Dear Crabby,
I have been the controller at a US subsidiary for the past 11 years which has its headquarters in Germany. Like every year, in March our organization was audited.
Normally when the auditors are here, they spend a great deal of time verifying the accuracy of the numbers in our financial statements. Although there are some minor discrepancies, the audit is a routine exercise.
Well, this year I was really thrown off my horse as the auditors concentrated on our credit department for the first time and asked many questions that honestly, neither I nor our credit manager were able to answer. In addition, they were quite stern towards us about our lack of internal credit and collection procedures and controls.
In short, here are several of the questions they asked us for which we were not prepared.
- What are the goals for the credit department in the upcoming fiscal year?
- What is the to-do list of items that need to be improved upon?
- When was the last time we updated the credit and collection policy?
- When was the last time the credit application was updated?
- How often are credit files being reviewed?
- Have there been, or should there be, any changes in how credit limits are being established?
- Who is analyzing the amount of credit being established against the customer past due rate and/or insolvency rate?
- How much ongoing credit/collection training is the credit department staff required to receive each year?
- Who gets involved in the collection process when accounts become seriously past due?
- At what point is an account placed with a third party for collection?
- Are credit reports being used from one vendor or a few vendors?
- What credit risk and default mitigating measures are being implemented for accounts in Latin America, which is also our territory?
Regretfully, the last time we formally updated our policy was over five years ago and many things have changed since then. It was embarrassing to see that the credit manager had written several notes into the credit policy with colorful post-it notes in a disorderly way. Putting aside the unprofessional appearance, the changes were not formally recorded, and I was not aware of many of them. Being his manager, I should have been much more proactive on what was going on. I guess I took the viewpoint that if it’s not broken, don’t fix it.
As there is now some background talk about replacing me, I’m wondering if I should wait for them to drop the axe or start looking?
Signed: Feeling Blue
Dear Blue,
First and foremost, look at the results of the audit as a huge opportunity for improvement.
Every organization is a work progress and there is really no such thing as the organization having reached its pinnacle of operational efficiency. Just like the company itself, the credit department has to have yearly goals and those goals need to tie right into the subsidiary’s goals. Once the goals are established, the strategy to achieve them must be detailed.
Now is the time to hunker down and begin to shore up the credit and collection department to not only be able to answer all the questions that were posed to you, but to also go far beyond the call of duty. Start by talking to your CFO and/or your president and inform them that you are going to tackle everything that was brought to your attention and more.
If you can be proactive and get the credit department’s policy and internal controls and procedures up to date, I believe this surprise audit of the credit department will eventually work in your favor.
Good luck to you and please let me know how it all works out.
Crabby
Dear Crabby is a credit, collection, and human resources advice column by Nancy Seiverd President CMI Credit Mediators Inc. Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
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