According to a report on Fortune, the US Army accounts certainly do not eek of military efficiency. The report notes “the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year”. That’s trillion, with 12 zeros, yes!
The military is of course the biggest spender of government funds in the US. The budget for 2017 is nearly $600 billion (that’s 9 zeros), but the errors noted above seem to have been accumulating over time. The Fortune article notes:
- The Army lost or didn’t keep required data, and much of the data it had was inaccurate
- there has been no way to know how the Defense Department – far and away the biggest chunk of Congress’ annual budget – spends the public’s money
- DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions
- the Army lacked receipts and invoices to support those numbers or simply made them up.
If this were any normal business, I would have to say it seems to be lacking in minimal and even simple accounting and management controls. But there again, one can imagine how difficult it may be to “control” spending in war zones, or even trace assets or expenses. I can’t imagine an auditor for example going to Iraq or Syria to verify a tank or similar asset has actually been lost
Marketing and design people tend to be very creative, and fair play to them, it’s part of what they are. But design is one thing and actually building or making sometime is tougher – if you have ever built even a standard house you will know what I mean.
The one thing I have learned about design of products is to not change the design after you agree it – this typically causes costs to go upwards. If a customer is willing to pay for this great, but that’s usually the exception.
My experience of product design is it is best to involve someone with good management accounting knowledge from the outset. This person need not be an accountant, but must has good knowledge of costs and or processes to build or make the final product. Otherwise big surprises can occur.
Maybe it’s an extreme example but take the main stadium design for the 2020 Olympic Games in Tokyo. According to reports, the cost of the design to be built has doubled to $2 billion since inception. Surely if someone with half decent knowledge of costs working with the designer would have spotted the additional costs.
An internal auditor is someone who checks the internal control systems in an organisation – usually larger organisations. Staff typically fear the arrival of an external auditor, but at least they go away in a few weeks. The internal auditor is not only ever present, but knows a lot more about a business than any external person. Thus, in my own experience, internal auditors are perhaps less liked than external auditors. However, perhaps my experience was just a bad one. This articles from CGMA at least suggests that an internal auditor needs some decent communication and social skills to0.
(Image from CGMA)
Internal controls and fraud are not really an area that I write a lot on. Just before Christmas I read this article from CIMA about fraud at Japanese firm Olympus. It includes interviews with Michael Woodward, who was at the heart of putting things right. The are a lot of issues in the article and it is worth a read.