Lean processes – the Irish Covid-19 vaccination system

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Lean if a termed usually used to describe process efficiency. There are various terms used in the field of “lean” such as lean thinking, lean manufacturing/production, lean management etc, but to me the easiest way to think of “lean” concepts is to think of the normal meaning of lean – fit, strong and without fat. In organisational terms we can think of lean as being about not only doing things in a lean way, but always looking for ways to improve (or kanban).

In my time as a management accountant I have been lucky enough to be involved in projects with a lean emphasis, mainly around lean production and the notion of a pull system – where orders are pulled through the production process to meet customer delivery dates.

It has been a while since my lean experience days, and yesterday I was vividly reminded of them through a LinkedIn connection. John O’Shanahan from LeanBPI wrote a wonderful blog post of his experience being vaccinated against Covid19 in one of Ireland’s large vaccine centres. You can read the post at the link in full, but some points made by John are classic examples of lean in action. One point was how those attending had their appointment time confirmed before being allowed to enter. If someone were permitted to enter earlier or late, this could upset the process which is designed to ensure full flow through the vaccination centre. A second point relates to a Covid history check. John noted:

At the Covid-19 history check, the checker was ready to record if there was an issue but was not recording the results for all persons checked. Most patients presenting for vaccine will pass the Covid-19 history check, it makes sense to only record the exceptions and turn these patients away before entering.  

Finally, the use of technology to capture information is noted. Tablets used were prepopulated with certain information from the vaccine registration portal, and little new data was captured. However, what was captured simply adds to the exist data and does not create a new process or data. I have seen other comments noting that the only paper in the process was the small card given to each person at the end (like a Vaccine ID) and information leaflets distributed. This contrasts with eight pages of forms in German vaccine centres, for example.

Do read the full post by John if you have time.

Accounting in TV/film production

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At one of my recent management accounting lectures, my students had the pleasure of been given a short talk by an accountant who worked in the TV/film sector. There is quite a lot going on in Northern Ireland in this arena (think Game of Thrones etc). While I have often noticed the “Production Accountant” title on movie/TV credits, I have never really thought about what the role entails.

As I learned from the talk, the one name on the credits typically hides a whole team of accountants. Another thing I learned is the vast range of tasks production accounting entails. The tasks include legal aspects (e.g. employment law), payroll, bookkeeping, planning costs, tracking costs and many more things (see here). Having heard what production accounting involves, it struck me that it is an amazing learning ground for early career accountants and/or accounting graduates, as you have to deal with all aspects of accounting.

To add to the broad role, production accounting will vary by location as filming locations can be in different countries/legal jurisdictions. Thus for example, you would have to require knowledge of local GAAP, local tax rules and local business law. Thus there is a potential to learn about international environments.

The Production Guild has prepared some useful resources for production accounting and you can find them here . These resources reflect the broad nature of the tasks, as mentioned. As an example, an asset register reflects that some production assets may be purchased and moved from one production to another – very similar to an asset used in a construction contract. Another example is a template to capture the budget and actual costs of artists (actors) in a production.

One downside to being a production accountant may be that you are typically self-employed. Having said that, if you are an accountant in practice you may be self-employed regardless.

Management accounting and sustainability

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Throughout my professional and academic career as a management accountant/teacher of same, the issue of sustainability has always been something with just made intuitive sense to me. This may be due to my rural background which has instilled an appreciation of all things around me into my ways of working and thinking.

Of course, sustainability is a key issue for business and us all. I recently stumbled upon a CIMA Research Insight report on sustainable development which I had not read previously. The report focuses on the United Nations’ 17 Sustainable Development
Goals (SDGs) and the role of management accounting. Rather than summarise it here, it may be best to read the report yourself, but one quote from within the report really captures the important relationship between business and sustainability. The quote is:

“If business isn’t sustainable then society is at risk. And if society isn’t sustainable then business is at risk.” – Mark Wilson, Group Chief Executive Officer, AVIVA

What a clear and simple quote!

Fixed costs subsidy – a simple way governments can help business during Covid

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Many governments are helping/have helped businesses during the last year since Covid 19 appeared on the scene. There are probably as many ways to help those businesses affected as there are countries in the world, and some sectors need more help than others. I would imagine from both the perspective of a business needing help, and from a government perspective, keeping this simple is key

Focusing solely on helping business with costs, probably the easiest thing a government can do is help a business with fixed costs. These costs are incurred even if a business is closed. Some such costs are imposed by government (e.g. business rates) and these are being postponed in many countries. Other fixed costs such as rent, security or insurance may still be incurred by a business, and some governments are helping business by covering a portion of such costs. Another method I have read about is how some governments are giving loans to cover such costs – as ultimately a surviving business can pay taxes, and of course government borrowing is very cheap at the moment.

Any schemes which help business by covering fixed costs should be relatively easy to operate and understand for two reasons. First, any business should have cost data to hand from its annual accounts at least, or from its accounting systems at best. Second, fixed costs are understood by even the smallest business. Of course, fixed costs are different for different businesses and sectors, and ideally any subsidy or help should take this in account.

Goodwill defined

Here is a great post from The Accounting Cafe which defines goodwill in a really nice way. Goodwill is a relatively common intangible asset, which accounting students often find difficult to grasp initially, so thanks for the great explanation.

Do you speak accounting?

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It is often said accounting is the language of business. I have been recently putting this to a small test, to see how accounting works across different (spoken) languages and countries. My rather unsophisticated test stems from an experience in 2016 in Italy. While in the Abruzzo region, I came across a church in a mountain village. On it’s notice board were the parish accounts. I do not speak Italian, but my knowledge of the general format and layout of financial statements. combined some common sense, allowed me to understand the accounts quite well.

For my “test”, which I am using for a class I teach as a way to summarise various financial statement formats, I have collected the financial statements of several types/size of company and in several languages – English, Spanish, German and Irish. While I do speak some German and Spanish, my Irish is terrible (sad as an Irish person perhaps). Looking across the various financial statements in these languages – even though different rule and laws may apply – there is a typical structure which implies even a non-speaker can understand the basics. This of course stems from the fact that the double entry system underlies the financial statements, regardless of which language is used in their construction. The look and layout of the financial statements is also a good visual clue as to which statement it is – the balance sheet for example is easy to locate, given its two totals being equal.

In summary, while I am a bit embarrassed to say my Irish is terrible, I was able to understand a balance sheet in Irish – and of course in Spanish and German too. Thus, the results of my “test” – I speak accounting better than Irish!

Domestic waste costs in Ireland

A few months ago, myself and a colleague from Dublin City UniversityOrla Feeney, published a paper in Accounting Auditing and Accountability Journal titled “Domestic waste policy in Ireland – economization and the role of accounting” – see this link

The paper details how domestic waste collection in Ireland evolved over time from a free (to the end consumer) merit good, to a pay by weight system run by private enterprises. We used the notion of economization to frame the story of how accounting concepts played a role in this journey. The paper abstract is below.

In the paper, we noted “to say the sector became “financialized” would be an over claim as all firms involved were/are privately owned and not subject to financial market forces”. Well, this is perhaps no longer the case, as the Irish Times of January 15th reports one of the waste firms is up for graps with a valuation of €1bn – see here. Great to see a link from the paper to actual events.

See more of my research publications look at my research profile .

Paper abstract:

Purpose

This paper examines how accounting concepts were utilised in domestic waste collection services in Ireland over the past two decades or so. In comparison to other former “free” services in the Irish context, the prevalence of accounting concepts has been greater and delivered a more successful outcome.

Design/methodology/approach

Drawing on the concepts of calculation, the “economic” and economization, events around domestic waste policy in Ireland are examined, and the increasing prevalence of concepts such as price, cost and profitability in these processes are a focal point. Publicly available documents such as government policy documents, parliamentary records and media reports are utilised to draw out these concepts. The period of analysis is 1996–2018.

Findings

The findings reveal the role of accounting concepts in the economization of domestic waste policy in Ireland. The result of the economization process was a fully privatised, profit-oriented, price-monitored system.

Research limitations/implications

This research provides a broad view of accounting concepts in the management of domestic waste. It highlights how waste policy in Ireland travelled through instances of being political and economic over time. The research is limited by its use of secondary data.

Originality/value

This study highlights how accounting concepts were used in varying ways to bring about a satisfactory solution to domestic waste disposal in Ireland, namely the privatisation of waste services.

Where is the “value” in value-added tax?

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As an accountant, I tend to automatically equate value to economic value. When teaching management accounting of course, I know there is more than just financial/economic value. Such “other” values are probably much more important to us and our planet – time is precious as the photo of this post captures.

I was intrigued recently to read how a “tampon tax” was abolished in the UK from January 1st 2021. The tax, value-added tax (VAT) of 5%, no longer applies to sanitary products such as tampons. As I read around the topic (and I know the issue of free sanitary products is a hot topic), I found that Ireland never charged VAT on such products. From my days of studying taxation, I recall that a basic principle of VAT in Ireland was that basic needs (e.g. bread, medicines) were outside VAT scope, but “luxury items” were subject to VAT (e.g. sweet cakes – in contrast to plain white bread).

The above made me think of what value should we be considering in VAT and is there value other than economic value. Allowing women to have cheaper or tax free sanitary products is something which I think adds value to society. Or take another example, back in 2012 a baker in Saxony, Germany was held liable to pay VAT on unsold bread donated to homeless people (I think this debate may still be rumbling in Germany). This baker was certainly adding value to society by helping others less fortunate, and again it is questionable should such an activity be taxed.

I am sure there are more examples like these two. Of course, governments around the world are introducing taxes to help protect our environment etc, but I do wonder should legislators consider the existing and well embedded taxes too. Some simple changes as to what constitutes “value” might be worthwhile to improve society.

Zoos, costs and Covid 19

The are many examples of how Covid 19 is affecting business. An article in the Irish Times of 18/11/2020 provides a nice example, from Dublin Zoo. We all love a visit to the Zoo – well, I certainly do – but we probably never stop to think about the costs of running a zoo.

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According to the Irish Times article, Covid 19 has left a €10 million hole in the finances of Dublin Zoo, and it costs €500,000 per month to feed and care for the animals. Looking at recent annual reports, the annual income of Dublin Zoo is about €20m. That would mean about 30% of the the income is used to cover feeding costs (500000 x 12 = €6m). This is a fixed cost, as the animals must be feed and cared for. If income has fallen to zero in recent months due to Covid 19, it is easy to see how Dublin Zoo – or any zoo – could get into financial trouble quite quickly.

Cost effectiveness and social housing in Ireland – should VAT be part of the debate?

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First of all, let me say I am no expert on the area of social housing, so I apologise in advance if I am missing some key points in the debate. Second, this blog post emerged as I searched for some thoughts on cost effectiveness. The post may be a little Ireland-centric in context, but I am sure Ireland is not the only country where the sale of new homes is taxed.

Housing is an ongoing problem in Ireland, and the issue of affordability is often mentioned by the media, governments and other actors. While searching for some material on cost effectiveness, I found several articles which suggested that more affordable homes/social housing could come from local authorities taking on the building themselves. This makes some intuitive sense in that a construction firm’s profit margin does not need to be paid and thus the cost per house may be lower. However, this made me think of two things:

  1. When I was younger (30-35 years ago) local authorities began to phase out building and maintenance of homes as third parties could do so more efficiently and at a lower cost. Thus, an infrastructure to start doing so again is not there, needs to be built (pardon the pun) and will cost money.
  2. The VAT rate on new homes is 13.5 % presently. Thus, if a person pays €350000 for a new home, €42,630 is VAT and must be paid over to the government – assuming a developer builds/sells a house. If a local authority (e.g. a city) built a house for re-sale, as far as I know VAT is still included in the price. If it were renting the house to a tenant – again as far as I know – it is not chargeable, but VAT on the cost of building cannot be reclaimed.

You may be thinking, so what, as the VAT can be used by the government to build more houses, or even be paid back to the purchaser – I do not believe we can be sure the former would happen (unless ring-fenced), and the latter does not happen as far as I know.

Taking the above two points, it is questionable if house building by governments is more cost effective. If we consider VAT as a cost to the end-purchaser, surely some scheme which reduces or eliminates VAT in certain circumstances would result in more cost effective housing regardless of who builds them?

Income, accounting and Revolut

It’s been a while since my last post, apologies. This posts recounts a recent experience I had with the digital bank Revolut, and is a good example of the need to know some basic accounting concepts.

Let’s start with a definition of income from the IASB’s conceptual framework – “income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants”. For the purposes of this post, assume I am the accounting entity.

I should say I am a fan of the digital bank Revolut (although it’s not my main bank). They are among the fintechs changing banking. At the same time, I’m cautious – I am an accountant, and from the below, you’ll see I will remain cautious

Without getting into too much personal detail, I get paid in GBP but live in Ireland so spend in EUR. I recently got a message from Revolut asking me to verify my income of €116,000. I think that cannot be right, I don’t earn that much net of taxes – I might like too :). They provided no breakdown of this amount or any ability to easily analyse it. I downloaded my statements from Revolut into Excel and did my own sums. While I could not get their exact figure, I could get close. The explanation was that transfers from my GBP to EUR account (within Revolut) were counted as income when I transfered to EUR. This is double counting, as both cannot be income. If I relate to the definition of income above, when I get paid in GBP, I get an increase in my economic benefits ( I have more cash). When I transfer this same money from GBP to EUR, it is the same money, there is no increase in the economic benefits I have – unless due to currency fluctuations, but let’s keep it simple.

Quite a fundamental and basic error occurred in the above scenario. It is yet another example of how basic accounting concepts need to be clearly understood and applied.

The Templars and accounting

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I recently finished reading The Templars by Dan Jones. The Templars are the stuff of legend in many texts movies, and Jones’s book is a great and detailed read on the history of the Templars.

As I did not know a lot about the Templars – outside of movies – I was surprised at how good they became at accounting. The Templars were a military order, founded in 1119 and remained active for about two centuries until their papal suppression in 1312. They were involved in several Crusades to the Holy Land, all of which entailed military and financial resources. It seems as a result of this and their well structured organisation, they became not only good at accounting, but so good they were trusted by others to hold cash assets on their behalf and act as a bank.

Jones’s book gives many insights from an accounting perspective, here are just two examples. A letter from 1220 written by Pope Honorius wanted to ensure that taxes collected to fund the Crusades did not flow via Rome. The Templars were thus used as agents to account for and deliver cash from tax collected to the Holy Land. A second example which appears throughout Jones’s book is how the Templars accumulated wealth as an order over time. They acquired land and similar immovable assets, and these were used productively to generate moveable assets – oil, wine and grains for example. All of this has to be accounted for and controlled. Jones also mentions how ultimately one way the Templars were hurt as an order – their wealth was attacked.

Solar PV – the costs and benefits

Last month, I got 2Kw of solar photovoltaic panels installed on our home. The install was seamless, so thanks to the provider https://www.greenelectric.ie/.

Image from Greenelectric.ie

A 2Kw installation equates to six panels. Our roof already has solar water heating panels, so I guess a standard install might be 3Kw or more. So how is it going you might ask? As I am an accountant, of course I want to do the numbers. Before I do, lest you need reminding, Ireland is not the sunniest of places, but we do have good daylight – which is key to solar PV. Since the install, the lowest we have generated is 3Kw in one day, the most 13Kw. In terms of daily usage, this equates to a range of about 20% of our needs to more than 100% – depends on the day, as some days we use more energy than others.

So, to the numbers. I am making the following assumptions 1) no revenue from sale of extra power to the grid, 2) a cost of 0.17c per Kw – this is my current costs, 3) 5% annual increase in energy cost and 4) an average of 5Kw generated by the panels each day. I think these are all quite conservative. The cost of the install was about €6,500 net of a government grant, so the question from an accounting view is when do I get my money back? Using a simple Excel sheet and the above assumptions, it takes about 16 years. This is reasonable, given the average life of PV panels is 20-25 years.

There is more to it of course. I will probably save the planet 1.5 tons of CO2 per annum, which is not at all considered in the above numbers. And of course, I will have power for a while in case of a power cut, and can always expand the system to have more batteries. So overall, I am happy as an accountant, but also happy that I am doing my bit for the planet.

Customer support costs – should “difficult” customers be charged more?

A simple answer to the question posed in the title above is yes. This is because such customers use up more time and resources and should be charged more. If you have learned activity-based costing or activity-based management in your studies of management accounting, you will also know that such techniques try to allocate costs based on the resources used. Thus, a more time-consuming customer will pay more.

Of course, it is not that simple. You may not be able to charge customers more, or your business may be a service provider with back-end or post sale support. The latter case is what inspired me to write this post. My better half works for a large financial institution. She often tells me how customers are asked several times for the same thing e.g. documentation to prove their address, their age or even their identity. Some seem to ignore requests, not provide full information or deliberately try to hide some information. Getting back to the customer a second or more times adds to cost. Thus, the management accountant in me thinks I should charge these customers more. In normal circumstances no organisation would. But what if, as a bank for example, I asked a customer three times to provide a scan of their passport for identity purposes and each time they blanked out the date of birth? This would imply much more effort (and cost) was needed than should be. If it were up to me, I would say to the customer “ok, €/$/£25 please, as you as wasting time”. I guess no banks would be gutsy enough to do something like this, but maybe it would make for greater efficiency as customers would comply more the first time. I am just using a bank as an example here, I am sure there are many other scenarios where customers could be dissuaded by threat of a greater price/charge like this.

Attn: Wirecard & its auditors- a lesson on the basics.

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You may have read about the scandal at Wirecard AG (see here for example), where about €1.9 billion in cash probably did not exist. As a result, the German regulators are calling for more oversight. While I agree that more oversight may be useful, I also think it is worthwhile reflecting on the absolute basics of bookkeeping, accounting and auditing that seem to not get much mention in the media. As is often my style here, I’ll relate to my own experience.

Close to 30 years ago now, I started to study accounting (September 1990). The first few weeks of the class covered bookkeeping. This was a bit repetitive for me, having done accounting as a subject at secondary school. One of the things I learned was how to prepare a bank reconciliation. In Summer of 1990, I got a summer job at a small audit firm. For my very first task, I was presented with two books (pre computer days 🙂 ) from a company – their cash receipts and cash payments. From these, I had to manually check every payment or receipt to the bank statements to make sure they matched. Some transactions had errors, some were missing, but at the end I could explain – or reconcile – the balance of cash per the company’s books and per the banks records.

Just pause for a moment. The act of doing this bank reconciliation means that the accounting records of a business agree with an external information source – the banks records. Thus, as either an auditor or an internal accountant at a business, I can be somewhat confident that the financial statements to be prepared from the accounting records are reasonably accurate. This assumes of course all transactions ultimately go through the company bank accounts. A bank reconciliation was one of the first things I learned to do as an accountant, but also one of the first things I looked for when doing an audit.

Following from the above, how can I be sure as an auditor that a company is disclosing all their bank accounts? I cannot speak for every jurisdiction, but usually the client signs a letter addressed to the bank(s). The letter is sent by the auditor and requests the cash balance at year end plus a list of all accounts held in the name of the entity/entities being audited.

Thus, if 1) a company accountant does a bank reconciliation, 2) the auditor checks it is done and 3) the auditor sends a letter to the company’s bank, then all should be fine and cash balances easily verified. I can only presume something very untoward was happening at Wirecard, but how it was allowed to continue beggars believe. Any auditor should be able to do the simple tasks I have described and surely a bank letter should have revealed the €1.9 billion did not exist.

However, as an educator, I rarely teach bank reconciliations. This is somewhat disappointing perhaps, and I often think should we (or I) be at least reminding students of the absolute basics. They will of course learn it quickly in practice. It is also worth pointing out that accountants (when part of a profession) are also bound by codes of ethics. Not every jurisdiction has a legally recognised accounting profession which educates and guides members.

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