Hunger strikes and supporting documentation

One of the bigger news stories in Canada of late is the ongoing hunger strike of a First Nations chief, osten­sibly being carried out to force a meeting with the Prime Minister to discuss condi­tions on the remote northern Ontario Attawapiskat reservation.

The legacy of the “discovery” and settlement of North America by Europeans and their subse­quent relationship with natives is a topic far too complex for this blog, but the story took on an element of particular interest with the “leak” of a Deloitte audit report on the admin­is­tration of the community.

That report has been posted online in its entirety.

Deloitte sampled 400 trans­ac­tions from the G/L across the 6⅔ years in scope. Sixty per year and 40 for the eight month period ending November 30, 2011. Slightly less than 20% of the 400 had no issues. No supporting documen­tation was available for just over 60% of the sample, and the other 20% was either incom­plete or the occur­rence of the under­lying event was questionable. It should be noted though that in the most recent 20 months reviewed, only for 31 of the 100 samples was there no supporting documentation.

What the audit didn’t do (and wasn’t designed to) was determine whether $104M over that time period is adequate for the population on the reserve. It’d be an inter­esting analysis to look at the number of house­holds, average people per household, repairs and mainte­nance funding per household and per person, and figure out whether there is enough funding to support their needs or not. That’s the heart of the issue.

Short-term focus of management ain’t due to accounting had a provoca­tively titled article this morning that just shouted out for a retort: “Is Accounting Blocking R&D Invest­ments?

Now how could accounting be doing that? Why, because senior management is preoc­cupied with meeting short-term quarterly earnings targets, and are cutting back on longer-term focused R&D investments!

I thought this was just an overzealous headline writer, out to get clicks (mission accom­plished!) and perhaps the article itself would walk back the ridiculous premise, but instead it doubled down:

The accounting treatment of R&D as a period expense and the overem­phasis many public-company execu­tives place on EPS. Many execu­tives pay lip service to the long term benefits of R&D. But in reality they base the size of their companies’ R&D budgets primarily on a single period’s EPS dilution. Thus, they are only looking at a tiny fraction of the value equation.

It’s gotta be up to management to teach the market how to appro­pri­ately value their company, and it’s gotta be management that shares a long-term vision of sustainable profitability to share­holders. This short-termism simply has to stop.

It isn’t the accoun­tants who are pushing for quarterly earnings reports. I’m sure accoun­tants would love to spread out the reporting, it would make their lives a lot easier not to have to calculate myriad accruals on a quarterly basis only to reverse them after.

Value, real lasting value, not just for share­holders but employees and commu­nities, is built over the long haul.

Slow down for better ethics

Inter­esting tidbit (and relevant for internal audit) from an article in the latest Economist on how taking time to make decisions results in getting the ethics right:

Slowing down makes us more ethical. When confronted with a clear choice between right and wrong, people are five times more likely to do the right thing if they have time to think about it than if they are forced to make a snap decision. Organi­za­tions with a “fast pulse” (such as banks) are more likely to suffer from ethical problems than those that move more slowly… The authors suggest that companies should make greater use of “cooling-off periods” or introduce several levels of approval for important decisions.

Several levels of approval for important decisions sounds like a fantastic idea to me. What I find is that too many decisions are made or approvals given orally in meetings, with scant evidence to support their existence later, in case of an audit. Surely intro­ducing more rigor around this aspect of approvals would further improve ethical behaviour!

Delay even works in fields where time might seem to be of the essence. Doctors and pilots can profit from following a checklist, even when doing things they have done many times before. A list slows them down and makes them more methodical, as Atul Gawande describes in “The Checklist Manifesto”.

Now you’re beginning to see why this article prompted me to write a blog post for the first time in umpteen weeks! Not just levels of approval, but check­lists too? Be still my beating heart!

Auditors have been employing check­lists to improve quality for eons. It’s great to see articles like this extolling their virtues to all people and for all tasks.

Blue Jays president touts small firm experience

Baseball is back and it’s always great to welcome the boys of summer back to town after a long, grey winter in Toronto. The Jays are in Cleveland this weekend, but the home opener is on Monday and it’s always an awesome time. I’ve got my ticket!

In the March issue of CA Magazine, Jays president Paul Beeston, FCA graces the cover and is featured in a great profile of his career with the Jays, MLB and Labatt. He also talks about how his CA training has helped him throughout his career.

While his ebullient person­ality has made him one of the most popular execu­tives in Major League Baseball, it is Beeston’s sober accounting skills that have made him a treasure for his corporate owners at Labatt and more recently Rogers. “I would say [an accounting background] is almost critical. You have to be able to read a P&L. You can’t lose money and be successful.”

He also waxes poetic about a topic that I’ve touched on a number of times over the years: the difference between getting your CA at a smaller firm versus one of the Big Four. Turns out I’m in good company:

An accountant to the end, Beeston looks back fondly at his time with Coopers & Lybrand in London, Ont., where he received his CA in 1971 (then McDonald Currie) and worked in the tax department. Clients were smaller in London, which meant he got to work on up to 50 audits with different clients over the course of a year. “You learned and you did every­thing — the tax returns, the auditing — you learned what a financial statement was all about, you learned what financing was about,” Beeston says. He contrasts that with a role in a big firm where an accountant might work on just one client for the better part of a year.

Pretty cool that one of the guys respon­sible for the Jays back-to-back Series wins in the early 90s is a fellow CA (no pun intended). The team is looking pretty strong this year and the minors are stocked for the future. Let’s play ball!

Dropbox increases maximum free storage via referrals

Dropbox announced yesterday they are increasing the amount of free storage one can earn by referring people to the service!

I wrote a blog post about the service almost three years ago, claiming they made USB drives obsolete. Dropbox offers 2GB of free cloud storage that integrates seemlessly into Windows, Mac and Linux, and more storage (50GB or 100GB) for a monthly or annual fee. They also intro­duced a service for teams, which I could see being very useful for small businesses with remote workers in particular.

The old blog post was very successful for me, as seven people signed up for Dropbox using my referral link, netting me an extra 500MB each time!

If you haven’t yet tried it, give it a shot. The way it integrates with the operating system makes it so easy to use, and the web interface is great for those times when you don’t have admin­is­trator access to your computer but still need to get those files!

From external to internal audit