by Malcolm Simister
Major Australian-based, Japanese-owned, international logistics company Toll Holdings is in the news for wrong reasons. According to news reports, financially, the business is in poor shape at least partly due to lax controls over internal reporting of financial results.
It seems that Toll relied on spreadsheets for business units to report their financial results to head office and it is alleged that the numbers in them were ‘massaged’ to paint a rosier picture than was actually the case. Naturally, this lead to poor decision making, not the least being the company’s acquisition by Japan Post Holdings in 2015.
The proposed implementation of a robust, centralised accounting system, SAP, made a lot of sense but once the business managers realised that their true results would become known they did everything in their power to prevent it.
A robust accounting system is a must for all businesses but it’s surprising how difficult it can be to have the funding approved for it. Robust systems cost money, there is no direct financial benefit except, perhaps, a few less people required to process transactions (but often they are replaced with higher paid analysts to use the data) and they’re not sexy.
Some years ago, another large, listed Australian company did the consolidation of its numbers for the annual report as well as for internal reporting on a huge – 300mb – spreadsheet workbook and the Chief Financial Officer was worried that there might be errors in the accounts due to errors in the model. Their underlying system was robust – coincidentally it was SAP – but funding for the consolidation module, about $1 million, had been refused by the board.
Soon after, manual checking by accountants found a significant error in the draft annual report already approved by the board, the CFO resubmitted the funding proposal and the board approved it. For them it was all about the risk of reporting incorrect numbers publicly with all that that implies for a listed company, but really the risk existed in all numbers reported, not just those in the annual report.
The same was true with Toll. The risk of manipulation of the numbers would be eliminated by having a robust accounting system and, in their case, the lack of one and the resulting obfuscation was very costly.
It sounds obvious but unless you have numbers you can rely on you can’t make the right decisions. A robust accounting system is crucial to business success and it costs a lot less than not having one.