY WILLIAM M. BAKER, CMA

Cal Chapman has been plant controllerfor 18 years. He no longer peers overlongworksheets and examines handwrittenjournals to complete his daily routine.Instead, he examines spreadsheets, com-puterprintouts, and `transaction vouch-ers" that are supplied by the informationsystems department. Cal's daily routinehas changed, but he feels his role in theorganization has not.

When the plant did call upon Cal foradvice on the activity -based costing(ABC) system that was being developed,he felt important. Production managerssolicited his help in deciding what activ-ities to consider. Plant engineers askedhim to suggest what cost drivers wouldbe best, and they used all ofhis sugges-tions. But while that was exciting work,Cal still is not challenged by his dailyroutine.

Relating hisjob to the articles he readin the March 1993 issue of MANAGE-MENT ACCOUNTING @, Cal says, "I'mstillabeam counter. Today, I count beanselectronically. I count more beans than1 did 18 years ago, but they're still justbeans, beans, beans..." Cal wants to beinvolved in more projects like the ABCproject. He knows, though, that no funds

are available for cost project develop-ment. From time to time new informa-tion comes to him, but all he does is tab-ulate the results and wonder why thecomputer doesn't perform the tabula-tions. ne accountants he read aboutgotout of their ruts. How did they do it?

s Cal can tell you, sometimessimply wanting to play on themanagement team is notenough. How do we get "in

the loop" where key business deci-sions are made? Ironically, the answercan be found in the very area that haschanged the way we count beans.

Decision support systems and exec-utive information systems now per-form many of the tasks that once werepart of accountants' daily routines. In-deed, they probably could perform thetabulations Cal considers so mundane.Such information systems have elimi-nated many of our numbers - crunchingtasks and have expanded our capabili-ties. Activity -based systems have re-placed simplistic, traditional costaccounting systems. Financial score-cards have replaced single measuressuch as return on investment. Butwhile we have been taking full advan-tage of these capabilities, we have ig-nored the opportunities that informa-tion systems offer for sheddingtraditional roles. Some say we haveshirked some of those traditional rolesbecause of our passive involvementwith the development of informationsystems.

Accountants don't design informa-tion systems— systems analysts do.Our role has been to watch. This pas-sive approach to information systemsdesign can become a hands -off ap-proach where users transfer the funda-mental responsibility for internal con-trol to those who design the system.

There are other implications, too.Often it appears as though systems an-

Management accountants can shed their bean counter images by actively participating inthe design of decision support systems.

MANAGEMENTACCOUNTING /OCTOBER 1994 29

TABLE 1 / NOW ACCOUNTANTS BENEFIT FROM PARTICIPATORY

•�Accounting�systems�are�better-�suited�to�accountants'�needs and aremore effective.

•�Accountants�achieve�better�control�over�communications:• They feel more competent with new technology:

They understand the consequences of information systems, forexample, how information affects them and how they affectinformation;

Accountants learn to enhance their own performance and the pemance of other users by accepting systems experts as teachers,

■�Accountants�create�new�roles�for�themselves,�shedding�their�bean-counter images, by

alysts do not listen to users. Analystsseem to do what they think is right forthe system, the design project, and theusers, which causes users to have neg-ative attitudes toward new technology.Sometimes, because of a communica-tion problem between users and de-signers, a system may not be effective,so it is not used. As management ac-countants, our role should be active.We are responsible for ensuringthat effective communication existsthroughout our organization, so per-haps we should not view systems ana-lysts as experts but rather as teachersor consultants. Then we might feelmore comfortable participating.

PARTICIPATORY DESIGN

ince the 1970s, Scandinaviancountries have used the partici-patory design' approach. There is

one fundamental difference betweenparticipatory design and the tradition-al systems development process thatexists in the United States: All usersmust take an active,involved role in thedevelopment of the system. Systemsexperts make recommendations, pro-vide advice, and teach techniques.Managers and nonmanagers make alldecisions about system information,computer technology, and databaseelements. Participatory design hasseveral benefits: Systems are more ef-fective, systems are adapted better tothe user, communication is enhancedthroughout the organization, and bothusers and system experts learn to per-form better.

All users —be they accountants,managers, or clerks — develop compe-tence. They understand the conse-quences of information systems. They

systems designs,

understand their influence on the useof technology, and they understandtechnology's influence on their roles inthe organization. All of the benefits dis-played in Table 1 are available to us ifwe are willing to take active roles insystem design.

WHAT IS THE MANAGEMENTACCOUNTANT'S ROLE?

ut what can we do? We can'tjust inform our systems ana-lysts that we need to switch to

participatory design. That would be apassive approach. Further, both ana-lysts and users would resist this ap-proach. Selling the participatory de-

sign idea is easier in Scandinavia thanhere; the egalitarian culture of theScandinavian countries fits well withthe participatory design concept. Nev-ertheless, we must take the initiativeand become active in information sys-tem design.

We have been showing some signsof activity. Accountants who have shedbean counter images to play on themanagement team have done so by be-coming active members of informationsystem development projects. Oftenwe lead such projects. We are the ob-vious choice for leadership in the de-sign of new cost accounting systems.We are the experts. At first, new pro-duction strategies such as just-in-timecaused us to "drop back and punt" withapproaches such as backflush costing.But we have used our expertise to de-velop and refine new approaches suchas target costing. Management ac-counting is more alive than ever! Someof us have become analytical team play-ers, but we have only scratched thesurface.

As shown in Table 2, there are manydecision - making opportunities whenwe get involved with the design of in-formation systems. Management ac-countants should continue to be thecost accounting experts and assume(reclaim) the responsibility for inter-nal control, provide information to us-ers, and bridge in formation gaps be-tween the needs and goals of users, thecorporation, and information systemresults.

ABLE Z/ THE MANAGEMENT ACCOUNTANT'S ROLES IN ACTYSTEM DESIGN

antinue to shoulder the role of cost accounting expert:

•�Reclaim�responsibility�for�internal�control;

•�Assume�responsibility�for�internal�control�during�new�systemdevelopment;• Ensure safeguarding of all old and new assets,

•�Ensure�efficiency�and�effectiveness�during�implementation�of�bothold and new systems;

• Provide assistance as information caretakers to managers and otherusers:•�Become�information�caregivers;

Help users:'- Articulate their needs,

- Differentiate between carefulness and reluctance;

•�Serve�as�communication�liaison�by�separating�the�needs�of�individualsfrom the needs of the organization;

•�Understand,�delineate,�audit,�and�close�the�gap�between�user�goals,corporate goals, and information syst.� ;; � - -

30 MANAGEMENT ACCOUNTING /OCTOBER 1994

Internal Control. Modern technol-ogy has brought many new elementsto information systems. Consider elec-tronic data interchange (EDO. In thispaperless system, internal control ismore important than ever. If we pas-sively allow systems analysts to designour EDI systems, including the appro-priate internal controls, we haveshirked our traditional role.

Internal control concerns changeas a result of the decision to imple-ment a new information system. Wemust, through continuing education,keep abreast of the information sys-tem development life cycle. If we treatsystems analysts as consultants whoare responsible for the technologicaldetail, then it is up to the manage-ment accountant to understand its ef-fects on internal control. We mustsafeguard assets warehoused in oldsystems while new systems are creat-ed, and we must ensure the efficiencyand effectiveness of both the new andold systems while the new system isbeing implemented. Those internalcontrol areas belong to the manage-ment accountant. During whateversteps are taken to convert from theold system to the new, we should takeresponsibility for assuring that sys-tems remain running and not leavethis assurance to the information sys-tems designers.

User Assistance. Management ac-countants also should be the ones whoget users involved in system develop-ment. Because we are assigned therole of information caretakers, we alsoshould embrace the role of informationcaregivers and care about data integri-ty. As active participants in designingthe system, we can teach users to de-velop competence, articulate theirneeds, and understand their impact—even when they simply are enteringdata.

Even users who are somewhat ac-tive are very resistant to change andvery conservative about their input tothe process, so they need reasssu-rance. The output of information isquite similar to any other productionprocess, so it seems counterproduc-tive to conduct this process with userswho are afraid of the system.

Communication Liaison.Communi-cation must be strengthened amongdata -entry personnel, designers, andmanagers. Managers, with the help ofmanagement accountants as commu-nication liaisons, can separate theirneeds from those of the organization,

ensuring that prescribed organization-al plans are accomplished, regardlessof the type of information system.

Closing the Gaps. In system designthere are gaps among user goals, cor-porate goals, and the systems that re-sult from the design process. The chal-lenge for corporate accountants is toidentify any gaps and to understandwhy they exist by auditing the system -design process.

Such audits are not exercises in sys-tems technology so much as they areexercises in communicaton. Technol-ogy can solve most information prob-lems, but gaps exist because usergoals and corporate goals are not com-municated effectively to systemdesigners.

NOW CAN MANAGEMENTACCOUNTANTS ASSUMETHESE ROLES?

wally steering committees areformed when transaction pro-cessing systems, decision sup-

port systems, or executive informationsystems are designed. The key to be-coming a member of a steering com-mittee is continuing education. Per-sons chosen as members are the mostknowledgeable and indispensable today -to-day operations and possess thedeepest and broadest understandingof the organization's informationneeds.

Most accountants misunderstandthe role of steering committees. Steer-ing committees usually are chargedwith ensuring that the technologiesemployed in new information systemsdo not eradicate the effectiveness ofany individual functional unit of the or-ganization. They are not charged withassuring that strategies are imple-mented properly and that goals areachieved. Management accountantsshould be members of steering com-mittees. Otherwise, our roles in ourorganizations maybe deleted or dimin-ished. More important, we should be-come active, forceful members ofteams of systems designers and man-agers.

These "bean- counter -no- more"roles exist. It is up to us to learn howthey exist in other organizations andapply them to ours. Successful compe-tition and communication depend up-on knowledge acquired throughcontinuing education offered by pro-fessional associations and institutions.By joining steering committees wecan become active members in sys-

tem design. Responsible for safe-guarding assets, we should demandresponsibility for internal control andtrade our bean counter image for oneof leadership in the process of deliver-ing information. ■

William M. Baker, CMA, Ph.D., is asso-ciate professor, Department of Account-ing, John A. Walker College of Business,Appalachian State University. He is amemberofthe Catawba Valley Chapter,through which this article was submit-ted. He can be reached at (704) 262-6200.

'For a complete discussion of participatory design,please read the June 1993 issue of Communicationsofthe ACM.The entire issue is devoted to participa-tory design.

Is this article of interest Yes Noto you? If so, circle 88 89appropriate number onReader Service Card.

Selected for their expertise andknowledge of concepts covered on theCMA exam, twelve specialists havewritten a self - contained review infour volumes (one for each part ofthe exam) of all the information need-ed to pass the examination. Eachvolume consists of text that discussesthe concepts often illustrated byprevious CMA questions with step -by -step instructions on how to answerthe questions, and other CMA prob-lems and solutions that relate to theconcepts discussed. Also available areaudio cassettes (over 60 hours of in-struction) recorded by a professionalreader.FOR ADDITIONAL INFORMATION CALL OR WRITE

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MANAGEMENT ACCOUNTING /OCTOBER 1994 31

ATLANTIC DRYDOCK'S UNIQUECOST ESTIMATIONSYSTEM

Computerized costing keeps this ship builder on an even keel.

BY THOMAS L. BARTON, CPA, AND FREDERICK MCOLE, CPA

hen U.S. space shuttle booster rockets areparachuted into the Atlantic Ocean off theeast coast of Florida, the 176 -foot oceano-graphic vessel, theLiberty Stay,and her sister -

ship, Freedom, are there to make the pickup. They areamong the more than 200 vessels built at Atlantic Marineon the banks of the St. Johns River east of Jacksonville. Theboat that keeps getting "blown up" during "Night Shoot" atUniversal Studios in Orlando, Florida, also comes from At-lantic Marine.

Atlantic Marine shares a location with a sister company,Atlantic Dry Dock Corporation. Both companies are subsid-

iaries of a closely held corporation, Atlantic Marine HoldingCompany. Atlantic Marine does the ship building while At-lantic Dry Dock does the ship repairs and conversions.

Atlantic Dry Dock has a unique cost estimating systemthat is of interest to management accountants because theestimate of a job serves both as a bid for the job and the bud-get for it. A look at this unique system will be instructive inshowing the value of a sound cost accounting system inte-grated into an estimating system with a different treatmentof overhead. The value of the estimate (budget) as the start-ing point for variance analysis and management also is dem-onstrated.

Ship building and ship repair require a substantial invest-ment in plant and equipment. The Jacksonville facilities con-sist of a 4,000 long -ton marine railway with sectional cradles

Liberty Star oceanographic vessel is used to retrieve the space shuttle booster rockets.

32 MANAGEMENT ACCOUNTING /OCTOBER 1994

that permit multiple docking; a 1,500 long -ton marine rail-way; a 900 long -ton side transfer system; a continuous bulk-head approximately 1,000 feet long with full services; a fullservice machine shop featuring computerized lathe equip-ment; a heavy lift service; and complete shops for electrical,carpentry, rigging, paint, labor, and steel crafts.

The companies' capabilities reflect the diverse needs ofthe marine industry. Their carpentry craft shop regularlydoes U.S. Navy minesweeper repairs as well as yacht -qualityteak and mahogany work. No metal is too exotic for theirsteel shop.

THE CMA IN THE HOT SEAT

he management accounting system is very much apart of the everyday life of Atlantic Dry Dock. Be-cause the bid for a job is the budget, it is also the basis

for variance analysis. With this system, an accurate bid isessential to obtaining, controlling, and evaluating any job.Craig Wood, CMA, is the manager of estimating at AtlanticDry Dock. He uses his expertise as a certified managementaccountant to oversee a very critical and delicate process ina tough international economic environment.

Ship repairs and maintenance are not for the timid! In thisglobal economy, it is a fiercely competitive business. Andwith his job, Craig sits squarely in the "hot seat."

Craig's career is a good example of how valuable a CMAcan be to an organization. He started at Atlantic Dry Dockas a staff accountant in the cost accounting department. Sev-eral years later he was promoted to his present job. Over theyears, he has made a significant contribution to the growingsuccess of this company.

Craig is an active member of the board of directors of theJacksonville Chapter of IMA. This participation representsboth a personal commitment of service to the profession ofmanagement accounting and is in accord with the companycreed cited in the sidebar, 'Me Company's History." Withthe support of the company, Craig has hosted numerous costaccounting class field trips from the University of North Flor-ida to demonstrate the system and to show off the yard.

BID PREPARATION

tlantic Dry Dock is no different from any other orga-nization in that it needs to keep careful records of alltransactions. Atlantic tracks all accounting, purchas-

ing, and accounts payable transactions using a relational da-tabase that was developed in -house and runs on an IBMAS /400. To the extent possible, related transactions, exceptlabor, are linked together by the item being purchased, paidfor, or used. For example, the job number, item number, andvendor of a certain type of cable used in the electrical systemof a large boat or small ship are carefully recorded with eachtransaction.

Let's say the preparation of the bid for a particular jobcalls for that electrical cable. The estimator who prepares thebid uses a 486 desktop computer running Lotus 1 -2 -3, Word-Perfect version 6.0A, and Prima Vera for scheduling. Thedesktop computer is linked to the AS /400 database, and theestimator queries for price and other information about theelectrical cable in question. The database contains informa-tion from the accounting, purchasing, and accounts payablefiles.

The query usually begins by accessing the materials cat-alog. The catalog will display every material used in the yard.The estimator will select the cable in question. The next me-

nu selection will cause the system to display, in chronologicalorder, transactions involving the use or purchase of the ca-ble. The presentation of the information requested by thequery enables the estimator to determine the date, vendor,and cost of the last purchase of that particular kind of elec-trical cable. If the purchase is a recent one and in a quantityneeded for the job under consideration, the estimator canelect to use the price that was last paid.

During such a search, the two key fields are job numberand item number. The item number is a prescribed task thatis a part of the job. These two key fields are what the esti-mators tend to remember most easily as they seek to extrap-olate to the future job from the past work data.

The estimator, however, has three main ways of looking

Craig Wood, CMA, inspects repair and maintenance work on U.S.N.ship at Atlantic Dry Dock.

up the price of an item of material in the database. First, hecan use the product catalog described above. Second, hecan look up the item from previous jobs in what is describedas a job cost requirements list. Third, the inquiry can bemade by vendor name. If there is doubt on the part of theestimator as to an applicable price, then a phone call to sev-eral vendors may be necessary to determine the currentprice of the cable.

MANAGEMENTACCOUNIING /OCTOBER 1994 33

Once the estimator has determined the cost price he isgoing to use, he enters it into a spreadsheet database thatis formatted with an in- house - developed template for esti-mating. The screen and subsequent printout present the costof the item of labor and material.

The rate study then displays the same item several timesusing different bid prices to the customer. Each alternativeshows the amount of cost, the amount potentially bid to thecustomer, and the amount of potential gross profit for thejob. The template gives the user the flexibility of choosingfrom several potential billing prices and the resulting grossprofit from the job.

The word "item" used in this discussion is narrower thanwhat would be called an "item" in the invitation to bid, bid,or contract. An "item" in bids and contracts is a task to beperformed, for example, a job painting the underwater hullof a ship. This "item" would involve a large number of smaller"items" of material and labor.

In the determination of the price to use in the bid, theestimator sometimes must pursue the matter further.Records of past transactions and comparisons of quotes fromvendors do not always provide the most useful price for amaterial or labor item. Experience and good judgment of theestimator are an essential part of the process, especially asthe estimator may be familiar with a job's history.

Preparation of any bid requires an analysis of job specifi-cations, which most often are supplied by the customer. Inthe case of the U.S. Navy, the job specifications for a missilefrigate may consist of hundreds of pages. For especially com-plex situations, one item's description will consist of five orsix pages. Drawings often are included.

� t

0

J 0

FIX MY BOAT, SHE BROKE

he estimator must understand and interpret the speci-fications in terms of the materials and labor required.Occasionally a customer simply comes in and says,

"Fix my boat, she broke." This points up the need for theestimator to develop the `work scope." This is a part of thecontract entered into by the owners and a shipyard. Herethe experience and good judgment of the estimator are mostseverely challenged.

In any situation, the estimator converts the specificationinto explicit material items and labor tasks. In the case ofmaterials, the procedures described above are invoked to de-termine past or current material prices. The estimator refersto drawings, if available, to estimate the exact amount of ma-terial needed for the proposed job. In the case of the esti-mated labor requirements, the estimator needs to use hu-man judgment to determine the hours requirement and thevarious trade or skill level requirements.

If it is a job to repaint the hull of a missile frigate, pastjobs for similar frigates or hulls would be looked up in thedatabase on the IBM AS /400. One cardinal rule in marinebuilding and repair seems to be a lack of uniformity. No twoships or seemingly similar jobs are exactly alike. They mayappear very similar, but they are, almost without exception,different. Ships are not built to be uniform as are airplanesor automobiles.

A good estimator has to recognize the similarities and thedifferences. Where similarities are recognized, the databasecan provide valuable insight as to what the proposed job willrequire. Where differences exist, they must be recognized

Two ships on the 4,000 -ton marine railway with section cradles that permit multiple docking. Inset: Craig Wood and Chief Bastia of the BahamasCoast Guard survey underwater hull damage to a patrol boat.

MANAGEMENTACCOUNTING /OCTOBER 1994

and provided for. For example, two missile frigates may ap-pear to be exactly alike. A hole cut in the side of one frigatepreviously worked on was the correct procedure to removeand repair a large item of machinery deep within the hull.For the proposed job a hole could not be cut in the sameplace because the bulkheads and pipes are slightly differentas to shape or location. This difference would have to betranslated into different time, material, and labor-hour re-quirements. Many times the experienced estimator must re-member or recognize such differences and be governedaccordingly.

WHAT ABOUT OVERHEAD?

logical question at this point may be, "Well, whatabout overhead?"How does overhead figure into thejob estimate, and how is it applied later to the actual

job? It isn't in the way one might expect. Overhead is notconsidered a job cost factor in Atlantic Dry Dock's work en-vironment. It is for all practical cost accounting purposesignored.

No overhead cost pool is used to allocate overhead coststo various jobs or items within jobs. All cost items relativeto a particular job are categorized as either material or labor.All costs are considered direct. Variable overhead is chargeddirectly to the job as either material or labor. The use of tools,machinery, and equipment owned by Atlantic Dry Dock andAtlantic Marine are categorized as corporate overhead onlyon the annual financial statements.

Fixed overhead as management and financial accoun-tants are accustomed to seeing it is charged directly to a joband is not allocated from pools. At the time of the preparationof the bid, however,a percentage of material and labor is add-ed to the estimated cost to determine the bid price. This ad-dition to the bid also accommodates the cost of the use ofvarious consumable supplies and hand tools used in the per-formance of the work that it would not be cost effective toallocate. Accounting for the actual job costs doesnot involvethe allocation of such overhead to the various jobs or items.

At year -end when the annual financial statements for thecorporation are being prepared and audited, then overheadis calculated and recorded according to GAAP requirements.The corporate overhead consists of the use of the buildings,tools, and equipment owned and used during the year. Incontrast to the enormous cost of material and labor in shipbuilding and repairs the amount of overhead turns out to berelatively small.

For any small equipment purchased or rented for use ona particular job the cost is charged to the job in the materialcategory.This seemingly unorthodox treatment of overheadis a significant simplifying feature of Atlantic Dry Dock's ac-counting and estimating system. It is not unlike the currenttrend in management accounting to merge direct labor intooverhead.' This practice often is carried out in the modernmanufacturing environment when labor is not "material" rel-ative to total overhead costs. In the situation at Atlantic DryDock the total overhead is not "material" relative to total ma-terials and labor. Hence, the merging of overhead into ma-terial. After all, one might reason that part of the wear andtear of a building, a piece of equipment, or tool is much likean item of material. In any event, it is a significant accountingsimplification.And simplification of accounts and accountingprocedures seems to be essential for all organizations in thecurrent global competitive environment.

Once the cost of an item is known from a search of thedatabase, the data are downloaded from the relational data-

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base via a commercial software program, Elite, into the in-house- developed Lotus 1 -2 -3 costing template describedabove. It is in this spreadsheet that the selling price is de-termined for the items of material and labor.

MEETING OF THE MINDS

The estimator will combine all the items of materialsand labor on the Lotus 1 -2 -3 template. A review to en-sure that all the items in the bid specifications or the

estimator's interpretation of the job have been adequatelyconsidered is done in the estimating department. Then amanagement meeting is held to review the bid before it issubmitted. At this meeting the price at which the materialand labor will be sold is determined. One of the items re-viewed most often in such a meeting is the labor rate usedand the price at which a material item will be sold. The useof the Lotus 1 -2 -3 template is central to that process.

The setting of the labor rates is perhaps the most difficultand the most critical part of any bid. A mistake in either di-rection can cause the company to lose the bid or lots of mon-ey. Review of the labor rate is critical to the success of thebid and the subsequent job because it is often the largestcost item. The labor rate is really the core of this business.

The company founder uses a guiding philosophy in thebid - setting process. It goes something like this: "I have neverseen an empty shipyard go bankrupt. I have seen a lot ofthem that bid too low to get the job go broke."

During the progress of the job, the estimate serves as thebudget. Table 1 shows the use of estimate /budget informa-tion for variance analysis while a job is in progress. (In thishypothetical situation all the figures are imaginary.)

MANAGEMENTACCOUN11NG/ OCTOBER 1994 35

r r jr 7

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" M a n

Atlantic Dry Dock has won the bid and contracted witha ship owner to refurbish and refit the M/V North Florida(M/V means motor vessel). The ship is 400 feet long andweighs 3,000 tons. Table 1 looks at job performance on justone item of the specifications. The item is to clean and paintthe underwater hull. The job is almost two -thirds done at the66% mark. The estimate shows the labor at 745 hours andmaterials at $26,500.

Notice that the labor is broken down into various task cat-egories with the use of a rate per unit for each category. Nextis shown the established billing rate for this job of $25.00per hour. Next the report shows the status of the job withthe blasters 85% complete and the painters 35% complete.Here the report shows the estimate compared to actual andany variances. The estimators at Atlantic Dry Dock wouldEke their estimate to be within 10% of actual. The bottom ofthe report displays a summary of the actual financial resultsof the project to date.

Such reports can be prepared at any point in a job. Rou-tinely they are prepared at the end of each week. In this type

of work, large variances can and do occur easily. For exam-ple, sandblasters can clean the hull down to bare metal. Athunderstorm can come along, get the metal wet before itcan be primed, cause it to rust, and additional sandblastingwill have to be done.

Analysis and explanation of such a variance, which canbe quite large, is relatively easy. But not all variances are ex-plained so handily. Sometimes shipfitters and welders en-counter a situation in which they are required to cut a largehole at some specified location in a ship's hull only to dis-cover before beginning that a structural beam, a pipe, orbulkhead is not where it was thought to be from a study ofthe drawing or an inspection of the vessel or is not in theshape or configuration expected. It is determined that a dif-ferent procedure or a different shape and size hole cut in adifferent location is necessary. This problem complicates thejob and, needless to say, causes a significant labor variance.

Understanding and explaining the variance is not just anaccounting exercise. It is a management, worker, and esti-mator learning process. Cost accounting plays a critical role

TABLE 1 / ATLANTIC DRY DOCK CORPORATION-JOB COSTCYCLE EXAMPLE

Job name M1V North Florida Item number 1.00 Clean and paint underwater hull

ate Unit Labor Labor Labor Material Unit Quantity Price Mate.(sq ft) per unit unit factor hours rate per unit co

Sand blast 20,000 43 Sf /Hr 465 1.00 465 15 Lb /Sf 300,000 .0400 12,000

Primer 20,000 200 Sf /Gal 100 0.50 50 200 Sf /Gal 100 15 1,500Intermediatepaint 20,000 125 Sf /Gal 160 0.50 80 125 Sf /Gal 160 25 4,000Anti - foulingtop coat 20,000 100 Sf /Gal 200 0.75 150 100 Sf /Gal 200 45 9,000

Total 745 Hours Total 26,500

Labor Labor Labor Material Sales Gross Profit_ profit percent

Clean andpaint 745 15.00 11,175 26,500 47,775 10,100 21.14%

Billing rate 25.00 Profit on material 1001

RaborPercent Estimate Should be Actual Projected

Variance Material ActualVariance

complete estimate

Blasters 85% 465 395 390 459 (6) 12,000 8,876 (3,124)

Painters 35% 280 98 120 343 63 14,500 13,225 (1,275)

Total 745 493 510 802 57 26,500 22,101 (4,399)

bor `a or Labor Labor Material Sales Gross Profit LaborVariance Variance'

hours rate cost cost price profit percent estimate estimate

Blasters 478 14.75 7,051 10,995 465 13 12,000 (1,005)

Painters 252 17.00 4,284 16,545 280 (28) 14,500 2,045

Total 730 15.53 11,335 27,540 47,775 8,900 18.63% 745 (15) 26,500 1,040

38 MANAGEMENT ACCOUNTING /OCTOBER 1994

Diamond Lady-201'x 46' sternwheel casino vessel built for Steamboat River Cruise Unes, Battendorf, Iowa. This 1,200- passenger casinovessel, along with her sistership Emerald Lady, provides gaming entertainment in Biloxi, Mississippi.

in that management and learning process. Of course, cor-rective action is taken to prevent a cost variance, if that ispossible. While preventing a variance is not always possible,learning from the variance is always possible. The lesson isnot to make the same mistake twice!

Many companies (including Atlantic Dry Dock) in thepast may have been happy to have variances fall within the10% category. In this intensely competitive global economicenvironment the 10% margin for error seems to behigh — particularly so in terms of the large amounts of moneyand risk involved when working on large boats and smallships. With the lack of uniformity in marine vessels men-tioned before, however, the 10% margin seems to be aboutas close as the estimator can come.

Automation of the bid /estimate process at Atlantic DryDock is integral to its success. The basic building block forthe use of the computer and its electronic spreadsheets wasthe need for attention to detail with accuracy and speed.Preparation of bids for marine repairs requires writing andcopying many numbers into many locations. Just copying thenumbers runs the risk of errors such as transpositions. Thencomes the problem of adding the many columns of figures.Accurate addition and multiplication used to be a major wor-ry in the estimating department.

Another problem was the need to make countless chang-es in those figures and to recalculate them. Leaving just oneitem out of a bid could cause a major problem. Needless tosay, confidence in the accuracy is greatly increased throughthe use of electronic spreadsheets. Use of the estimationtemplate is essentially a device for sensitivity analysis. CraigWood believes that use of the computer in the estimating de-partment at Atlantic Dry Dock has increased productivity byone and a half times.

Human judgment, however, is still very much present.People with good judgment and experience always will bea requisite in any work environment.

A SYSTEM THAT WORKS

tlantic Dry Dock offers a good example of the use ofcarefully collected past accounting, purchase, and ac-counts payable information assembled in a relational

database. The data in the database are converted into esti-mate /flexible budget information by an experienced estima-tor using a Lotus 1 -2 -3 template. The estimate becomes thebudget for the job, if it is won. Basic cost accounting and com-puter skills are essential to the accounting, estimating, andmanagement process. At Atlantic Dry Dock the system andthe people work well together. Could it be improved?

Artificial intelligence may be the next step for such an ac-counting situation. An artificial intelligence system used bythe estimator may enable Atlantic Dry Dock to improve thecomputerized part of its bid /flexible budget estimation sys-tem. Estimating at Atlantic Dry Dock and in the related com-panies requires much interaction between the computer andthe estimator. The computer cannot do it all. The good judg-ment and experience of the estimator would still be verymuch present. The huge amounts of money involved in shiprepairs and maintenance and ship building may justify theexpensive venture into artificial intelligence. IN

Thomas L. Barton, CPA, is the KPMG Peat Marwick FellowofAccounting at the University of North Florida. He is a mem-ber of the Jacksonville Chapter, through which this article wassubmitted.

Frederick M. Cole, CPA, is an associate profesrorat the Uni-versity of North Florida and a member oftheJacksonville Chap-ter.

'Peter F. Drucker, "lice Emerging TheoryofManufacturing,"Harvard BusinessReview, Vol. 90,No. 3, May-June1990, pp. 94-102.

Isthis articleofinterest to you? If so, circle Yee Noappropriate number on Reader Service Card. 86 87

MANAGEMENT ACCOUNTING /OCTOBER 1994 39

A TLAN TIC MARINE

THE COMPANY'S HISTORY

The founder and his grandfather were no strangers to ship -yards when they started Atlantic Marine on April 1, 1964,and Atlantic Dry Dock in 1966. First his grandfather and

then his father had owned and operated a large shipyard onthe south bank of the St. Johns River in downtown Jackson-ville, Florida, since the late 1800s. The founder moved to At-lanta to work as an engineer. But something was left undoneon his personal agenda. He decided to strike out on his ownin the shipyard business.

He returned to Jacksonville and raised capital from familymembers and venture capital investors. He purchased an oldmarina, named Markussen's Marina, on the banks of the St.Johns River at its intersection with the inland waterway, knownlocally as Sister Creek. He started his business with a dockand a large "A" frame to use as a lift, ambitious owners, andsome hard - working shipfitters.

Atlantic Dry Dock Corp. is now part of a family of companiesconsisting of Atlantic Marine, Inc., and Atlantic Dry Dock Corp.of Jacksonville, and Alabama Shipyard, Inc., and Atlantic Ma-

rine, Inc., of Mobile, Alabama. All these companies are sub-sidiaries of Atlantic Marine Holding Company. The combinedcompany had annual sales in 1989 of about $83 million. Thebulk of the company's work is ship repair and the remainder,ship building.

The Jacksonville facilities consist of 36 acres along a half -mile of waterfront. Atlantic Marine's 1989 annual sales were$26 million and Atlantic Dry Dock's were $32 million.

The Company has grown and prospered on a corporatecreed that says:

It is our firm conviction that we will strive to conduct ourbusiness operations using the highest business ethicsand principles so that we will gain and retain the respectand trust of our customers, our employees, and the com-munity in which we live.

40 MANAGEMENT ACCOUNTING /OCTOBER 1994

WHO'S IN CHARGE:

CIO OR CFCI?Financial executives must help make information technology

decisions for their companies.

BY SHELDON R. GAWISER

oday's bet - the - company impor-tance of information technol-ogy (IT) decisions calls for anew type of teamwork between

chief financial officers and chief infor-mation officers. Financial managersmust take the initiative toward estab-lishing a broader role for themselvesin technology decisions. A large phar-maceutical company's recent IT acqui-sition shows what can happen if theydon't. By the time the CFO was lookingat potential financial management soft-ware, the CIO already had chosen

hardware, an operating system, a data-base management system, and a com-puter language —with no input whatso-ever from finance. The result? Thecompany was seriously constrained inits choice of software, and financecouldn't get all the options it thoughtwere necessary to have to save thecompany money. To make mattersworse, the CFO did not feel he hadbeen slighted but believed instead thathe had no business being involved indecisions about technology.

The pharmaceutical company CFOis by no means alone. In a significantnumber of companies there has been

an abdication of thetraditionalrole offinancial management in key technol-ogy decisions. This situation is danger-ous for the companies involved, for thefinancial management at those compa-nies, and even for the information tech-nology departments because they areat risk if their decisions are wrong.

Financial executives can help re-verse the trend if they get involved, getback the authority they once had, andparticipate fully in information technol-ogy decisions. How? First they mustunderstand the IT decision processand how to manage it. Too often theyare involved in decisions only in the

f

Unless the f inance area is part of the team that decides what technology its company needs, the f irm could end up with fancy computersystems that don't perform the right tasks.

MANAGEMENT ACCOUNTING /OCTOBER 1994 41

narrowest sense —for example,"Should we lease or buy ?" In the phar-maceutical company case, the IT de-partment selected and purchased asales and marketing system beforetalking to the CFO. There was no dis-cussion of the financial implications ofthe information that the system eithercould or could not process. There wasno discussion of integrating the infor-mation with finance. No one askedwhat information financial managersneeded for their reporting and futureplanning purposes. The financial exec-utive must take a more proactive role.

REGAINING CONTROL

financial management used tohave more control and now mustfight to get it back. Before 1980

the CFO's participation in technologydecisions was considerable, but withtechnological complexity came the iso-lation of the information technologyfunction. Yet information technologydecisions should be treated the sameas other bet- the - company decisions,such as constructing a new plant, intro-ducing a new product, or downsizingthe workforce. Even though opera-tions or marketing or human re-sources might take the lead in those in-stances, finance would be involvedevery step of the way.

Although it is the IT executive's jobto understand the information technol-ogy world and what is available to im-prove company performance, financialmanagement oversees the cost justifi-cation of information. But companiestend to forget: Information alwayscosts money. Therefore, each piece ofinformation must be prioritized as inother acquisitions, and successful ITdecision making requires a CFO to say,"No, we don't need to track that," or "Atthis cost we can afford to track that."

Financial executives probably willhave their say if they structure andcontrol the decision - making process.The CIO will not step meekly out of aleadership role, so the CFO needs tomake an effort to become an integralpart of the decision - making teambecause:

• Coordination with the CIO or othertop information executives is impor-tant on a day - to-day basis, not just insituations involving change.

• Bet - the - company decisions requirethe participation of financial manag-ers who understand the type of in-formation that needs to be collectedand reported for overall success.

■ Without financial participation, de-cisions could be based on emotionrather than finance. Companies areevaluated on their financial perfor-mance, but, without financial man-agement's input, cost justificationcan go out the window. For exam-ple, in a recent article in a computerpublication, an information technol-ogy manager extolled the fact thathe saved his company $20,000 inconsulting fees by using internalpeople to design a database. He pro-ceeded to relate with pride how 25people met several hours everyweek for six months to accomplishthis feat, without realizing he hadexpended 1,300 to 1,400 peoplehours to "save" $20,000.

Without true cost analysis, the in-formation technology staff may at-tempt to collect and report everythingand may miss important information.When financial management is not in-volved, this missing information mightbe exactly what finance needs to knowfor statistical accounts and modern fi-nancial analysis methods.

The financial executive's full partic-ipation in technology evaluation is thekey to avoiding such pitfalls. To under-stand the requirements of the process,decision makers must know the risksinherent in the selection and introduc-tion of new technology.

FOUR RISK FACTORS

ary Gagliardi, president of Four -gen Software in Seattle and au-thor of several books on infor-

mation technology, highlights theserisks in his book, Client /Server Com-puting. • Killing the Mainframe Dinosaurand Slashing Runaway MIS Costs. Hisfour risk factors are technological, op-erational, economic, and political.Each can be evaluated in terms ofshort- and long -term consequences.

Technological Risk.The short -termrisk is that the technology will notwork. Unbelievable as it may seem,vendors of nonperforming technologyseem to be able to provide lists of ref-erence accounts. The referencesmight be using the vendor's older tech-nology or are so enamored of the newtechnology that they will recommendit even though they cannot get it towork in their own shop.

Longer term, the technological riskis that the proposed solution is at theend of its life cycle and soon will be ob-solete. While this issue is less serious,

it can have strong implications for thelong -term costs of a solution.

Operational Risk.This is the riskthat, even if the technology works, itdoes not work for your company.

The short -term operational risk isthat the company can't get what itneeds from the system today. Thisproblem often is the result of the buyerrelying too heavily on a system demon-stration. A demonstration does notnecessarily mirror the buyer's environ-ment. The proposed system shouldhandle what the company needs, notwhat the programmer anticipated.

The long -term operational risk,which generally is ignored, is whetherthe system will be able to adapt withthe company as it and the worldchange. The company must evaluatewhether the technology selected canchange to meet future challenges —two years or one month into the future.

Economic Risk. Even if it works forthe company now and into the future,is the technology worth the cost? If thecost is so high that it erodes a compa-ny's ability to compete, the answermust be "no."

The short -term economic risk isthat the costs of implementing the sys-tem will be higher than estimated. Sys-tems usually exceed the budget, butthis risk can be reduced through bettermanagement of the process.

The long -term risk is that, overtime, the costs of supporting andadapting the system are hidden andare not estimated, which is one of themost common cost justification errors.It is difficult to estimate what mighthappen in the future, although corpo-rate reference accounts often can shedlight on their experiences with a par-ticular solution. In this situation, an in-correct estimate is better than failureto consider potential costs.

Political Risks.Shared by every de-partment involved in the decision pro-cess, the short -term risk is that em-ployees will not be happy with thesystem and will not support it. Thisproblem is significant because withoutthe support of the staff, the solution issure to fail.

The long -term risk is that personsoutside the organization — customersand vendors —will be unhappy. In theextreme case, a company can end upwith a wonderful technology solutionand no business.

All four risk factors can be reducedsignificantly through the financial ex-

42 MANAGEMENT ACCOUNTING /OCTOBER 1994

ecutive's involvement in the keysegments of the decision process:proposal evaluation, needs analysis,vendor selection, risk management,and negotiation /implementation.

EVALUATING THE PROPOSAL

ome corporate leaders believethat only information technol-ogy people can understand IT

proposals. Wrong! When a financialexecutive is involved in the deci-sion-making process, it is absolute-ly critical that he or she understandthe proposal to know whether itmakes any sense for the business.

Financial managers must not be-come distracted, confused, or in-timidated by hardware and softwareissues. Vendors often baffle non-technical people with technical in-formation, complex illustrations,and terminology. "Technobabble"can be deciphered. For example,when a customer hears a vendorspeaking about " risk-based" com-puters, the words really are a RISC(reduced instruction set computer)system under discussion.

Finance executives also must in-sist that vendors make their propos-als clear. Lack of clarity can be a realthreat to success. For example, onecompany was acquiring a new com-puter system, but no one on thestaff understood what the vendorwas proposing. Fearful of appearingfoolish, they failed to ask questionsand ended up with the wrong solu-tion. Remember: The only stupidquestion is one to which a person al-ready knows the answer.

Of course, it helps to knowenough to ask meaningful ques-tions. Someone who has no stake inthe acquisition might help translateif the finance department doesn'thave the necessary knowledge.Higher -level data processing publi-cations, such as Computerworld, al-so are good sources of informationas are vertical market publicationsand accounting magazines that of-ten include information technologyarticles.

ANALYZING NEEDS

0 nee finance understands theproposal, it should comparethe needs of the company to

the abilities of the system througha needs analysis that simply an-swers the question, "Who needswhat information, and when do they

MANAGEMENTACCOUNTING /OCTOBER 1994

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need it ?" It is accomplished by askingthe people who actually do the work,but often no one asks.

Once the financial group identifiesthe needed information, it must ana-lyze the costs and benefits of capturingthat information. Unfortunately, unlessthe finance department is involved,many companies don't perform a cost-benefit evaluation. In fact, rarely is anythought given to the relative costs andvalue of information. Information thatseems useful before such an analysisoften seems very expensive when com-pared to the cost of capturing it.

Many companies make the mistakeof viewing information costs narrowly,as IT department costs alone. That ap-proach fails to recognize the cost ofpeople to gather and review the infor-mation. Other pitfalls can include toomuch information, too little informa-tion, or incorrect information. For ex-ample, if a company generates numer-ous reports, executives need toevaluate each item of information asthough they were buying it each timea report is run.

SELECTING THE VENDOR

finance's expertise can forestall di-saster in the area of vendor selec-tion. Even with the availability of

nonproprietary and more standard-ized hardware and software solutions,known as open systems technology,companies still depend on the vendorfor upgrade paths, support, and ser-vice. Who better than finance to eval-uate the vendor's business for long-term viability —or at least for as long asthe company will need it?

Financial executives should pushfor the selection of an open system,which means the company can replaceits hardware with that of another man-ufacturer and still run its applications.On the software side, the open systemsoftware will be based on industrystandard languages that will run on avariety of hardware platforms.

SEVERAL RISKS NEED TO BEMANAGED

roper vendor and vendor pro-posal evaluation will go a longway toward reducing techno-

logical risk. In analyzing the proposal,CFOs should be aware of attempts tomake the company a guinea pig fornew technology. The leading edge intechnology solutions is likely to be-come the "bleeding edge." If a compa-ny opts to be first buyer, it must under-

stand the full price it might have to pay.It should not consider brand new tech-nology for any mission critical sys-tems. New software is always late com-ing to market, and, even when it comesfrom large, experienced companies,sometimes it will not function properly.

CFOs can minimize operational riskin new system acquisition by keepingin mind where the company is goingand comparing those needs to thelong- and short -term capabilities of anysystem under evaluation. Is the compa-ny downsizing, rightsizing, growing?Are there plans to develop new prod-ucts or new markets?

Here is an opportunity for the finan-cial executive to contribute his or herknowledge and understanding of thebusiness and its future. One of our cli-ents has grown at least 50% per yearover the past 10 years. In some years

Don't consider brandnew technology for

mission criticalsystems.

sales volumes more than doubled overthe previous year. The cost and disrup-tion of changing systems to accommo-date this type of growth would be enor-mous. Fortunately, the company haddesigned a scalable system. Over thetime frame it established, it grew fromfewer than 25 users to more than 100with no need for retraining. The com-pany upgraded and changed hardwarefrom vendor to vendor during the de-cade without significant disruption.

A company also must involve staffand department heads who will be us-ing the system asearly in the decisionprocess as possible. If staff membersare consulted after the fact, they mayreact more negatively than they mighthave otherwise. Benefits to consultingusers include insight into how the com-pany actually works and sensible sug-gestions on how to improve businessprocesses. Such consultation willsmooth the way for the implementa-tion and lessen political risk.

Often employees are afraid they willlose their jobs because of new technol-ogy. Often they are right. If the systemwill mean workforce reduction, compa-nies must communicate with the em-ployees they want to keep. This diffi-cult process should be coordinated

carefully with the human resourcesdepartment.

NEGOTIATION/ IMPLEMENTATION

hen the evaluation and risk re-duction process is complete,the finance department

should remain involved throughoutthe negotiation and implementationphases. In negotiating contracts withvendors, they should keep in mind sev-eral key points. Who pays if the systemfails? What are the performance stan-dards? What is the project schedule?Who owns the system? The answers tothese questions are: The vendorshould not be able to charge a buyerfor a system that doesn't work; the cri-teria for acceptance should be statedclearly in the contract; performancestandards and schedule should be in-cluded in detail in the agreements toprotect against lack of performance orlate delivery.

Ownership of the system is morecomplicated, particularly in the area ofsoftware licenses. CFOs must under-stand terms and conditions of all con-tracts. For example, if it becomes nec-essary to move software to a computerfrom a different vendor, is that anothercharge?

Although many companies allowthe information technology area to de-termine when a new system should beimplemented, finance may be in thebest position to make the determina-tion. Information technology may notknow about other changes within thecompany or demands on the time ofpeople key to the process.

What's the payoff for the involved fi-nancial executive? Increased involve-ment in information technology deci-sion making improves the financialexecutive's value to the company. Itdemonstrates an understanding of op-erations and keeps the financial persona key player in major decisions. Per-haps most satisfying to both the finan-cial executive and the company, itmakes the business better. ■

Sheldon R. Gawiser, Ph.D., is presidentof GawiserAssociates, a consulting firmspecializing in information collectionand management in the technology ar-ea. He also writes a newspaper column,"Computers & Business." He may bereached at (203) 331 -9300.

Is this article of interest Yes Noto you? If so, circle 94 95appropriate number onReader service Card.

44 MANAGEMENT ACCOUNTING /OCTOBER 1994

THE BANDITSStrategic technologies deter check fraud.

BYNAMES L. LOOMIS

heck fraud costs Americanbanks $11 billion a year —more than the combined totalsof credit -card fraud, theft from

automated teller machines, and armedrobbery. During 1992, 15 bad checkswere being written every second, withaverage loss recovery reported at lessthan 15%. Because a substantialamount of check fraud goes unreport-ed, these figures actually are quite con-servative. No longer willing to take re-sponsibility for these losses, banksinsist corporations must show thatthey have been exercising "due dili-gence"— taking precautions to guardagainst check fraud —or remain liablefor covering phony checks drawn ontheir accounts.

One New England company madesuch a mistake. When it caught a high -ranking financial officer in the act ofcashing company checks, the compa-ny accepted its employee's plea forclemency and, instead of reportinghim, accepted an IOU for the missingfunds. When the employee continuedto steal, the company found its ac-knowledgment of prior theft left it com-pletely liable for all lost funds. Al-though the employee subsequentlywas fired and prosecuted, the companyis still struggling to recover from its fi-nancial losses.

As this example illustrates, corpora-tions and their officers now are respon-sible for proving that they have takenevery possible or reasonable precau-tion to guard against check fraud. Andthey are up against increasing odds.

Jerry Arnip /SuperSfock

There are 15 bad checks written every second.

Technological advances, includinghighly sophisticated and easy -to -usescanning devices, laser printers, andcolor copiers, have made it easier thanever to produce phony checks.

In 1993, a New England check fraudring netted $500,000 before authoritiescaught up with them. The group, usingnames and active account numbers oflegitimate businesses, prepared checkstock and wrote checks payable tothemselves. Then they used courtesycards to cash these checks, which theyclaimed were paychecks, at as many as15 supermarkets per day.

A Boston -based insurance companybecame their biggest victim when the

firm's account number was lifted froman insurance claim check. BetweenMay and June, close to 60 fraudulentchecks drawn against the insurancecompany account were cashed at su-permarkets in Massachusetts, RhodeIsland, and Connecticut. Althoughbank officials recognized the checksas phony, saving both the bank and theinsurance company the cost of cover-ing the losses, the supermarkets thatinitially cashed the checks lost money.As a result of the incident, the insur-ance company accelerated the installa-tion of a "Positive Pay" security sys-tem.

Positive Pay assembles a computer-

MANAGEMENT ACCOUNTING /OCTOBER 1994 45

ized record of all -- —checks written bya company, thentransmits that rec-ord on a daily basisto the company's :::- -issuing bank. The Par Ta� Lvbank matches allclearing checksagainst the PositivePay file before pay-ing them. To date,this computerizedcheck matchingscheme is the bestmethod for banks to identify altered orforged checks before cashing them,avoiding the costly expense of checkfraud.

Another common ploy is the theftand forgery of legitimate checks fromcompanies. It is estimated that theNew England ring cashed about 500stolen and fraudulent checks between1990 and 1993. One Boston bank lostroughly $20,000.

Although there are no guaranteesthat any one security measure will pre-vent check fraud, experts advise cor-porations to adopt a combination of de-terrents to reduce the risk of becomingvictims. Internal controls, paper -basedsecurity measures, and secure auto-mated disbursement systems can re-duce the risk of check fraud.

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INTERNAL CONTROLS GUARDAGAINST HUMAN ERROR

ith corporations writing alarge percentage of the 50 bil-lion checks written annually,

internal controls are becoming themost basic of all corporate securitymeasures. Legally, the employer bearsthe responsibility for discovering andguarding against employee theft. Cor-porations can be held responsible ifthey do not maintain sufficient con-trols, notify the bank when fraud oc-curs, and reviewbank statements in - -- - -a timely manner.Poor internal con-trols, collusion be-tween employeesand third parties, ;.copying and steal- PAY T"LVing blank pay-roll checks, and AWadvances in of- a ̀ O ° OF

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rupt a company or damage it to the ex-tent that restructuring is needed to re-pair its finances.

Corporations can lower the risk ofemployee check fraud by separatingcheck - related duties. Assigning differ-ent people each aspect of the paymentprocess makes tampering with checksand payments more difficult. For ex-ample, employers might want to re-strict access to accounts payable files,having someone not involved in re-cording payments mail out the checks.Similarly, signature cards should beupdated as corporate duties change toensure that former employees no long-er are on record as being authorizedsigners.

Maintaining communication withthe bank and voicing concerns prompt-ly also are important. When the NewEngland check fraud ring requested alegitimate check manufacturer to printchecks, the printer was suspicious anddeclined their order. However, theprinter did not notify the authorities,and the criminals obtained the desiredfraudulent checks from another man-ufacturer. Had the authorities beenalerted to the situation, bank employ-ees would have been advised to lookfor suspicious checks, and the compa-ny would have demonstrated "due dil-igence" and might not have been liablefor losses.

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internal controlmay seem costly,close monitoringand timely report-ing can make

a recovery easier.« ' Reconciling bank

., • ° s t a t em e n t s re gu -larly is the most ba-sic step in fraud de-tection. A company

that balances its books on a monthlybasis is much more likely to spot fraudthan one with irregular accountingpractices.

Corporations using preprintedcheck stock also may benefit from fre-quent inventory inspection, whichcould help detect check theft early.Again, timely check fraud discoverycan make all the difference in a com-pany's ability to recover from financialloss.

PAPER -BASED FRAUD PREVENTION

!though detection is important,most chief financial officers andtreasury officers are more inter-

ested in fraud prevention. Companiescan implement a number of policies toreduce the risk of employee fraud. Dil-igent reference investigation for allprospective employees is important, asare training courses in fraud preven-tion and detection. Enlightening em-ployees to the problem, along with thecompany demonstrating its determina-tion to be responsive, makes the work-place less favorable to this type ofcrime.

Although internal security is impor-tant, it does not guard against checktampering. As technology becomesmore sophisticated, checks are beingaltered, copied, and forged with alarm-

ing frequency. Anumber of paper-

s ; based security fea-tures have been de-veloped to combatthis type of fraud.

An importantpart of an overall

244'30 corporate checksecu rity st ra tegy ,these features notonly make it moredifficult to alter orcopy checks, but

- they also help vic-t im co r p o r a t i o n sWhen checks treated with "VOID INDICIA" are photocopied. "VOID" appears.

MANAGEMENT ACCOUNTING /OCTOBER 1994

prove the due diligence necessary toavoid financial liability.

Check alteration is one of the mostcommon forms of paper -based checkfraud. It involves changing the name,dollar amount, or other information ona check. Chemicals often are used toremove ink from checks without doingmuch damage to the paper itself.Thieves then fill in a name and amountto suit their own purposes and cash thecheck. Check stock prepared withChlorostain, Color Signal, and Void In-dicia security features offers an effec-tive guard against tampering becauseit is impossible to alter the check with-out detection. The paper is treated withchemicals that remain invisible so longas the check is not altered, but contactwith any of the chemicals used for al-teration causes the paper to changecolor.

The three features work similarly toalert check cashers to foul play. Chlo-rostain produces a wash of color overall parts of the document that havebeen treated with chemicals. Similarly,Color Signal produces large coloreddots over treated areas. Void Indiciahas the same effect, with the word"VOID" appearing on the check when-ever it is photocopied.

Adding visible paper features thatare difficult or impossible to reproducealso helps guard against forgery.Check stock can be printed with a va-riety of different watermarks includingPaper Mill, Simulated, and Fluores-cent. These marks are impossible toreproduce with copiers or laser print-ers. Paper fibers and security threadswoven into the paper are difficult to re-produce but easy to spot in authenticchecks. Base stock printing features al-so offer valuable protection againstcheck duplication and forgery. They in-volve incorporating intricate or compli-cated screens and designs into thebackground of the check, thus makingit difficult to duplicate. For example,checks that include high - resolutiongraphics look fuzzy when copied, evenwith the most advanced color copiers.

Void Pantograph is made up of a se-ries of dots that look uniform to the na-ked eye. Because the series of dots istoo small to be reproduced clearly, thepattern blends together when thecheck is either copied or scanned andis transformed into the word "VOID"repeatedly across the check. Similarly,Micro Printing also is invisible to thenaked eye but appears as a broken linewhen copied or scanned.

Paper also may be treated with pas-tel- colored inks that resist copying or

Circle No. 7

inks whose properties change withtampering. Many checks are printedusing ink that appears black butsmudges to red when altered. Othersecurity inks include heat reactive andchemical reactive inks. More techno-logically advanced paper -based securi-ty features include embossing, holo-grams, and foil stamping. Thesepractices resist both copying and scan-ning and make duplication difficult.Warning bands outlining the check'ssecurity features also are available toalert clerks to any discrepancies.Banking professionals agree that pa-

per -based security features are impor-tant and go a long way in combatingcheck fraud, but they suggest that mul-tiple controls are necessary to providethe most efficient barriers to checkfraud.

AUTOMATED DISBURSEMENTSYSTEM

ompanies still using preprintedcheck stock can take steps to re-duce the risk of employee check

tampering. By securing check stockand signature plates and storing them

MANAGEMENT ACCOUNTING /OCTOBER 1994 47

separately, employers can make itmore difficult to falsify companychecks. However, companies that haveadopted desktop laser check - printingsystems have eliminated the securitynightmare of preprinted check stockaltogether.

Desktop laser check printing —oran automated disbursement sys-tem— provides aturnkey softwarelink between PC ormainframe -basedaccounting rec-ords and one ormore desktop laserprinters. It enablescorporate and gov-ernment users tocombine checkwriting, signing,and printing intoa single step tocreate completedchecks on blankpaper. Software iscompatible with ex-isting user check -writing applica-tions and meetsall banking indus-try standards forchecks. The tech-nology incorpo-rates laser printing,customized soft-ware, and electron-ic forms as well asmagnetic ink char-acter recognition(MICR).

A laser check - writing system ismore cost effective, provides bettercontrol, and offers disbursement flex-ibility not available with traditional sys-tems. It enables a laser printer to printcheck forms, payment data, signaturesand logos, bank data, and the MICRline in one pass on blank check stock.For multi- account, multi- company ap-plications, the laser check system auto-matically selects the correct company,bank, and account information. It alsomanages the entire check printing pro-cess—from limiting access for securityto managing disbursements frommany bank accounts. It features dollaramount control, signature, and checkformat options. As a further precau-tion, the MICR security cartridge canbe locked away whenever the systemis not in use.

The payment- issuing processor ac-cepts multiple inputs including printimages, data files, on -line data files,and manual data entry. These expand-

ed possibilities allow greater flexibilityand compatibility with varioussystems.

Checks can print one at a time (ondemand) or in a large batch sent direct-ly from application programs. The sys-tem also supports laser printing at lo-cal or remote sites, complete with anencrypted audit trail detailing system

and disbursementtransaction rec-ords. It can writechecks from multi-ple /different bankaccounts duringthe same print run.

The systemwrites checks onblank stock, choos-ing from differentformats, logos, sig-natures, checknumbers, bank in-formation, and ac-counts at the sametime, thus elimi-nating the needto change formsand manage pre-printed, expensivecheck stock. Theprogram also of-fers users the op-portunity to printchecks at severalremote locations.For example, all ofthe data entry maytake place at one lo-cation, with checksbeing produced at

secured printers located in various of-fices around the country. This setupnot only saves time and money, but italso provides added security in that da-ta entry and printing functions are sep-arated. Similarly, electronic paymentscan be transmitted to various automat-ed clearing houses from one location.The system records all check transac-tions, so adding security features suchas "Positive Pay" is relatively simple.Finally, check verification services,which ensure a check's validity, maybe accessed with the program.

A laser check -writing systemenables a laserprinter to printcheck forms,

payment data,signatures and

logos, bankdata, and theMICR line inone pass onblank check

stock.

CONTROLLED DISBURSEMENTSYSTEMS LEAD THE SECURITYBATTLE

hile technological advanceshave made it easier to dupli-cate and forge checks, tech-

nology also can prevent check fraud.Controlled disbursement strategiessuch as Positive Pay and Reverse Pos-

itive Pay work with paper -based strat-egies but work best for companies thatalready have installed automated dis-bursement systems. With ReversePositive Pay, the issuing bank down-loads a daily record of all checks re-ceived, leaving the company responsi-ble for identifying any checks that donot correspond to those it has issued.

A PC and modem can implementthe Positive Pay system to supplyboth the company and its bank withdaily deposit account balances andtransaction details. Used in conjunc-tion with physical safety features,these programs can reduce compa-nies' vulnerability.

A MULTIPLE OFFENSE ISTHE BEST DEFENSE

}sere is no surefire way to avoidfraud, but a combination of paper -based controls and secure check -

issuing systems provide a strong deter-rent. Many corporations already haveexpensive check - issuing systems inplace and are reluctant to spend a lotof money replacing their entire sys-tem. Adding programs that work withthe main system but outside it, howev-er, actually may save money in the longrun. By adding automated disburse-ment systems that utilize blank checkstock, companies eliminate a numberof the problems related to check fraud.By extending the company's standardsystem to include payment- issuingprocessors and secured printers, com-panies' disbursement programs willbecome more secure. For example, se-curing preprinted stock and maintain-ing detailed inventory information onthat check stock no longer would benecessary. Companies also can cutrisks by exercising prudence in theirday -to -day operations. By keepingcheck stock secure and maintainingcontrol over signing authorities, CFOscan at least cut back on internal fraud.It doesn't matter which strategy is cho-sen as long as "due diligence" is met,keeping loss recovery an option. ■

James L. Loomis is vice president andcofounder of Bottomline Technologies,an Exeter, N.H. -based software compa-ny that provides disbursement systems.

Is this article of interest Yes Noto you? If so, circle 92 93appropriate number onReader Service Card.

48 MANAGEMENT ACCOUNTING /OCTOBER 1994

BACKUP ANDRD. panic!

recover from a system crash,

BY JACK M. CATHEY, CPA, AND ment, or someone may walk out with BACKING UP LARGE HARD DISKSROBERT H. PHILLIPS, JR, your PC after hours. For these and

many other reasons, backing up files dditional commands have beenhe microcomputer data storage stored in microcomputer systems is added to DOS to assist users inversion of Murphy's Law is that very important. Unfortunately, less working with and backing upthere are only two kinds of hard than 15% of the microcomputers and large hard disks. The XCOPY com-disk drives —those that have al- only 40% of local area networks are mand, which was added in DOS ver-

ready failed and those that will. A cor- backed up with any regularity. sion 3.3, works in a manner similar toollary is that the probability of a hard In the early days of microcomput the COPY command, with one impor-disk failing is directly related to the im- ers, backing up information was sim- tant difference: It copies subdirecto-portance of the data stored on the ple. Most microcomputer systems did ries and related files. The BACKUPdrive. It often seems like the home not have hard disk drives with their command primarily provides a way forcomputer you use to shoot alien invad- large storage capacity. All programs a PC user to back up the contents ofers will never fail, but the computer and data were stored on floppy disks. the hard drive to floppy disks. For ex-you have used at work for the past two The original version of DOS provides ample, the command BACKUPC.\*. *months developing a complex cost al- two commands to back up data. The A: IS copies all the files from the hardlocation model will greet you withGen- simpler is the COPY command allow- disk, including any subdirectories anderal Failure Error reading driveC.- the ing the user to copy one or more files files on drive C, to the floppy disks inmorning after you complete the model. from one disk to another. Additional drive A. That would be a complete

Simply stated, your hard drive will features, such as file name wild cards, backup. Also, if necessary, the BACK-fail whether through some known ca let users copy groups of files to make UP command will format the backuptastrophe, such as dropping the ma- backups. While the COPY command is floppy disks.chine while carrying it into your new useful for making copies of several A useful option of the BACKUPoffice, or through some completely un- files, the DISKCOPY command copies command is the /M switch. For exam -known and unexplainable event, as in all the files from one disk to another of ple, the command BACKUP C.-1 *. * A:"It just stopped working." the same size. IS /M would not back up all the files

If a charmed machine somehow As microcomputers developed, from drive C, but only those files withavoids mechanical failure, user prob- they began including hard disk drives the archive attribute selected. The ar-lems— caused by you and me —likely capable of storing many more files. chive attribute is a signal by DOS in-will create a loss of data, often unex- The first hard disks used in PCs stored dicating a new or edited file has notpectedly. For instance, after typing 10 megabytes (10MB) of memo- been backed up. Whenever a file is cre-FORMAT B:2,000 times, for some rea- ry —which is equivalent to more than ated or changed in any way, DOS turnsson your fingers decide to try FOR- 28 5-1/4" double- density floppy disks. on this attribute. When the BACKUPMATC.- just to see what happens. Current hard disk drives are frequent- command is issued without the /M op-

If you don't run into drive failure or ly in the 200MB to 400MB range, with tion, all new or changed files areuser problems, an office fire from a ne- larger disks available in sizes exceed- backed up, and each file's archive at-glected coffee pot can destroy equip - ing 1,024MB, or one gigabyte (1GB). tribute is turned off. If a disk has been

0 1MANAGEMENT ACCOUNTING /OCTOBER 1994 E

backed up completely, later backupsusing the /M option will back up onlythose files that have been created ormodified since the original backup.This selective backup saves substan-tial time.

The complement to the BACKUPcommand is the RESTORE command.RESTORE is used to reverse the back-up process. For example,RESTOREA:C ̀*. * IS would restore from the flop-py disks all the subdirectories and filescreated with the complete backupcommand. The BACKUP and RE-STORE commands represent a sub-stantial improvement for backing uphard disk data. The most frequentlynoted limitations of these commandsare their slow speed, lack of file com-pression, and difficult operation.

IF YOU BUILD A BETTERMOUSETRAP...

ecognizing DOS's limitations, anumber of third -party vendorshave developed backup soft-

ware. Reviews of backup software usu-ally identify 10 to 20 different products.In terms of market share, the leadingproducts are The Norton Backup fromSymantec (800 - 343 -4714) and CentralPoint's Backup (800 -445- 1682). Eachprogram has unique features, but bothoffer improvements where DOS isweak: speed, file compression, andinterface.

Speed. The DOS BACKUP com-mand is slow, making the already un-glamorous task of backups even morepainful. In several recent tests, third -party backup programs performed50% to 80% faster than DOS, whichmeans that a backup taking 30 minuteswith DOS takes less than 10 minutesusing a third -party program.

Compression.In addition to improv-ing speed, third -party backup pro-grams also provide benefits in terms ofthe number of floppy disks required toperform the backup. While the amountof compression varies with file type,the amount is usually in the 30% to 50%range. For example, a DOS backupthat requires 10 floppy disks could beperformed with as few as five disks us-ing one of the vendor programs. Thismethod saves not only on backup me-dia cost, but also on disk juggling andconfusion during the backup and re-store processes.

Interface. Backup programs also of-fer interface improvements. An inter-face is the way a program is accessedand used. The stark DOS C.1> prompt,the confusing command line switches

50

STEPS TO ANEFFECTIVE BACKUP AND

RECOVERY SYSTEM

Design backup system:Determine what systems and datato back up.Establish a backup priority for yoursystems.Determine the frequency of backupprocedures.Plan for rotation of backup media.

Step 2. Design backup procedure:Assign and train personnel toperform backups.Determine where backup mediaare to be stored.Plan for recovery of transactionsthat occur between backups.Establish a plan for verifying dataand backup integrity. ,3

Step 3. Design and test recovery Mprocedures:Assign recovery responsibilities.Develop recovery process.Plan for backup hardware.Test recovery plan.

Step4.Establish preventative measures:Defragment hard drives.Avoid using drives that are almostfull.Consider power supply safetyincluding surge protection anduninterruptible power supplies.

such as /S and /M, and terse errormessages such as Source does not con-tain backup fides confuse and frighteneven the most seasoned DOS veteranat times. Backup programs provideeasy - to-understand menus, intelligentdefaults, help systems, and interpret-able error messages that make thesesoftware programs easier to use. Thefriendly interface capability is especial-ly important during a restore operationwhere often there are high anxietylevels.

In addition to improving upon theweaknesses of DOS, most backup soft-ware offers features not available withDOS. These features include estimat-ing the number of floppy disks re-quired and the amount of time neces-sary to perform the backup, macrolanguages to automate complex back-up routines, robust error handling,password protection of backup files,and support from some tape drivehardware.

DOS version 6.0 from Microsoft,

however, includes a substantially im-proved backup utility. The program isa stripped -down version of the NortonBackup. Users who do not wish to pur-chase a separate third -party backupprogram and who have limited backupneeds should consider upgrading toDOS version 6.0 or later versions. Us-ers who desire a full- featured backupprogram will be more satisfied with thethird -party software.

TAPE DRIVES FOR REALLY BIBBACKUPS

here's a joke that goes "You can'thave everything —where wouldyou put it ?" Many PC users are

pushing the limit with increasinglylarger and larger hard drives. Fortymegabyte drives that used to seemhuge are now described as small andobsolete. Many new systems comestandard with drives in the 200MB to500MB range. As hard drive sizes haveincreased, the feasibility of floppy disk -based backup systems has been chal-lenged seriously. For example, evenwith compression, a complete backupof a 200MB hard disk would requiremore than 100 5-1/4" high - densitydisks and would take more than threehours.

Just as software vendors exploitedthe weakness of the DOS BACKUPcommand, hardware vendors havecapitalized on the need for backup sys-tems with larger capacities. The prima-ry technology for mass storage backupis tape drives, of which there are sev-eral types. The original PC design didnot include any specific standard fortape backup systems, so standardshave been left to emerge from the tapebackup system vendors. Currently twotypes of systems have a combined mar-ket share of more than 75% of the tapebackup market. These are the minicar-tridge and cartridge systems.

The minicartridge systems are builtaround quarter -inch tapes generallyreferred to as DC -2000 tapes. Two pop-ular standard tape drives for this unitare QIC-40 and QIC -80. While QIC-40tape drives hold 80MB to 120MB, thenewer QIC -80 drives produce com-pressed storage capacities in the160MB to 250MB per tape range. In ad-dition to large backup capacities, min -icartridge units offer speed. Most unitscan back up and verify in the range of1.5MB to 2.OMB per minute. Thisspeed would allow, for example, a com-plete backup of a 200MB hard drive inthe range of two to two and one -halfhours.

MANAGEMENT ACCOUNTING/OCTOBER 1994

While speed is an important fea-ture, so is convenience. A QIC-80 min-icartridge unit can back up a 200MBhard disk onto a single tape that maybe stored off site or in a secure area.Compare this storage capability to jug-gling more than 100 5-1/4" high -den-sity floppy disks. Furthermore, be-cause the entire hard drive can bebacked up to a single tape, an unattend-ed backup can be scheduled afterhours when the computer is idle. Anunattended backup is significantlymore efficient than having someone sitfor several hours inserting and remov-ing floppy disks. Affordability also is animportant factor. Minicartridge unitssell for an average of $500 for internalunits and $700 for external units. TheDC -2000 tapes themselves cost from$20 to $30 each.

An additional feature of minicar-tridge and other tape drives is the soft-ware included with these systems.While third-party software will workwith a few of the most popular drives,most tape drive manufacturers shiptheir drives with proprietary backupsoftware that has been designed spe-cifically to work with their unit

Colorado Memory Systems (800-451- 0897) ,with its Jumbo 120 and Jum-bo 250 systems, dominates the mini-cartridge market. Other vendorsselling minicartridge systems are Con-ner Peripherals (TapeStor® 250, 800-626- 6637), Mountain Network Solu-tions (FileSafe® series, 800 - 241-3937),and Iomega, Inc. (Tape® 250,800-777-6654).

Standard minicartridge systemsare designed to be installed internallyin a microcomputer by connecting toa special board. Also, there are specialminicartridge systems that connect viacable through a microcomputer's par-allel (printer) port The cable hookupallows the same tape backup unit to beused for a variety of machines includ-ing desktop and notebook computers.These units cost slightly more than thesingle machine units. Two popularunits are the Jumbo Trakker from Col-orado Memory Systems (800 -451-0897) and Backpack from MicroSolu-tions, Inc. (815.756- 3411).

CARTRIDGE AND DIGITAL AUTOTAPE (DAT) SYSTEMS

he QIC -80 minicartridge units of-ten are adequate for systems withhard disks in the 60MB to 200MB

range. CAD stations, file servers, orother large systems with requirementsin the 500MB to 1GB range will need

cartridge systems conforming to theQIC -1350 standard providing higher -capacity alternatives. Cartridge sys-tems with QIC-1350 standards usetapes conforming to the DC -6000 de-sign. These tapes are larger than theminicartridge tapes measuring sixinches by four inches. DC -6000 tapesare available in various lengths withstorage capacities in the range of150MB to 1.35GB.

The cartridge systems are more ex-pensive than minicartridge systemsand are priced in the range of $1,500to $5,000. DC -6000 tapes cost approxi-mately $30. As with minicartridge

drives, these systems usually comebundled with proprietary backup soft-ware . There are several cartridge -drive vendors. At present, ConnerPeripherals (Viper series, 800 -626-6637), Tandberg Data, Inc. (Pantherseries, 805-579- 1000), and Wangtek,Inc. (800.992 -9916) sell cartridge back-up systems.

DAT Systems. While minicartridgeand cartridge systems represent thecurrent market-share leaders, the ris-ing stars in the large storage capacitytape backup market are DAT systems.The benefits of DAT are high storagecapacity—current DAT systems store

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MANAGEMENT ACCOUNTING/ OCTOBER 1994 51

ALTERNATIVESi

The minicartridge, cartridge, and DAT tapesystems are the current primary backupsystems, but a number of more exotic methodsareavoilable, each with its own unique niche.

Removable harddisk and cartridges.For anumber of years Iomega Corporation hasbeen producing removable cartridge drives.In recent years SyQuest has introduced aremovable hard disk system. The removablecartridge system, called a Bernoulli drive, canhold up to 150MB of uncompressed data ona single cartridge. The strength of this systemis its speed, performing at roughly the somespeed as traditional hard drives. Theweakness of this system is its cost. The drivescost approximately $500 and cartridgesapproximately $100.

Floptical drives. The floptical technology,pioneered by Insite Peripherals, uses on oldstandard with a new twist. The old standardis the three - and - one-half -inch disk. The newtwist is that by changing the technology usedto write and read a disk, 21 MB of data canbe stored on a single disk. At present thesedrives are priced in the $350 to $500 rangeand also will read and write to regular floppydisks. The 21 MB special floptical disks costapproximately $20.

WORM andmagnetooptical drives. Writeonce, read many (WORM) drives con store600MB to 1 GB of data on a single disk. Theyare priced in the $1,800 to $3,000 range.Both the strength and weakness of thesedrives is that once the data are written to thedisk, they cannot be overwritten. This makesWORM drives an excellent alternative forsystems where an exact record of alltransactions is critical. This type of system,however, is not a likely option for traditionalbackup needs.

As an alternative, magneto optical (MO)drives provide an expensive ($1,800 to$6,000 for the drive and $200 to $250 perdisk( method of storing up to 650MB of dataon a single, erasable disk. These drives canbe used for backup purposes when extremelyfast access time and erasobility are needed.

RAID. Redundant Arrays of Inexpensive Disks(RAID) refer to techniques where a series ofdisk drives is used to store data. RAID is nota backup technology, but it does provide ahigh level of data security. There are sixdifferent levels or implementations of RAID.Different levels of RAID support differentmethods of distributing data across disks,error checking, automatic redundancy, diskmirroring, and data recovery. RAID systemswith large multi - gigabyte storage capacities,and generally high prices, usually areprotected with more traditional tape backupsas well.

1.35GB to 2GB of uncompressed dataon a single three -inch by two-inch tape.Furthermore, a file can be located inan average of 15 seconds, whereas DC-6000 tapes require almost twice aslong.

DAT systems are available from anumber of vendors. Most system pric-es range widely from $1,200 to morethan $6,000, with tapes running $30 to$60. DAT drives are available from Col-orado Memory Systems, Inc. (Power -DAT 6000, 800 - 451 -0897), ARDAT, Inc.(Python series, 800 -327- 8827), Giga-Trend, Inc. (800 - 743 - 4442), and Wang -DAT, Inc. (800 -992- 9916).

THE PROMISED LAN

ust as special tape backup sys-tems have been designed for larg-er hard drives, special tape back-

up systems also have been designedfor use in local area network (LAN) en-vironments. LAN -based backup sys-tems are significantly more complexthan single -user disk and tape systems.In fact, selection of a LAN backup sys-tem should be done in consultationwith a person experienced in LAN en-vironments. Although the options arecomplex, LAN -based backup systemsare similar to standalone systems inseveral respects. First, a variety ofbackup hardware exists, including dif-ferent tape sizes and formats. Second,most hardware vendors bundle theirown proprietary tape software withtheir units. Last, third -party LAN back-up software is available, although froma small number of vendors.

One difference between single -userand LAN backup software is that LANbackup software can be either serverbased or workstation based. Server -based LAN backup software is in-stalled on the file server. The benefitof this approach is that data on the fileserver can be backed up at highspeeds. Because the backup is per-formed at the server, network traffic isminimized during backups. A disad-vantage of server -based LAN backupsoftware is that if the file server's harddisk fails, then the restoration of thedata from the backups cannot be per-formed until the server is repairedand the network operating system isreinstalled.

Alternatively, workstation -basedLAN backup software is not affected di-rectly by the status of the server. If theserver goes down, data may be recov-ered immediately from the worksta-tion. The downside is that all data be-ing backed up must travel across the

network, which makes schedulingbackups during low usage criticalfor workstation -based LAN backupsoftware.

Regardless of the software chosenfor a LAN backup, a significant benefitof a LAN -based backup is that data onboth the file server and workstationsare backed up. This capability providesnot only an important control to ensurebackup of all workstations, but it alsoprovides the efficiency of a single back-up system.

Once the appropriate hardware andsoftware needed for a backup systemhave been identified, a vendor who cansupply the system has been located,and adequate funds to pay for the sys-tem have been appropriated, a usermay feel that the data —and his or herjob —are secure. Well, not so fast. Ef-fective backup and recovery systemsdo not result from simply purchasingbackup hardware and software; theyare the result of careful design andplanning as summarized below in afour -step strategy.

STEP 1: BACKUP SYSTEM DESIGN

tlis step involves determiningwhich systems and data to backup, the backup priority, frequency

(daily, weekly, or monthly) and type ofbackup (complete or selective) foreach system, and the rotation of nec-essary backup media (tapes). A goodstarting point is to inventory all yourmicrocomputers, noting their locationand what information is stored onthem. This inventory will determinewhich systems and data need to bebacked up.

There are two factors for choosingthe backup priority for each system.First, the criticality of the system isconsidered. Critical systems are thosenecessary for the normal operation ofthe business. For example, order entryand inventory systems often are essen-tial to the operations of a business. Onthe other hand, fixed asset systemsrarely are critical on a day - today basis.The second factor is the difficulty of re-constructing lost data. The greater thevolume of transactions and /or theamount of input for each transaction,the greater the necessity of frequentbackups. Each system should be clas-sified as low -, medium -, or high -prioritybackup.

After identifying priorities, youmust choose the frequency and type ofbackup for each system. High -prioritysystems that are critical and have hightransaction volume may require a com-

52 MANAGEMENTACCOUNTING /OCTOBER 1994

plete daily backup. For medium -prior-ity systems, complete backups weeklywith selective backups daily would beacceptable. Low -priority systems maybe protected adequately with weeklyor possibly monthly backups. In all cas-es, backup frequency balances thetime and cost associated with backupprocedures against the time and costof re- entering data. If longer intervalsoccur between backups, more datamay have to be re- keyed, which inturn causes more disruption of normalprocessing.

The last phase of system backup de-sign is planning the rotation of backupmedia. A daily backup rotation couldbe supported with five sets of backupmedia: Tape A for Monday, Tape B forTuesday, and so forth. A written logshowing the date and set identification(Tape A, Tape B, and so forth) is keptfor each successful backup. Maintain-ing a series of backup tapes is an im-portant control because earlier tapesprovide data security in the event thatlater tapes are stolen, destroyed, orcorrupted.

In planning backup rotations, re-member that tapes used for backupswill wear out eventually. A worn tapecan cause a loss of data. Most backupsoftware will report when errors occurin creating tapes. A good plan is to in-sert one or more new tapes into thebackup rotation regularly, removingolder tapes at this time. Also, manycompanies like to create complete ar-chival copies of their month-end data.These archival copies can be stored offsite and accessed when circumstancesrequire older detailed data.

STEP 2: DESIGN BACKUPPROCEDURES

leis step includes assigning andtraining personnel to performbackups, selecting an appropriate

storage location for backup media, de-veloping procedures to manage trans-actions occurring between backups,and establishing procedures for verify-ing data and backup integrity.

The backup task does not require ahigh degree of specialized knowledgeand normally may be assigned to anontechnical administrative person.Most backup software is run in batchmode or through macro commands,reducing the task to inserting the ap-propriate tape and typing in a simplecommand, such as MONDAY. The per-son selected for the backup task mayneed some prior duties reassigned soenough time is allowed for the backup

process. It also is important that theperson responsible for the backup un-derstands the significance of the taskand is trained carefully. The trainingshould include an explanation of thebackup process and should identifyany irregular events signaling a problem. Last, the person should be shownwhere to place the backup media whenthe job is complete.

Another important task is determin-ing the proper storage of backup me-dia. Leaving the backup media in thetape drive or on a shelf next to the unitis almost always a poor choice. First,storage in the tape drive or on a shelfprovides limited security of the impor-tant information on the backup tapes.Second, the backup copy could be lostin the event of fire or theft. Third, fran-tic attempts by untrained persons to re-cover lost files can corrupt the onlygood copy of data available. For thesereasons it often is best to store thebackups off site or in some secure lo-cation on site, such as a fireproof safe.Many backup systems print a file list

ing or log at the time of each backup.These lists should be stored with thebackup tapes to document the con-tents of the backup.

Developing procedures to managetransactions occurring between back-ups is a critical part of designing back-up procedures. Consideration shouldbe given to filing source documents,documenting real -time transactions,and documenting nontransactionalupdates.Source Document Filing. Many

transactions have a source document.For example, often a customer's pur-chase order is a source document fororder entry. Source documents fortransactions that are not already partof the last successful backup should bedistinguishable from source docu-ments for transactions captured on thelast backup. Source documents forthese transactions can be identified by:(a) filing them only after a successfulbackup has occurred, (b) maintainingsequential source document numbersand keeping a log of where a success-

Minicartridge tapebackup system (QIC -80)

20 — 250 MB storage capacity

1

2

O•

Cartridge tape Digital audio tape (DAT)backup system (QIC -1350) backup system

250 MB — 1 GB storage capacity 1 — 4 GB storage capacity

MANAGEMENT ACCOUNTING/OCTOBER 1994 58

ful backup of each sequence ends, and(c) annotating a system entry date on-to each source document and filing thesource documents by this date or bydate within other categories (vendor,customer, and so forth).

Documenting Real -time Transac-tions. Some companies process salesorders over the phone or at the pointof sale. In this environment source doc-uments should be produced at the datacapture point to act as hard -copy back-up. Documents such as cash registerreceipts or copies of computer-gener-ated invoices are necessary if theseevents are re- entered after a systemfailure.

Documenting Nontransactional Up-dates. Nontransactional updates arechanges to company files that are not"transactions" with re-spect to double entryaccounting. Some ex- A n

apamples include cus-tomer address and backuphone number chang-es, the addition of C a nnew customers, or achange in a vendor's a v ocredit terms. If possi-ble, keeping a paper op pocopy of all changesthat are made be-tween backups shouldprovide the information necessary inthe event the data must be restored af-ter a system failure.

Verifying data and backup integrityare part of designing backup proce-dures. Data corruption occurs when arecord or file is not updated properly.Power supply problems, a failing harddisk, or a programming error are allpossible causes of data corruption. Inits early stages, data corruption can oc-cur without detection. If the corruptionremains undetected, the affected datawill be copied to your backup media.To protect the original data as well asthe backup copy, check the integrity ofthe data before each backup by print-ing a trial balance or performing a se-quential read of all records in eachmaster file. Many software packageshave verification routines.

Checking backup integrity also iscritical. Incomplete backups in whichone or more files are not stored on thebackup media are caused by full orworn tapes, improperly specified com-mands, and hardware or software fail-ure. Improperly specified commandsoccur when a newly created subdirec-tory is not added to the backup com-mands. Most backup software will cre-ate a log of errors that mus t be

examined by competent personnel af-ter each backup. Any errors reportedshould be investigated as soon as pos-sible. Restoring and comparing filesfrom the backup itself is the best evi-dence of backup integrity.

STEP 3: DESIGN AND TEST ARECOVERY PLAN

recovery plan, which is neces-sary in the event of data loss,should include a recovery coor-

dinator, a set of troubleshooting stepsto isolate the cause of data loss, and thereplacement of failed hardware. Therecovery coordinator should be con-tacted as soon as data loss is suspect-ed. Many times untrained users be-come frantic when there is an apparent

data loss and canmake the process of

propriate recovery even moredifficult by attempting

Psystem to restore files frombackups without care -

help you ful thought. A set oftroubleshooting steps

id l o s t can, for example, un-cover that a fileserver

rt2>ti� 2�.t2eS. that appears to havecrashed is simply anetwork cable jarredloose by a cleaning

crew. The replacement of hardwarecould be something as easy as movingan infrequently used PC to replace oneused frequently or something more in-volved such as obtaining a loaner fileserver from a local hardware vendor.

The worst time to discover that abackup or recovery process is flawedis when a system actually has failed.Rather, while the system is still run-ning, several tests under different cir-cumstances should be performed untilthere is confidence a recovery fromany potential loss will be successful.Then the documented plan is providedto all involved in the backup and recov-ery process with at least one copystored off site in case of a catastrophicloss such as a fire. Once the plan hasbeen developed, tested,and document-ed, it must be reviewed and modifiedas systems grow and change.

STEP 4: ESTABLISH PREVENTATIVEMEASURES

he final consideration in backupand recovery planning is to estab-lish preventative measures

against data loss. Hard disk drivesshould be defragmented regularly us-ing third -party utilities such as Norton

Utilities (Symantec, 800 - 3434714). Ad-ditionally, hard drives should not be al-lowed to exceed 90% of their storagecapacity. The performance of the harddrive will degrade quickly when itnears its capacity because of file frag-mentation and lack of working spacefor operating and database systems. Ifthe drive accidentally is filled com-pletely, it is extremely likely that dataloss will occur. Many programs will failwhen a disk becomes full while a fileis being saved.

Data loss, corruption, and damageto hardware are often caused by elec-trical power problems. A surge protec-tor helps protect equipment and data.Also, unplugging the computer equip-ment, including the phone line into themodem, during electrical storms pro-tects equipment. Uninterruptible Pow-er Supply (UPS) should be used forcritical applications. If maintenance in-volves one or more networks, it is im-portant to investigate other aspects ofpower conditioning. Preventative mea-sures cost significantly less than rekey-ing lost data.

A recent study of companies expe-riencing major computer outages re-vealed several interesting results. Theaverage company lost 2% to 3% ofgross annual sales within eight days ofa sustained computer outage. If theoutage lasted longer than 10 days,many companies never fully recov-ered, and more than 50%went out ofbusiness within five years. While theloss of a single spreadsheet file or sev-eral days of orders may not lead tothese catastrophic consequences, itcould result in delayed responses tomanagement or customers. Lost op-portunities always are difficult to re-cover, but they can be avoided by pur-chasing an appropriate backup systemand implementing a good backup andrecovery process. ■

Jack M. Cathey, Ph.D., CPA,is assistantProfessor, Department of Accounting,University of North Carolina at Char-lotte, Charlotte, N. C. He is a member ofthe Charlotte Chapter, through whichthis article was submitted. He can bereached at (704) 547-4408.

Robert H. Phillips, Jr., Ph.D., is assis-tant professor, Department of Account-ing, Radford University, Radford, Va. Hecan be reached at (703) 831 -5379.

Is this article of interest Yes Noto you? If so, circle 96 97appropriate number onReader Service Card.

54 MANAGEMENT ACCOUNTING / OCTOBER 1994

T 0 ( ) L 1 ( ; U P

We must reengineerthe role of

managementaccountants so they

are initiators ofchange, not the

victims!

BY NEIL R. STEWART

0f the 90 million private sectorjobs in the United States, 27%or 24 million jobs will be lostin the next 10 years due to re-

engineering, according to The WallStreetJournal'.Many of these job loss-es will result from the selective andskillful application of available technol-ogies. What role should our professionplay in this movement, and how shouldwe prepare for it?

A recent best seller, ReeMineeringthe Corporation by Michael Hammerand James Champy, introduced the"Business Process Reengineering"(BPR) concept. It is similar to applyingthe old plant industrial engineeringmethods to all other areas of businessto find simpler and better ways to op-erate. Technology is not introduceduntil the basic procedures are sound.Because many of the necessary chang-es cross functional lines in a company,top management must be actively in-volved and totally committed to theprocess.

THE NEW ENVIRONMENT

number of factors have led towidespread interest in reengi-neering. First of all, growth of

our major trading partners has slowedbecause of excessive labor costs in Eu-rope, the costs of German unification,and the bursting of the Japanese finan-cial bubble. The gradual removal oftrade barriers has forced companies tocompete globally instead of just in theirimmediate protected market areas.

Annual sales increases for most

companies have disappeared or havebecome decreases —any money being"spilled" on excessive costs no longercan be ignored. Growth in profits nolonger can be achieved by automaticincreases in unit prices and unit sales;instead, emphasis is focused on ma-neuvering the cost structure and re-ducing overhead. Rising health insur-ance costs and litigation by employeeshave made employee costs an issue.The investment in technology hasnot always paid off with increased pro-ductivity, so top management is morecautious in viewing proposed chang-es. Moreover, shareholders are be-coming more proactive and are hold-ing directors to a higher degree ofaccountability.

Nothing has had a more profoundimpact on employment than the "em-powerment" movement. In past timesof labor shortages, management feltobligated to promote employees whoperformed well, fearing they might

i

- m _ .

m al l s

leave the company. A vicious cyclesoon began: Promote, give a raise,then justify the raise by making thepromoted person responsible for morepeople. Soon we had multiple levels ofmanagers, each with three or four peo-ple in their department. Finally we re-alized that by giving the people at thelowest level more responsibility, theywould work harder, and the need forsupervision would be eliminated. Therest is history as companies hire bet-ter-trained employees and providethem with more technological aids tohelp them perform their jobs. In fact,MBAs recently have been spotted onthe assembly line of one major automanufacturer.

OUR PROFESSION IS CHANGING

ecause of reduced growth, ourrole now focuses on improvingoperations and reducing costs.

The financial executives in demand are

MANAGEMENT ACCOUNTING /OCTOBER 1994 55

those who can work closely with chiefexecutive officers, be involved in all ar-eas of the company, and deal with ma-jor customers by devising cheaper andbetter ways to serve them. We are ex-pected to "add value."

We also are competing with themanagement information systems(MIS) manager for control over infor-mation management. Due to the in-creased scrutiny of paybacks on tech-nology investments, the demand forMIS managers with strong businessand operating skills has increased.Such exposure gives them greater in-fluence over operations.

WHAT ARE THE PITFALLSOF NEW TECHNOLOGY?

here are four common traps forthe unwary: hype, degree of dif-ficulty, noncritical functions, and

lack of experience.

1. The Hype Factor.Several years agoI received a call from the controllerof a company near Los Angeles. Sheindicated that her company was in-terested in purchasing a new com-puter system —she felt an invest-ment of $100,000 was in order!When I called two weeks later toconfirm my scheduled visit, I wasinformed politely that the companyhad gone bankrupt. It did not sur-prise me because I had experiencedseveral other insolvent companiesseeking salvation by investing incomputers. The sad truth is that weare being introduced to many prod-ucts that have no real chance of pro-viding a payback. If salespeople canget us to fall in love with technologyfor its own sake, we will get caughtin many expensive traps. Let us notforget that many salespeople arepaid on a straight commission ba-sis —they "only eat what they kill."

2. Degree of Difficulty. Many technol-ogies hold much promise but areexpensive to implement and requireunusual skill and discipline to use.The classic Material RequirementsPlanning (MRP) comes to mindhere as it offers large paybacks thathave been elusive for many firms.We must consider such difficultyfactors carefully in all analyses.

3. Application to a Noncritical Func-tion. If technology is used for func-tions that do not have to be per-formed in the course of a normalbusiness day, the benefits may beless consistent. For example, thebusiness endures without daily fi-

nancial analysis, but jobs such asquoting prices and estimating mustbe done daily.

4. Lack of Experience and Skills. Theparties responsible must ensurethey have ample knowledge of boththe company's operations and tech-nologies available.

TECHNOLOGY PAYBACK AREAS

ow that we have considered thepotential dangers of technology,let's look at some areas where

it can be applied and critically evaluatethe profit potential.

Electronic Mail.The biggest advan-tage of electronic mail, more common-ly known as E -mail, is centralization ofinformation. One large insurance com-pany paid for its system just by puttingall of its manuals and price lists on it.Changes are made at one central point,and no mailings are necessary forthose requiring updates. Also, papershuffling is eliminated because docu-ments can be passed from one party toanother on the screen —this "work-flow" feature particularly is efficientwhere documents are originated bythe system but less efficient if externalhard copies have to be input In largecompanies where employees are dis-persed geographically, communica-tion can be enhanced and regional da-tabases tapped for information.

However, while E -mail is thought toincrease communication and removehierarchies, some companies havefound staff reductions a better way toachieve these goals. For instance, Mc-Donnell Douglas eliminated its E-mailsystem a few years back. Perhaps notcoincidentally, it also eliminated 7,000jobs. One problem is that E-mail is soeasy to use that copies are sent to dis-interested parties. Some users may re-ceive up to 400 messages a day! It isalso important to understand thatthese systems are costly to install andmaintain especially when incompatibil-ity exists across platforms.

We must ask ourselves if this is real-ly an effective medium for communica-tion in the typical business —even thetelephone adds a more "personal"touch for the conversing parties. Fur-ther, it is not consistent with the cur-rent trend to have people work insmaller, more focused groups in thesame physical area.

Word Processing and Spreadsheets. Anew era of computing began whenword processors gave way to the PC.Arguably, word processing has beenthe best labor - saving technology ever

found in the white collar sector. It iseasy to learn and relatively inexpen-sive.

Spreadsheets also are useful for re-petitive tasks. For analytical work theyare effective only if net profits are im-proved. The current attitude toward re-ducing overhead is that if the profit im-pact is not close to twice the salary ofan employee, the function becomessubject to scrutiny.

If applied selectively, these twotools improve productivity, but wemust resist the temptation to put "art"before profits by continually refiningthe output. When the IRS introducedlaptops, written reports looked better,but the total number of examinationsperformed did not increase.

ADDITIONAL PRODUCTS

omputer -Aided Drawing (CAD),Computer -Aided Manufacturing(CAM), Statistical Process Con-

trol (SPC), Bar Coding, and DocumentImaging are additional technologicalaids. CAD helps in designing newproducts faster and in environmentswith large volumes of drawings. CAMrefers to computerized machine con-trol that is instrumental for reducingsetup time, subsequently reducing in-ventory. SPC monitors the degree ofdeviation from desired quality so thatmanufacturing quality problems areflagged quickly.

Bar coding reduces the risk of errorin data collection. There is some down-side with bar coding because employ-ees must have badges, which can belost; they must use light pens, which of-ten fail; and work orders can becomeunreadable. Another drawback is thatthe time for one person to sign on oroff a job may be excessive. This tech-nology is best suited to very largetransaction volumes that are not foundin most factories.

Document imaging allows the stor-age of most or all of the paperwork fora certain function. The need to movepaper around the office is eliminatedas the system can display the docu-ment on the screen quickly, and any re-lated documents appear on the samescreen for matching and /or editing.Such systems are still expensive, andthere is a cost for duplicating the orig-inal document. This technology is suit-able only for very large volume envi-ronments because each documentcopied into the system must be codedseparately so the system can identify it(for example, a vendor invoice musthave the vendor number entered).

56 MANAGEMENT ACCOUNTING /OCTOBER 1944

FUNCTIONAL AREAS BENEFITINGFROM TECHNOLOGY

arketing and Sales. Somesalespeople use computers re-motely for quoting, entering

orders, checking on the status of or-ders, and making call lists. As a rule,technology should be used only if itwill increase sales. Quoting and track-ing orders in the customer's presencecan increase business because quotesoften turn into orders immediately andbecause tracking ability impressescustomers. There must be ample headoffice computer power so that thesalesperson can tap into the systemquickly. Use of this technology just forgenerating reports for the sales man-agers or entering a small number of or-ders does not make sense.

A cheap way of keeping in touchwith current, past, and future custom-ers is telemarketing. The number ofcalls a person can make is limited tothe number of rejections that an aver-age ego can tolerate in a day, so expen-sive technology may not result in morecalls.

Estimating and Pricing.Automationof this function provides a high pay-back. Fast price quotes build strongcustomer loyalty, provided the pricesare consistently competitive. Insteadof relying upon the memory of one ormore estimators, proper software forc-

es the documentation of all factors af-fecting the cost of a product. This prac-tice provides more discipline and re-moves the mystique from pricing.Integration with related functions cutscosts: The customer master providescustomer details, and inventory files,bill of materials files, and job cost esti-mates can be created automaticallywhere quotes become sales.

Job Costing.Technology can reducethe cost of obtaining this information,which is critical to decision making.Job costing software should be well in-tegrated with other modules to reduceduplicate data entry. When an order isentered on a make -to -order sale, agood job costing system automaticallycreates an estimate that is stored in thesame job cost file where billedamounts also are entered. The soft-ware performs an automatic job clos-ing after all cost entries have beencompleted. Also, as a byproduct of itsprimary functions, an efficient shopfloor data collection system for produc-tion and payroll should charge jobswith all labor and machine -hour over-head.

Production Control and Scheduling.The proper plant reporting system ismore difficult to implement than ac-counting or estimating but allows fac-tory personnel to plan priorities attheir own workcenter, get instant feed-back on their job performance, provide

TABLE MATERIALS/ COMPONENTS

Part Number: Wood1 Description: Wood fo r widget W100

On Production Pro jected Purchase OverDate hand orders' o rders orders' (short

+ – – + _

8/15/94 Mon 1,000 200 100 500 1,200

8/16/94 Tue 1,200 400 100 — 700

8/17/94 Wed 700 700 100 (100)

8/18/94 Thu — 400 100 600 100

8/19/94 Fri 100 200 100 300 1

Displays the orders planned for production that will require this raw material or compo-nent on this date.

Represents an estimated additional materials requirement for orders not yet planned forproduction.

' Displays amount ordered on purchase orders due to arrive on that date if this raw mater-ial or component is obtained from vendors. If this inventory item were a subassemblythat itself had to be manufactured, this column would show internal productions due tobe completed on each date.

'Displays overage or shortage. If there is an overage, it becomes the opening balance ofthe following day. If there is a shortage, as there was on Wednesday, assume that a

iIIIIIIIIIIINW&T aa. O W L

MANAGEMENTACCOUNTNG /OCTOBER 1994

information on quality problems, andsuggest improvements on the way jobsare run. All information must be real -time so the status of each job is currentto the instant. There should be easy da-ta entry with fast computer sorts. In-formation important to managers is ob-tained online, such as success inmeeting delivery dates, cycle time, set-up/run variances, and actual and pro-jected utilization rates for each work -center. A tentative schedule can becreated for each workcenter, ensuringall jobs will be completed on time, andcan be refined quickly to produce a fi-nal schedule. Customer service is en-hanced because of the ease of trackinga job's progress.

Customer Service. This area is be-coming critical for survival becausecustomers want to carry less inventoryso order in smaller quantities and withshorter lead times. One recent surveyindicated that delivery was the num-ber -one priority for customers; pricecame in fifth. Customers need toknow —with one phone call —whenand if their order was shipped, if notYet shipped where it is, and the esti-mated shipping date. This informationmust be retrieved online as opposed tohaving someone run around the plantlooking for a job.

REENGINEERING INVENTORY

aterial requirements planning(MRP) attempts to ensure theoptimal (not too little, not too

much) inventory of finished goods forresale and /or raw materials for pro-duction is available. Forecasting startswith what is on hand, deducts commit-ments from booked orders or dailyjobs, then deducts a factor for expectedadditional orders and adds in sched-uled purchase order receipts (for rawmaterials) or production order comple-tions (for finished goods /subassem-blies).

Simplified examples of this processare shown in Table 1 and Table 2 dem-onstrating a specific time horizon.While projecting the unbooked orderamount is by nature inaccurate, thereal problem results from the on -handbalances that lead off the equation. Ifthe physical amount on hand does notagree closely with what the computerthinks it is, the suggested reorderquantities may be grossly inaccurate.

In order to maintain accurate on-hand balances, considerable overheadmust be incurred for hiring and train-ing well- disciplined staff, keepingstorerooms secure so all movements

57

Part Number: W I00 Description: Widget

On FirmDate Hand Sales

Orders'

8/15/94 Mon 1,000 200

8/16/94 Tue 1,200 400

8/17/94 Wed 700 700

8/18/94 Thu — 400

8/19/94 Fri 100 200

Projected New OVOAOrders= Production' (Short)

100 500 1,200

100—

700

100(100)

100 600 iQ

100 300 1

Displays all the open sales orders for this product requiring shipment on each day.

: Forecasts additional orders expected to come in over and above those already received

'Displays production from the plant that is due to be completed on this date. If this com-pany is only a distributor, this would represent open purchase orders to vendors due toarrive on this date. ,

"Displays overage or shortage. If there is an overage, these Figures just become the operP!mg1Lanoe&#ynaA day. If Mere isas_4ortajj2 as ftte,Ogshown on Wednesday.it is

are recorded, and continuously moni-toring the accuracy of balances. Manyfirms have made costly mistakes by un-derestimating the difficulties in imple-menting this software.

The just-in-time UM approach hasbecome popular partly because of thelarge cost of carrying inventory. Thechallenge is to reengineer to reducethe amount of inventory carried. Hereare some ways to accomplish this.

First, product design should be im-proved so fewer parts are required andthe same parts can be used for morethan one product, reducing the quan-tity of different part numbers. Produceonly for specific orders, and reducesetup time so that workcenters canchange quickly from one job to thenext. Use vendors willing to work withsmall orders so that the arrival of ma-terials is timed for the start of each job.Outsourcing subassemblies also re-duces the quantity of part numbersand may help achieve the ideal of a"single - level" bill of materials.

If there is no alternative to a store-room, organize it as an independent di-vision, demand JI T, and have measure-ment and compensation tools to makeit work. Most companies will never beable to eliminate inventory, but wemust reduce it as much as possible tolessen both our investment and man-agement costs. Reducing raw materi-

als may provide a greater payback be-cause they are more prone to misstate-ments than finished goods.

REENGINEERINGACCOUNTING

he solution is to rethink everypiece of paper and its process forthe functional areas of general

ledger, payables, receivables, commis-sions, payroll, order processing, andpurchasing. All areas should be ana-lyzed together with any related func-tions to increase the chance of savings.If only 50% of a job can be reduced inone area, it is likely no reductions willbe effected, but if this reduction canbe combined with 50% of a job some-where else, we may be able to achievea savings. Using the concept of sharedservices for functions such as receiv-ables can provide central processingfor multiple divisions. This setup is ef-fective if nothing is lost by geographi-cally separating the information fromthe parties using it If numerous billingdisputes with customers require allsupporting paperwork for resolution,then a customer in New York may findit frustrating dealing with a credit per-son in Los Angeles.

Electronic Data Interchange (EDI)is a system whose progress is worthfollowing. In the future this system will

provide enormous savings by reducingpaperwork and data entry. It is takinghold very slowly and still suffers froma high degree of manual intervention.

REENGINEERING THEMANAGEMENT ACCOUNTANT

llat steps must we take to en-sure that we become the per-son to harness these technol-

ogies and improve profits?First, we must promote our image

as the financial experts. By becominga Certified Management Accountantwe gain credibility. Through continu-ing education and becoming certifiedby the American Production & Inven-tory Control Society (APICS) we canincrease our breadth of knowledge.Let's show our bosses and prospectiveemployers that we are leaders by tak-ing positions on the board of directorsof our chapters. Top managers can re-late to you better because they also arethe type of people who "get involved"and "make things happen."

We should learn about the otherfunctional areas of the company bytransferring to jobs in materials man-agement, production control, or pric-ing. We must keep up with the newtechnologies that are announced daily,learning all we can about each one be-fore we buy.

We need to develop personal rela-tionships with other functional headsand with customers. One commoncharacteristic of CEOs is their high de-gree of sociability. Dale Carnegiecourses can nurture our potential inthis area.

Once we have prepared ourselvestechnically and emotionally for thetask, all that is left is to convince topmanagement that we truly can managethese technologies to increase profits.Our value to our companies will be ap-parent, and even greater responsibil-ities surely will follow. ■

Neil R. Stewart is president of NRSConsulting, Redondo Beach, Calif He isa Chartered Accountant (Canada) anda past president of IMA's South BayChapter.

1Al Ehrbar, "Price of Progress," The Wall Street Jour-nal, March 16, 1993.

Is this article of interest Yes Noto you? If so, circle 90 91appropriate number onReader service Card.

58 MANAGEMENT ACCOUNTING /OCTOBER 1994

IMA NEWS

KATHY WILLIAMS, EDITOR

PROMOTIONS AND NEW POSITIONS

Joseph J. Barba

James D. Wilson

Frank M. Alston

Jennifer Woloen, Binghamton president, has been named con-troller of Stafkings Personnel Systems, Binghamton, N.Y.

James Ramsey, Connecticut Gateway,sales operations managerat Xerox Corp., has been appointed to the 1994 Board of Exam-iners of the Malcolm Baldrige National Quality Award.

Denise M. Blew, Lehigh Valley (Pa.), has been named treasurerof Lehigh University and secretary to the board of trustees.

Robert B. Sweeney, Memphis (Tenn.), was appointed to theTennessee State Board of Accountancy. A member of the IMACommittee on Ethics, he holds the Thompson -Hill Chair of Ex-cellence in Accountancy at the University of Memphis (formerlyMemphis State University).

Joseph J. Barba, Morris -Essex (N.J.),has been appointed pro-ject development director of Foster Wheeler Power Systems, Inc.

James D. Wilson, Muscle Shoals (Ala.), has been elected pres-ident and chief executive officer of Martin Industries, Inc., Flor-ence, Ala.

Frank M. Alston, CPA, Northern Virginia,has joined ICF KaiserInternational, Inc., an engineering, construction, and consultingservices company, as senior vice president, contracts.

Robert S. Blatt, CMA, San Diego, is corporate controller of VanCamp Seafood Co., Inc.

Alice Nelson DeVito, Westchester (N.Y.), has joined Source Fi-nance, a division of Source Services Corp., as an associate in theParamus, NJ., office.

IN MEMORIAMBaton Rouge, John L Daniel,69, ELA,1976.Bergen -Rockland, Claire C.Isaac, 1989.Birmingham-Magic City,Joyce P. Gregory,63, 1991.Boston, H. William Larson,ELA, 1972;Frank E. Swisher, EI A, 1968.Buffalo, L. E. Kieffer,80, EIA, 1975; Leon-ard M, Rustad, ELA, 1963.Chattahoochee Valley, WalterJ.Nivens,51,1969.Chattanooga, Richard C. Grant,72, ELA,1982.Cleveland, Otto Gammel,ELA, 1971.Connecticut Gateway, William W. Kil-coyne,ELA, 1968.

Dayton, Kaoka C. Campbell, ELA, 1969;Ralph E. Greider, 72, ELA, 1982.Delaware, Denver 0. Mikesell, 71, ELA,1981.Denver, Harold M. Heckenlively, 87, ELA,1970.Fort Worth, Leo W Odell,EIA, 1971.Georgetown-Myrtle Beach, R. BarryBeard, 90, ELA, 1976.Houston, Francis W. Tonges, 81, ELA,1976.Lake Erie Central, J. A. Meindl,76, ELA,1979.Lancaster, Harry R. Lawrence,ELA, 1958.Los Angeles, Edward T. Brearton,72. ELA,1957; Roland J.Hall, 74, ELA, 1956.Mass Route 128, Francis L. Hickey, ELA,1966,

gMINARSaCONFERI

Performance MeasurementNov. 10 -11 BostonNov. 17 -18 San Diego

Activity -Based CostManagement Conference

Oct. 24 -25 Boston

Reengineering the FinanceFunction for Excellence

Nov. 14 -15 New York, NY

The SEC WorkshopNov. 16 -17 New York, NYDec. 6-7 OrlandoDec. 12 -13 Denver

FASB Accountingand Disclosure Course

Oct. 27 -28 NashvilleNov. 17 -18 San DiegoDec. 8-9 Orlando

ImplementingActivity -Based Costing

Oct. 24 -25 St. LouisNov. 17 -18 OrlandoDec. 8-9 Charlotte

Internal Audit Level 1:Applying the Basics

Oct. 24-26 Atlanta

Internal Consulting Skills Level IOct. 24 -26 Atlanta

Understanding and ImplementingElectronic Data Interchange

Nov. 9-10 ChicagoDec. 8 -9 New York, NY

Annual FASB /SEC Accountingand Reporting Conference

Dec. 14 -15 New York, NY

For further information please call1- 800 - 638 -4427, press 4, then 1.

Mayaguez, Mortimer Lugo, 83,1969,Members -at- Large, USA, A. T. Beaton,ELA. 1974;Emil Ronallo,49,1989;J. B. Sny-der,ELA, 1974, John R. West,1989;Jay M.Ziff,63, 1966.Nashville, John A. Demarest,ELA, 1973.New Hampshire, Paul S. Nutting,ELA,1972,Phoenix, J. C. Messec,52,1979,Rochester, A S. Gibson,ELA 1968,Southeastern Massachusetts, Lester A.Cahoon,ELA, 1964; G E. Clegg,85, ELA,1974; Leo J. F. Donovan, 77, ELA, 1947.Wabash Valley, Michael A. Shaw,35,1981.Washington, Robert W. Cherry,ELA, 1969;Ray D. Fralick, ELA, 1965,Wat erbury, Edward R. Ogrodoski, 67,1982,

MANAGEMENT ACCOUNTING /OCTOBER 1994 59

ANNUALREPORTSUMMARYYear -Ended June 30, 1994

eventy -five years ago in Buffalo, New York,37 people met to create the organizationthat we now know as Institute of Manage-ment Accountants (IMA) in order to pro-mote the "science" of management ac-counting to improve the financialcommunity and the individual. This past

year our mission emphasized several important areasto further your personal and professional growth.

New activities promoting the Certified Manage -ment Accountant (CMA) program increased the num-ber of applicants to nearly 5,000 since June 1993. Acreative advertising campaign was implemented inJanuary with the theme "Target Your Career." It em-phasizes the important role of the CMA in advancingyour career. Strategic marketing alliances wereformed by Corporate & Academic Development(CAD) with organizations and vendors who will en-

dorse and support IMA and the CMAcredential."Add value to Remote access to the Lehigh Uni-versity CMA Review Course was made

your companyby adding value

available through IMA satelliteeducation sites. This provides low-

to your knowledgebase."

cost, high -quality reviewcourses to members anywherein the country.

A new Continuing Profes-sional Education (CPE) standard was implementedfor national leaders and will demonstrate their com-mitment to professional competence through the con-tinuing development of their knowledge and skills. Tosupport the new requirement, the ICMA and IMA da-tabases became fully integrated and will maintain amember's CPE records and important marketing in-formation.

MESSAGE FROM THE PRESIDENT-LEO M. LOISELLE, CPA

Council and Chapter (C &C) leadership tested theinteractive benefit of the IMA Bulletin Board System.It now provides an open forum for discussion for allmembers on topics important to the management ac-counting profession. Through the Bulletin Board,member reports, late- breaking IMA news, and infor-mation on programs are available for review or down-loading. Employment opportunity listings also wereadded.

To provide management accountants and financialmanagers with the tools necessary to maintain a com-petitive edge in the financial community the Contin-uous Improvement Center (CIC) has completed twobenchmarking assessment studies on the finance andaccounting process, and the number of sponsoring or-ganizations has increased to 29.

A major study was completed with the FinancialExecutives Institute to find out what Corporate Amer-ica wants in entry level accountants regarding educa-tion and training. The results will be developed intofuture actions on education- related issues.

The year ended with the "diamond" celebration ofour 75th anniversary during the Annual Conferencein New York City. Attendance exceeded 1,500, andrevenues exceeded expenses. The CPE sessions werehighly rated.

The diamond needs four distinct characteristics tobe considered valuable -- color, clarity, cut, and carat.And as an IMA member, you added value to yourknowledge base and became more valuable to yourcompany by way of CMA, CAD, CPE, and C &C, plusthe CIC.

I believe our founding fathers would be proud ofour 75 years of excellence and with the progress wehave made. I would like to thank all the volunteer lead-ers, members, and staff for their enthusiasm and ded-ication.

TotalRevenues $14,916Total Expenses 15,344

Subtotal (428)Gains on Sales of Securities 354Excess of Revenues Over Expenses S (14)

Total Assets $18,209Liabilities 6,255Deferred Revenues 4,838Fund Balances 1,116

Total $18,209

MANAGEMENT ACCOUNTING /OCTOBER 1994

• Approved updated Business Plan:

• Establish recognition of IMA by the corporateand academic communities as the professionalorganization representing financial manage-ment and management accounting.

• Ensure that U.S. organizations encourage theirfinancial management and management ac-counting professionals to be Certified Manage-ment Accountants.

• Ensure that all CMA candidates have access toquality review materials and courses.

• Provide local staff administration and productsfor Regional Educational. Programs.

• Establish Corporate In -House Educational Pro-grams as a priority.

• Provide Leading-Edge National Conferencesand Seminars for senior financial management.

• Provide chapters and councils with effective re-gional support and leadership development.

• Present effectively the concepts and ethicalpractices of the financial management and man-agement accounting profession to corporations,academia, and legislative and standard settingbodies.

• Created the IMA Foundation for Applied Research,Inc.

• Amended Bylaws stating that "CMA certification isencouraged but not required to maintainmembership."

• Chose new logo to emphasize the profession ofmanagement accounting.

• Simplified Membership Admission Criteria.

• Clarified IMAACMA roles regarding the merger ofCMA program into IMA activities.

• Formalized provisions of new CPE standardpreviously approved by the Board.

SIGNIFICANT ACTIONS BY THEBOARD OF DIRECTORS FOR

1993 -94• Established annual award for chapter program and

roster booklets.

• Streamlined chapter competition for trophies andawards to focus more on retention.

• Established a Council and Chapter Corporate &Academic Development chair and chair -electposition. A formal position of president -elect wasestablished at the chapter level.

• Merged five chapters.

• Formed one new chapter.

Members Personal and Professional Development 80%

Education$7.046%

18% 701ye

16%

CertificationAssociation $2.5with BusinessProfessionals $2.7

This is a summary of the 1993 -94 ANNUAL REPORT. The cornpleteANNUAL REPORT,yeor•endedJune30, 1994, is availablefree to all members by calling 1.800.638 -4427, Ext. 154.

MANAGEMENT ACCOUNTING /OCTOBER 1994

IMA—Universally

Recognized andInfluencing $3.1

COMPUTERS&ACCOUNTINGHARDWARE /SOFTWARE REVIEWS

CLAIRE BARTH, EDITOR

SOLOMON III

lot has changed about the furni-JM business since 1931 when A.

William Ball and his brother firstbegan pounding out antique reproduc-tion hardware for antique dealers andcollectors in a modest foundry in Ex-ton, Pa. One thing that hasn't changed,however, is the importance of custom-er service.

Today, Ball & Ball Brass, Inc., is athriving national company led by BillBall, grandson of A. William. The com-pany's 38 employees produce severalhundred different reproduction itemsincluding furniture and cabinet hard-ware, antique lighting fixtures, doorknockers, and fireplace equipment.Customer service is still a top priority.In fact, it was Ball's desire to improvecustomer service that propelled him toautomate the company's order - taking,order - fulfillment, and billing proce-dures, which until 1992 were builtaround a massive, color -coded custom-er card filing system.

"We were entering 50 to 75 sales or-ders a day and shipping more than 100packages a day," Ball said. "Four em-ployees handled order processing andaccounting. We were really gettingway too busy to be doing all this byhand." Ball looked to Amy Shobaken,president of Computer Consulting &Training, Inc., for a solution. The com-pany, based in Downington, Pa., spe-cializes in recommending, installing,and implementing accounting soft-ware systems.

Shobaken recommended a networkaccounting system built around Solo-mon III®, a high -end, client /servergeneral accounting system well knownfor its customizability, data integrity,and easy -to-use character -based inter-face. Several modules were purchased,

including general ledger, order en-try /invoicing, accounts receivable, in-ventory, report & graph designer, andexternal systems interface. A Novelllocal area network (IAN) was set upfeaturing an IBM- compatible 386 fileserver and six workstations.

"A network makes it possible fortwo or more personal computers toshare data," Shobaken said. "In a LAN,all data processing is done locally oneach PC while the central computer, orfile server, acts as a traffic manager be-tween the PCs." In addition to sharingprograms and data stored on the serv-er, users can access each other's data.The Solomon III system is optimizedfor client /server, meaning that it hasbeen structured to take maximum ad-vantage of the way LANs handle andprocess data.

Initially, the computer system wasrun parallel with the manual systemuntil employees were sufficientlytrained and confident in the new sys-tem's abilities. "Right away, we benefitted from streamlining the inventoryand order entry process," Ball said.

But according to Ball, the real ben-efit was improved customer service.In the past, when a customer called to

inquire about the status of an order itcould take an hour or more before thequestion could be answered, which re-quired calling the customer back laterin the day or the next day," Ball said."Now, the information can be pulled upimmediately on a computer screenwhile the customer waits."

The system has other benefits aswell. Handwritten monthly statementshave been replaced by professional -looking computer - generated state-ments. Backorders automatically gen-erate a weekly "production list" ofitems that need to be manufactured tofill customer orders. Sales analysis da-ta now are available to provide reports,

for example, on which products are themost popular and which customersgenerate the most revenue.

Also, discounts by customer class(antique dealer, furniture manufactur-er, builder, architect, retailer, etc.) arecoded so that the correct discountautomatically appears and is calculatedwhen a repeat customer's order is en-tered. Previously, a rainbow of color -coded cards was used to indicate thediscount schedule.

"It also helps with the billing cycle,since we work with customers onvarying terms," Ball said. Another keyadvantage is that the order entry pro-cess has been interfaced with a UPSmanifest system to automate the ship-ping process. "Just by entering thesales order number we can print outthe package label and document labelfor the paper copy of the sales order,"he said.

Ball credits Shobaken with recom-mending and implementing a systemthat does all he hoped it would do andmore. "I didn't really know what wasout there in the way of accounting soft-ware, but I did know what I wanted thesystem to do," Ball said. "Since wewere all manual in the past, you canimagine what Amy has had to teach usto do. It's been a long learning curvebut, basically, I've been happy since theday we put it in."

For information about Solomon III,contact Solomon Software, 1218 Com-merce Parkway, P.O. Box 414, Findlay,OH 45839; (419) 424-0422.Circle No. 75

ACCOUNTMATEhe Nabisco Specialty Parts Cen-ter, located in Elk Grove Village,M., operates as a distributor sup-

plying spare parts for Nabisco's 13 bak-eries around the United States andCanada. Yet it also has the character-istics of a manufacturer because it fre-quently subcontracts the fabrication ofspecial subassemblies.

The primary mission of NabiscoSpecialty Parts is to assure the timelyavailability of spare parts at the individ-ual bakeries. A complementary goal isto minimize costs by keeping inven-tory and labor costs low. The centercarries about 2,500 items in inventory,and another 10,000 are ordered fromvendors as required.

Its basic accounting functions aresimilar in nature to an independentbusiness because the bakeries placeorders and in turn are billed through

62 MANAGEMENT ACCOUNTING /OCTOBER 1994

Nabisco's internal company vouchersystem. In the past, the Specialty PartsCenter used an IBM System 36-basedinventory management program, butorder entry, inventory control, produc-tion control, and purchasing were han-dled manually.

When the decision was made to ful-ly computerize the process, a team ledby the manager of capital purchasingand the manager of specialty partslooked first at expanding the existingsystem. The team decided that this op-tion was expensive and would have re-quired significant effort from the Na-bisco information servicesdepartment. Thus the team turned itsattention to personal computer -basedsystems that would run on a local areanetwork (LAN).

The team found that most focusedeither on distribution or on manufac-turing. None combined the two func-tions in a manner similar to the Special-ty Parts Center's business. Anotherproblem was that most systems fo-cused on one particular function suchas sales entry or inventory but werenot strong throughout the range offunctions.

The AccountMate accounting soft-ware from SourceMate InformationSystems, Inc., stood out because it of-fered a range of modules, each ofwhich appeared to provide functional-ity competitive with the best single -purpose packages. Second, and evenmore important, the AccountMatepackage was designed specifically forcustomization, which offered thegreatest potential to manage theunique aspects of the Specialty PartsCenter's business unit.

AccountMate includes dBASEsource code so that it can be modifiedeasily by any programmer familiarwith that language. The program iswritten in a very modular fashion andincludes extensive technical annota-tion, which makes it possible for an ex-perienced programmer to make sub-stantial changes in the flow andoperation of the program in a mini-mum amount of time.

Abelson Communications, Inc., ofBaldwin, N.Y., was selected to performthe required customization. The mostdifficult aspect of the customizationprocess was accounting for the manu-facture of subassemblies by subcon-tractors. Typically, these assembliesare built from parts supplied by threeor four different vendors. It is vital tokeep track of the parts used in eachsubassembly and also the work-in-pro-cess inventory at the subcontractor's.

Abelson originally modified the pur-chase order and inventory modules ofthe AccountMate system to track off -site inventory. later, additional modifi-cations were made to incorporate allthe required functionality in the pur-chasing module. The purchasing mod-ule now makes the required entries toinventory and the work order automat-ically. Employees can create a bill ofmaterials, take materials out of inven-tory, and assign them to the subcon-tractor without leaving the purchasingmodule.

Nabisco also required other modi-fications, including changing the out-put of the AccountMate system tomatch the format required by Nabiscocorporate standards. This changemade it possible to automate other as-pects of the business process. Nabiscohas an internal billing system in whichinvoices are called intercompanyvouchers. The Parts Center now hasautomated the process of generatingthese vouchers.

Another customization was addingon- screen fields. For example, thedrawing number and file name of sub-assemblies now can be displayed on-

screen for instant reference. Trackingthe location of inventory items has be-come easier. A typical order might con-sist of 20 different items. Some comefrom the Center's inventory, some areordered from vendors, and some areassembled by subcontractors. Withthe manual process it could take hoursto find the status of each item. Now, onone screen, employees quickly cansource the status of each item in theorder based on the purchase ordernumber.

The primary benefit of implement-ing the new system has been substan-tial productivity improvements. For ex-ample, the time required to invoiceNabisco's bakeries around the UnitedStates has been reduced from two tothree months to just a few days. Nabis-co Specialty Parts Center executivesestimate that implementing the systemhas increased business productivity byan overall 15% to 20%.

For more information about Ac-countMate, contact SourceMate Infor-mation Systems, Inc., 20 SunnysideAve., Mill Valley, CA 94941; (415) 381-1011; fax: (415) 381 -6902.Circle No. 76

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MANAGEMENT ACCOUNTING /OCTOBER 1994 83

OFFICETECHNOLOGY

CLAIRE BARTH, EDITOR

SOFTWAREPeachtree Software has introducedPeachtree Accounting for WindowsRelease 3, a major upgrade to the soft-ware. The new Action Items functionincludes an Events Log, a To Do list,an Alert signal that tells users whencertain user - defined business condi-tions exist, and a Tips feature thatgives users a new tip about the soft-ware every day. Among other new fea-tures are an enhanced graphical inter-face that lets users customize reports,an enhanced inventory function, a Pay-ment Processor, and more than 175other enhancements. The software isavailable on 3.5" diskettes and CD-ROM. The latter comes with additionalclip -art files, on -line documentation,and more than $500 worth of smallbusiness productivity software.Circle No. 60

Collier-Jackson is distributing Vi-sionShift," its new generation of cli-ent /server applications. The introduc-tion of the VisionShift line leveragesthe firm's experience with MicrosoftAccesse, Microsoft Visual Basic®Programming System, Ap-plications, Edition, and theMicrosoft Office as a solu-tions development platform.The VisionShift suite ofproducts supports open ac-cess to enterprise data onservers and databases of thecustomer's choice. Vision -Shift Accounting includesgeneral ledger, accountspayable, accounts receiv-able, and human resourcesmodules. The first productin a new vertical offeringthat targets distributors, as-semblers, and light manu-facturers is Order Entry and

Inventory Control, also being builtwith Microsoft tools.Circle No. 61

Aulabaugh Consulting Group, Inc.has developed CashTrax, a point-of-sale solution for retailers that will inte-grate with Macola software's account-ing and distribution packages. It runsunder Btrieve and requires Macola'sCustomer Order Processing, Inven-tory Management, and Accounts Re-ceivable modules to handle the ac-counting functions. CashTrax'sfeatures allow retailers to maintainmore information about their custom-ers, inventory, and sales operations.Besides CashTrax, ACG offers a line ofadd -ons including on -line credit cardauthorization, on -line check authoriza-tion, a mail order version of CashTrax,and ARIEL, a remote site support soft-ware for multisite businesses.Circle No. 62

User Solutions has made availableSpreadsheet QC V1.0. The 15 spread-sheet based programs provide an easy -to-use set of tools to help any organi-zation improve quality control. The

functional areas include controlcharts, data analysis (Pareto, histo-gram, and scatter charts), samplingmodels, and probability distributionanalysis. Data can be entered manual-ly, through a link to another spread-sheet, or by reading from another sys-tem. The actual source code, referredto as macros, is included with eachproduct. The templates operate con-currently with Lotus 1 -2 -3, MicrosoftExcel, and all compatibles.Circle No. 63

Genelco, a Microsoft® Solution Pro-vider at the partner level, has devel-oped a number of software applicationsfor use by the insurance industry withthe IBM® AS /400 Advanced Series re-lational database. Among the applica-tions is Life Support Plus, a system thatadministers traditional and nontradi-tional life insurance contract andhealth and annuity products. HealthClaims Plus, a real -time system, paysand administers health claims for in-surance companies, third -party admin-istrators, and self - insured corpora-tions. Benefit Administration Plus, areal -time system, supports billing, col-lection, and administration for groups,individuals, and associations. GeneralLedger Plus is a feature -rich, integrat-ed accounting system for insurancecompanies. Finally, Credit SupportPlus is a flexible home -office adminis-tration package for credit life and cred-it disability products.Circle No. 64

Manzanita Software has introducedan improved development system forFlexWareT 4, high -end modular ac-counting software for the Macintoshcomputer. The FlexWare Develop-ment System, sold separately, lets de-velopers create totally new applica-tions or make modifications to existing

FlexWare modules. The sys-tem includes a built -in inter-preter for development,compiler for speed, an inter-active screen formatter, andan automatic applicationdocumenter.Circle No. 65

Spreadsheet aC V1.0

Spalding Software, Inc.has upgraded its data trans-lation utility, DataImport, toinclude a Microsoft Win-dows version. DataImportallows corporate end -userseasy access to selected in-formation from host -basedreports generated by main-

64 MANAGEMENT ACCOUNTING /OCTOBER 1994

frame, midrange, or network applica-tions. The data search can be manualor automated. Selected data then aretranslated into a number of popular PCspreadsheets and database applica-tions. The software will correctly trans-late almost anything found in a reportor print file, including currency, per-cent, date, and even international for-mats. Movement to the Windows envi-ronment made a number of additionalfeatures possible. New is the ability tounstack multiline reports on screen foreasier data selection. Users now canextract specified sections of a report byusing the pause and resume feature.The new version produces output spe-cifically for Microsoft Access, Paradox,Excel 5.0, Lotus 4.0, and Quattro Profor Windows.Circle No. 66

End -if Software has developed !Bottomline, a program that projectsweekly cash status up to a year. Itshows the best, likely, and worst -casescenarios so a company can plan for fu-ture goals. It is available in DOS, Win-dows, and Macintosh formats. TheDOS version interfaces with Lotus 3.4,the Windows version with MicrosoftExcel 4.0 and 5.0, and the Macintoshversion with Excel 4.0. End -if Softwarehas created specialized versions thatinterface with Solomon III for Btrieve,Great Plains Accounting, and Flex -Ware.Circle No. 67

Gazelle Software is making availableBack -It 4 and Back -It for Windows.Both versions support most tapedrives as well as floppy disks, harddisks, and networks and can do multi-volume backups. They both use datacompression to save time. Dual -levelerror prevention assures that data arewritten only to reliable media. Back -Itfor Windows can do backgroundbackups while you continue to work,allows individual file tagging andviewing any file before selecting it forbackup, and prints numbered backuplabels.Circle No. 68

PUBLICATIONSMarshall & Swifthave issued their1994 catalog of books, software, andon -line services having to do with res-idential, commercial, industrial, andagricultural building costs. For moreinformation, call (800) 5442678.Circle No. 69

Dataimport 4.0 for Windows

American PurchasingSociety is of-fering the APS Policy and Procedure

Subscription Service. Companies canobtain written policies and proceduresmonthly, both in hard copy form andon a floppy disk, so companies can cus-tomize the policies and procedures.Purchasing topics include Organiza-tional Structure, Responsibility andAuthority, Acceptable Terms and Con-ditions, and many other subjects. Pro-cedure topics cover Documenting Pur-chase Requirements, SupplierSelection, Purchase Approvals Re-quired, Shopping and Negotiating, andothers.Circle No. 70

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01992 accountants on call'Independent survey of temporary sccounting placement services customers conducted by Opinion Rosaarcn Corporation, Princeton, NJ.

Circle No. 9MANAGEMENT ACCOUNTING /OCTOBER 1994 65

TRENDSIN MANAGEMENTACCOUNTING

RESEARCHJULIAN M FREEDMAN, CPA,EDITOR

JOINT IMA/ FEI RESEARCHPROJECT PROMISES CHANGE

he Wall StreetJournal recently rana major story on an IMA/FEI re-search project that will bring

about landmark change in universityaccounting curricula and in the educa-tion of accounting students to bettermeet the needs of Corporate America.The article is reprinted in the adjacentcolumns.

The research, conducted by theGary Siegel Organization, an indepen-dent opinion research firm, culled theopinions of top -level corporate execu-tives who are members of IMA, FEI, orthe AICPA. Research results were pre-sented at the annual meeting of theAmerican Accounting Association inAugust and summarized in the Sep-tember issue of MANAGEMENT AC-COUNTING& Copies of the completereport and the raw data are availablethrough Ms Special Orders Depart-ment, (800) 638.4427, ext. 278.

Titled What Corporate AmericaWants in Entry"vel Accountants, thejointly sponsored IMA/FEI researchproject is not gathering dust on a shelf.The two associations arranged an edu-cational summit meeting, which washeld on September 13. Attending wererepresentatives of the six major ac-counting organizations and six otheraccounting organizations with a signif-icant interest in accounting education.The aim was to work toward applyingthe findings of the research study tochange accounting education. A fol-low-up meeting has been scheduled forDecember 8.

The following article appeared inThe Wall StreetJournal issue of August12, 1994.

COLLEGE COURSES ON ACCOUNTINGGET POOR GRADE

BY LEE BERTONStaffReporterofTHE WALL STREET JOURNAL

Accounting courses: Many college stu-dents avoid them like the plague.

They may be on to something. Busi-ness leaders feel current college ac-counting courses don't sufficientlyteach students the skills they reallyneed to be effective in business, ac-cording to a major report by a six-member joint committee of the 85,000 -member Institute of ManagementAccountants and the 14,000 - memberFinancial Executives Institute.

The report "attacks the entire fabricof accounting education," some panelmembers say. "Few college courses fo-cus enough on business budgeting,cost accounting [what products reallycost to produce] and how to manageworking capital, which is what compa-nies need," says Gary Siegel, a DePaulUniversity accounting professor whosurveyed 800 financial executives atbig U.S. companies for the panel.

The report says most college ac-counting courses focus too much onauditing, nonprofit accounting and tax-ation. These courses help prepare stu-dents to work for major public account-ing firms, but don't adequately preparegraduates to work for big companies,the report adds. Yet two-thirds of the50,000 students who take undergradu-ate accounting courses every yeareventually work for business, ratherthan for accounting firms.

Many of the survey respondentsrecommended that colleges offermore than the one cost - accountingcourse, which is standard in many col-lege accounting departments thesedays.

The joint report is being presentedtoday at the annual meeting of theAmerican Accounting Association, agroup of 9,800 leading educators, inNew York.

At Citgo Petroleum Corp., many re-cent college graduates who majored inaccounting aren't up to snuff for jobsat the company, says Steven R. Berlin,senior vice president of finance at theTulsa, Okla., oil concern and a mem-ber of the six- member panel. Conse-quently, in the last four years, Citgohas been hiring liberal -arts or busi-ness- school graduates for 509 of its 20or more financial jobs each year, he

says. Mr. Berlin says it takes an addedtwo years of in- house training to showaccounting graduates how to makebudget decisions useful to Citgo, a unitof Petroeeos de Venezuela SA.

"Today's accounting students don'thit the ground running," says Mr. Ber-lin. He says financial decisions at Citgodon't always involve number- crunch-ing, at which accounting students ex-cel. "We need students who are moreimaginative and more skilled at seeingthe strategic direction our business istaking." For example, Citgo is able toprice the gasoline, heating oil and cat-alytic feedstocks produced by a refin-ery in computer models "without usingdollar figures," Mr. Berlin notes.

Mr. Berlin faults the University ofTulsa, among other colleges whereCitgo recruits, for failing to offerenough management - accountingcourses such as budgeting and strate-gic planning.

Gordon Nielsen, who heads theUniversity of Tulsa's accounting de-partment, concedes that his nine -mem-ber department falls short in teachingmanagement - accounting courses. "Wejust don't have the resources," saysProf. Nielsen. "We would need at leasttwo more faculty members to offermore than one cost-accounting course,and we just can't afford to spend the$140,000 or more to do this."

Clark H. Johnson, vice president offinance at Johnson & Johnson, the bigdrug company based in New Bruns-wick, N.J., agrees that colleges fallshort in teaching business acumen toaccounting students. "So we encour-age the 40 to 50 entry -level accountingstudents hired each year to get theirMBAs at evening school or to study forexams to become certified manage-ment accountants" given by the man-agement accountants institute, saysMr. Johnson, who wasn't involved inthe study. "Most accounting graduatesjust aren't well - prepared for business."

Even the American Assembly ofCollegiate Schools of Business, whosemembers include 675 such schools inthe U.S., concedes that accountingcourses in colleges poorly prepare stu-dents for jobs in business. The AACSBis urging more colleges to adopt busi-ness -type accounting courses. "But wecan't move mountains," says Jane Ru-bin, the AACSB's director of account-

66 MANAGEMENTACCOUNTING /OCTOBER 1994

ing accreditation. "It will take years, ifnot decades, for the nation's businessschools to come around to meetingbusinesses' needs."

Another roadblock is that some col-leges say their accounting studentsprefer public- accounting over manage-ment- accounting courses, because ac-counting firms hire so many studentsat their campuses. "We offered fourbusiness -type courses three years ago,but had to drop them because of lowattendance," says Bikki Jaggi, chair-man of the accounting department atRutgers University in New Brunswick."Of our recent 150 accounting gradu-ates, accounting firms hired more than80, while companies hired only 10,"says Prof. Jaggi. The rest went intogovernment, education and otherfields.

Currently, public accounting andbusiness each initially attract about28% of the nation's annual crop of ac-counting graduates, the 310,000 -mem-ber American Institute of CertifiedPublic Accountants estimates. Aftertwo years or more at the firms, manyaccountants join client companies.

Five years ago, the AICPA urgedU.S. colleges to offer 150 semesterhours of accounting education for un-dergraduate accounting majors, ratherthan the actual average of about 128hours. But the 150 -hour program is"useless unless it teaches studentshow to make key business decisions incost accounting, budgeting and busi-ness strategies," says Keith Bryant, aformer steel company accountant whois associate dean of the University ofAlabama's school of business in Bir-mingham and president of the manage-ment accountants institute.

Reprinted by permission of The WallStreet Journal, 01994, Dow Jones &Company, Inc. All Rights Reserved.

Julian M. Freedman, CMA, CPA,CPIM, is director, IMA research.

MANAGEMENTACCOUNTING PRACTICES

LOUIS BISCAY, CPA, EDITOR

COSO ON DERIVATIVES

ast May, the U.S. General Ac-counting Office issued a report ti-tled "Financial Derivatives: Ac-

lions Needed to Protect the FinancialSystem." Cognizant of the widespreadconcerns about derivative financial in-struments that have been expressed,the Committee of Sponsoring Organi-zations of the Treadway Commission(COSO) is doing its part to support theGAO effort. COSO has been develop-ing "Evaluation Tools for Derivatives,"which is to be a supplement to its pub-lication, "Internal Control — IntegratedFramework." Supporting COSO's de-velopmental work is a project advisorycouncil, which includes in its member-ship IMA's representative, Diane M.Butterfield, a senior vice president ofChemical Bank, New York, and a mem-ber of IM Ks Management AccountingPractices Committee.

IIA ON INTERNAL CONTROLREPORTING

he Institute of Internal Auditorsissued a revised draft of a pro-posed Statement on Internal Au-

diting Standards, which now is titled"Reporting on the Overall System of In-ternal Control." Some changes reflect-ed in the new draft are:

• Changing guideline 430.08 fromshould to may to accommodatethose internal auditing practitio-ners who may not be asked to pro-vide reports containing opinionsand other information regardingthe overall system of internal con-trol for the entire organization tak-en as a whole;

• Deleting the discussion regardingpoint -in -time and period -of -time re-porting and substituting the notionof reposing for an agreed -upon pe-riod; and

• Deleting all the proposed guidancecontaining specimen reporting lan-guage.

For copies of the exposure draft,call IIA's Customer Service Center at(407) 830.7600, ext. 1.

OTHER RELEASES

■ The American Institute of CPAs re-leased for comment a proposed Au-dit and Accounting Guideline, "Au-dits of Brokers and Dealers inSecurities." The guide incorporatesnew accounting and financial re-porting requirements issued by theFinancial Accounting StandardsBoard and AICPA's Accounting

Standards Executive Committee,as well as auditing standards is-sued by the Auditing StandardsBoard since publication of the 1985edition of the guide. Contact AIC-PA's Order Department at 1 -(800)TO AICPA.

■ The Governmental AccountingStandards Board issued an imple-mentational guide for GASB State-ment 14, The Financial ReportingEntity." The guide was developedin response to a number of inqui-ries about the application of State-ment 14 to primary governments,stand -alone governments, andcomponent units. For a copy of theguide, call the GASB Order De-partment at (203) 847 -0700, ext.555.

FASAB ON THE MOVE

o not confuse FASB withFASAB, the Federal AccountingStandards Advisory Board.

FASAB, based in Washington, D.C., isengaged a series of projects intendedto promote better accountability andcontrol within the federal govern-ment. They include: Managerial CostAccounting, Stewardship, Cost ofCapital, and Property, Plant, andEquipment.

Subscribers to Cap Access can ac-cess any FASAB file that has been puton Internet by typing "go financenet"from any menu prompt after connect-ing to Cap Access. To subscribe to CapAccess, call (202) 994-4245.

Louis Bisgay, CPA, is director, Manage-ment Accounting Practices.

LambersCMA

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Circle No. 16

MANAGEMENT ACCO=NG /OCT OBER 1994 67

ETHICSETHICSHOTLINE

1- 800.6- ETHICS

EDWARDJ. McCRACKEN, EDITOR

ETHICS CASES FROMACADEME

BY P. MERLE MADDOCKS; SYLVIAH. MICHELINI, CPA; AND GROVERL. PORTER, CPA

n the February 1993Ethicscolumn,Dr. Robert B. Sweeney stated thata primary focus of colleges and uni-

versities is to provide an environmentfor intellectual, cultural, and ethical de-velopment. Members of the academiccommunity must be encouraged notjust to recognize and avoid potentialethical dilemmas but to establish amechanism for either dismissing orconfirming allegations of ethical mis-conduct. The following two cases rep-resent actual ethical dilemmas encoun-tered in the academic community.

SEASIDE UNIVERSITYCASE*

According to Sweeney, it often is theexistence of an urgent situation involv-ing serious alleged ethical violationsthat prompts the establishment of auniversity -wide ethics committee. A re-cent incident at Seaside, a mid -sized re-gional university, is such an example.

The Department of Managementhired a chairman after a nationalsearch, campus interviews and visits,and screening by a university-widesearch committee. Within his first yearhe was granted tenure in the manage-ment department —the area in whichhe earned his doctorate (according tothe credentials he provided). Shortlythereafter, the College of Business wasrequired to inspect the academic cre-dentials (including transcripts) of allfaculty in preparation for an accredita-tion review. During this routine pro-cess, it was discovered that the chair-man's official university transcriptlisted his doctoral major as communi-

cation and speech, not management.Most of the management faculty, whoalready were concerned about his lead-ership style and ability, began to ques-tion his suitability to teach certainclasses in the management area.

The management faculty first dis-cussed its concerns with the dean andeventually went to the president of theuniversity. At this point the facultylearned that the president and the pro-vost as well as several members of thesearch committee, were aware of thechairman's credentials, and the admin-istration intended to support him.Shortly thereafter, someone "leaked"the story, and the city's major newspa-per carried an article about the disputeand an interview with the chairman.The article increased dissension with-in the department and the college.

Within a week of the news story thepresident met with several facultymembers throughout the universityand had put into place the foundationfor a university -wide ethics committee.Although the committee's first taskwas to evaluate the specific chargesagainst the chairman, its major taskwas to assemble a well- respectedgroup of university faculty who wouldhear and evaluate future charges of un-ethical conduct. After reviewing theev-idence in this case and meeting withthe chairman, the committee reportedits recommendations to the presidentWithin a month of the newspaper sto-ry, the chairman resigned.

Supporting Sweeney, this case illus-trates that an institution should have acommittee in place to address claimsof ethical conduct before the need ac-tually arises. Disputes often result in adivisive, nonproductive work environ-ment; therefore, the sooner the issueis examined, the faster the recovery.The accused also should be protectedand given an opportunity for defense ina confidential manner. Last, going pub-lic or "whistle blowing" should be usedwith extreme caution. Although oftenit is effective, the cost can be high toall parties involved.

GALAXY UNIVERSITY CASE*

The College of Business at Galaxy, asmall regional university, had securedfunding ($1 million +) from industry toestablish an endowed chair. The hold-er of the chair would receive a salaryin excess of $100,000, have all reason-able travel expenses paid, and have aprivate secretary. A search committeeconsisting of business faculty, facultyfrom other disciplines, and administra-

tors was established to review the qual-ifications of candidates. The dean ofthe College of Business was namedchairman of the committee and in-structed membrs that the most impor-tant qualification was a strong recordin grants and publications.

Three candidates, chosen from thenumerous applicants, were invited forcampus interviews. After the visits, themajority of the committee did not rec-ommend offering the position to any ofthem. The chairman, however, disre-garding the recommendations, decid-ed to invite one of the candidates backto campus. That was tantamount to of-fering him the chair position. The can-didate (Dr. Cagy) had reported an im-pressive research record on his vita,including the upcoming publication ofseveral manuscripts with a major bookpublisher. As it happened, one mem-ber of the search committee had pub-lished with this particular company.He called an editor and found out theeditor had never heard of Dr. Cagy butagreed to "check him out" with othereditors. Subsequently it was discov-ered there was no book contract Aftera meeting with the provost and dean,Dr. Cagy withdrew as a candidate. Toreiterate Sweeney on this point; hones-ty is a required standard of conduct forfaculty. ■

*The names in these cases have beenchanged to protect all persons involved.

P. Merle Maddocks, Ph.D., is assistantprofessor, Department of Accounting,University ofAlabama in Huntsville.She is a member of the IMA North Ala-bama Chapter and can be reached at(205) 895 -6577.

Sylvia H. Michelini, BSBA, CPA, isan auditor with the Office of InspectorGeneral for the National Aeronauticsand Space Administration (NASA).She is a member of the IMA North Ala-bama Chapter and the Committee onEthics.

GroverL Porter, Ph.D., CPA, is pro-fessor, Department ofAccounting, Uni-versityof Alabama in Huntsville. He isa member of the IMA North AlabamaChapter and can be reached at (205)895-6571.

Authors' note: The opinions expressed inthis column do not necessarily representthe views of the Officeof Inspector,NASA, or any other agencyof the UnitedStates.

gg MANAGEMENT ACCOUNTING /OCTDBER 1994

TRENDSIN EDUCATION

RALPH L. BENKE, JR., CMA, ANDROGER H. HERMANSON, EDITORS

ASSESSMENT OFACCOUNTINGED UCATION, PART (-EVALUATING THEPROCESS

ALISON L. DREWS- BRYAN, CPA,AND JAMES R. DAVIS, CMA

o improve future decision makingit is important to evaluate the im-pact of all the changes to account-

ing education, such as advisory boardsor applying Total Quality Management(1'QM). The educational literature re-fers to the evaluation process, whetherof changes or of the status quo, as as-sessment. When educational assess-ment takes place in colleges and uni-versities, all academic programs areaffected, including accounting pro-grams.

In the United States much of thecurrent educational assessment forproving institutional and program ac-countability is mandated by accredita-tion bodies, state or public commis-sions of higher education, and boardsof trustees of individual institutions.The American Assembly of CollegiateSchools of Business (AACSB) also hasbeen exploring assessment. Its focusspecifically applies to business and re-lated education programs, most ofwhich include accounting programs.'

The accounting profession also isencouraging the assessment of ac-counting education through the forma-tion and activities of the AccountingEducation Change Commission(AECC). The formation of the AECChas stimulated many accounting edu-cators to assess their programs infor-mally. Rather than assess for account-ability, however, the AECC isencouraging evaluating programs for

their ability to inspire self - learning.The ability to self -learn leads to the im-provement and advancement of knowl-edge.

A valid assessment is more likely tooccur when there is agreement amongthe participants on the assessmentpurpose, coordination and cooperationamong participants, ongoing planningand evaluation effort to determinewhat is effective, adequate resources,and administrative support. In partic-ular, informal and poorly planned as-sessment is unlikely to provide validconclusions because what is being as-sessed may be inappropriate or incom-plete, how it is being assessed may beunreliable, and when it is being as-sessed may be untimely.

Because assessment activities tendto be inherently imprecise, it is wise toemploy a number of different assess-ment techniques to the same issue.The results of each technique shouldbe generally supportive of the resultsof the others before anyone draws con-clusions and makes decisions. Re-sources applied to assessment activi-ties have limits, so assessment shouldbe confined to a problem that is themost critical or has the most potentialfor improvement. Initial questions toexplore include: What is the role of theaccounting program within the overallmission of the institution? What is themission of the accounting program,and, derivatively, what are its goals andobjectives?

The AECCI is attempting to lead theway in developing goals and objectivesfor professional accounting educationby involving many constituencies ofthe profession in the process; never-theless, accounting faculties will needto evaluate the appropriateness of theAECC's suggestions. Also, the missionof some accounting programs is moreencompassing than the goals and ob-jectives of the AECC. Therefore, theacademic community will need to de-cide whether to limit the assessmentprocess to professional accountingeducation only or to broaden the pro-cess to include all aspects of the pro-gram. Another concern is the deci-sions that will be made usingassessment data. For example: Is it im-portant to track student performancein order to better screen applicants forthe program, to weed out unsuccessfulstudents, to evaluate the curriculum,or perhaps to do all three? If a pro-gram * s educational process is judgedsatisfactory or is fixed due to externalconstraints, decision making will belimited. The decisions should be iden-

tified clearly before issues of what,when, or how to assess are faced.

Educational assessment of account-ing programs will occur and should beundertaken with seriousness. The con-sequences of poor decision makingbased on poor or incomplete assess-ment results can be as potentially dam-aging as doing nothing. Because manychoices are required during the pro-cess, participants should be knowl-edgeable about the issues. Manage-ment accountants, individually andthrough local IMA chapters, can takeadvantage of opportunities to assist lo-cal colleges and universities in improv-ing their accounting programsthrough the assessment process. Com-munication withaccounting educatorsabout new hireswillinform accountingeducators about the strengths andweaknesses of their programs. Man-agement accountants should volunteerfor advisory boards so they can be in-volved directly in ongoing or future as-sessment activities. To do so will re-quire effort, but the potentialcontributions and rewards are great.

At this time practicing accountantsand accounting educators still have avoice in how the assessment processwill be conducted, and they should ex-ercise their prerogative. If the highereducation community does not re-spond to the demand for accountabilityby the society in which it functions,other groups will interfere in whatshould be a self - assessment process. Ifthis happens, the results may be in-complete, irrelevant, and biasedagainst accounting programs and ac-counting professionals. ■

Editor's note: As disclosed in the Execu-tive Summaryofan lMA/FEI surveyPublished in the September 1994 issue,Corporate America is dissatisfied withthe level ofexpertiseofaccountinggrad-uates.

Alison L. Drews - Bryan, Ph.D., CPA, isassociate professorofaccountancy atClemson University, Clemson, S.C. Sheis a member of IMA's Anderson AreaChapter.

James R. Davis, Ph.D., CMA, is aprofessorofaccountancy at ClemsonUniversity. He is a memberofIMA'sGreater Greenville Area Chapter.

'American Assembly of Collegiate Schools of Busi-ness, Report of the AACSB Task Force on OutcomeMeasurement, AACSB, St. Louis, Mo., 1989.

2Accounting Education Change Commission, "Ob-jectives of Education for Accountants: PositionStatement Number One," American Accounting As-sociation, Sarasota, Fla., 1990.

MANA GEM ENT ACCOUNTING /OCTOBER 1994 69

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IN THE LIBRARYMembers may borrow materials reviewed inthis section bycalling Shahe Sonentz, managerof library services, Stuart Cameron McLeodLibrary, at 1- 800638 -4427, ext. 235.

SHAHS N. SANENTZ, EDITOR

DEMING'S PROFOUNDCHANGES: WHEN WILL THESLEEPING GIANT AWAKE?

Kenneth Delavigne and J Daniel Rob-ertson, PTR Prentice Hall, EnglewoodCliffs,NJ 07632, 1994, 274 pp.T h i sthought - provoking study describeswhat the authors feel is wrong withAmerican industry and tells how W.Edwards Deming's 14 points, if applied

properly, wouldresolve many ofthe key issues.Although thebook is not writ-ten specificallyfor managementaccountants, ev-ery reader of thismagazine will bechallenged to re-think some ofthe basic princi-

ples underlying how business is beingrun today.

Management must understandcomplexity and randomness in all pro-cesses. Simply asking workers to tryharder —or, to use the author's term,Taylorism (named after the early 20thcentury guru Frederick Taylor) —can-not get the job done, no matter howmuch supervision is applied.

In one sense there is little that is tru-ly "new" in this book, but some of thebest management thinking available isdistilled in one brief volume. Anyonewith management responsibility forthe work output of others should readDeming's profound changes. You maynot become an instant Deming disci-ple, but you undoubtedly will start toquestion some of your own behav-ior —and, even more likely, the behav-ior of your boss!

Alfred M. King, CMA

PPC'S CONTROLLERSHIPGUIDE

Second edition, David A. Tolson et al.,eds., Practitioners Publishing Company,P.O. Box 966, Fort Worth, TX 76101,800 - 323 -8724, 1993, three volumes(looselea,O—Manyof us in the manage-ment accounting profession complainthat we are not considered part of themanagement team. Too many of us arestuck with the image of "scorekeeper,"called a "beancounter," and referred toas "the green eyeshade." To escapefrom this dead -end road, we must par-ticipate in management issues —think-ing like a business person, not an ac-countant. If this scenario strikes tooclose to home, how do you escape?How do you start thinking like a busi-ness person?

PPC's Controllership Guide is an out-standing reference work that belongsin the personal library of every readerwith controllership potential. But don'tjust have it sitting on the shelf. Read it.Use it.

It is hard to identify a critical areathat is not covered in the 15 chapters.Cash management, receivables, man-agement, and inventory managementare obvious, but chapters on obtainingfinancing, managing business insur-ance, and personnel management willappeal particularly to readers workingin smaller organizations. Notice thatthe chapter titles emphasize manage-ment.

For example, in the inventory chap-ter, significant space is allotted to man-aging inventory levels, purchasing andcost control, and receiving, shipping,and physical control. The way to playon the management team in the inven-tory area, for example, would be to be-come involved in the business issues,not just in the preparation of a monthlyreport calculating variances from bud-

get. A further strength of these vol-umes is appendices for every chapterthat contain practical, ready -to -usequestionnaires, worksheets, andcharts.

If anyone is having a difficult timecompleting the required number ofhours of Continuing Professional Edu-cation, the Controllership Guide hasbuilt in self -study exams that can bemailed to the publisher for CPE credit.I used the book in an IMA sponsoredcourse on controllership and found itextremely effective as background ma-terial. It definitely is the leading, if notonly, publication of its kind. Buy it.Read it. Use it on the job.

Alfred M. King, CMA

THE ISO 9000 BOOK:A GLOBAL COMPETITOR'SGUIDE TO COMPLIANCE ANDCERTIFICATION, SECOND ED.

John T. Rabbit and PeterA. Bergh, Qual-ity Resources, One Water St., WhitePlains, NY 10601, 1- 800 - 247 -8519,1994, 224 pp. —More than 30,000 Eu-ropean companies have been certifiedby the International Organization forStandardization (ISO). By the end of1993 more than2,000 NorthAmerican opera-tions had beencertified as com-panies whoseproducts andservices flowacross interna-tional borders in-creasingly rec-ognize that theISO standardsrepresent the common denominator ofbusiness quality. You still can competeinternationally without this certifica-tion, but if a competitor has it and yourcompany doesn't, your company maywell be the loser. This second editionof the book, written by two business-men who directed the Foxboro Com-pany's successful ISO 9001 certifica-tion effort, includes a sample qualitymanual designed to help identify theactivities that an organization needs toperform in order to obtain the certifi-cation. Newly revised to reflect the1994 changes to the standards, thisguide is a valuable resource for a com-pany that plans to qualify for the ISOcertification.

Robert F. Randall

92 MANAGEMENT ACCOUNTING /OCTOBER 1994

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