# In Black & White

## Freeing Finance & Budget Departments from Drudgery One Article at a Time

### 7 Steps to Avoid the Cheap IT Solution Selection Trap

• Jamie Black
• Efficient, Effective and Reliable
• minute(s)Given that we continue to hear about IT projects failing at an alarming rate (according to some surveys, more than 50% fail), there are a lot of topics that we could discuss respecting the selection and implementation processes. We have discussed a number of them but there is one trap we see all the time.  Price Clouds Everything  Consider the Canadian government's recent Phoenix payroll software debacle. They elected to have a payroll system custom developed by IBM and have had nothing but problems with it. According to one assessment: "... the Harper government put so much emphasis on saving money that it undermined efforts to ensure that the system would function well....instead of saving the government 70 million Canadian dollars this year, as promised, Phoenix has cost the government an extra $50 million (about USD$ 37 million), including 6 million in additional fees paid to IBM to fix it." When participating in an IT system evaluation and you find your team leaning toward the low-cost choice instead of the high-value solution: beware. No one wants to pay more for something than they need to. In particular in government, you may even have the obligation to choose the low-cost solution. This default preference/requirement is understood by the IT solutions sales representatives and is often relied upon to accelerate the sales cycle and "close the deal." Even if you're not being exploited by sales teams, the Phoenix case shows how this low-cost bias can lead to dysfunction. Here are two questions to ask yourself to avoid a bad deal when considering the "cheap" IT solution: 1) Is it truly cheaper? In one respect it is obvious; if the number at the bottom of the RFP response or quote is lower, then it's the less expensive option. While technically true, that is only a valuable assessment if you are comparing apples to apples. Before you look at the price, you need to know that you are getting the same thing for the money. With an intangible like software, it can be difficult to ensure you make an apples-to-apples comparison. If you bought the Chevette above based solely on the price, you could be stuck with the wrong car if acceleration and top speed are necessary. Alternatively, you might say I do not need a Corvette, that Chevette will do. The point is, they have different abilities and merely comparing on price hides those differences. RECOMMENDATION: Before assessing products, explicitly and formally define your needs/requirements and evaluate your choices based on fit first. Don't allow the price to hijack the process. Use ROI instead of price to select among solutions that fit some/all of your requirements. 2) Why is it cheaper? There's no such thing as a free lunch. - Milton Friedman You've assessed fit first. Then you calculated ROI and the cheap solution comes out on top. What now? RECOMMENDATION: Treat the low-cost solution with extreme suspicion. This is your warning sign to increase your due diligence. We are currently watching one such "low-cost" vendor in the reporting automation industry cease operations and advise their existing client base they are on their own. For some of these folks, this is happening DURING their implementation of the software. The Action Plan - 7 Steps to Better Due Diligence Double check fit-assessment. If you have any doubt, have the low-cost vendors re-demo to confirm they meet your needs. Double check standard pricing variables: modules/features, number of users, number of people being trained, duration and extent of the support period, These are all variables that might account for significantly reduced cost. Remember you want to compare apples to apples. Also, recall that skimping here may cause cost overruns later when you determine you did need more training or more support. Assess the vendor track record. How many clients do they have? How many times have they solved the problem(s) you have? Ask about failed implementations and what causes their implementations to fail. Be suspicious of anyone who says they don't have any. Closely assess their implementation team. Does the vendor have in-depth knowledge of not only the tool but your business process? Have they been "on your side of the table"? Have they been an HR manager or comptroller or auditor or finance officer and done the tasks that their tool addresses? Contact numerous clients that are currently using their product. Spot check the specific features you are counting on using to see if the reference is using them. We have seen vendors provide references that did not even use the product being evaluated! If the vendor can not provide an extensive list of clients who use the product, or they do not have extensive experience solving your exact issue, determine if your organization is prepared to be a Guinea Pig. We have encountered numerous organizations that have been stuck in limbo for years while their vendor tries to build what was promised. Go back to the expensive vendor(s) and ask why they are so expensive. Do they charge a premium because of their brand? Did they consider something the others didn't? Was there an error in one of the pricing variables (point 2 above)? Assess the low-cost vendor's stability. One way to do this is to consider their financial health, if possible. If the company is publicly traded, have they ever shown a profit? Do their financial statements look like a stable, successful company? Now, if the vendor provides their software as a service (SAAS) there are (arguably) some other considerations when evaluating performance. You can find some interesting articles on SAAS performance here and here. If the company is not publicly traded it can be hard to do this analysis, and you may need to rely on 1 through 6 above more heavily. Many of the steps outlined above are a great idea even when there is not a major pricing disparity. They become absolutely essential when it seems like there is a great deal to be had, and you want to avoid the cheap solution trap. During selection of a new IT system beware of defaulting to the low-cost solution. 7 easy steps steer you away from project failure. ### How to Improve IT Project Success with One Calculation • Jamie Black • Efficient, Effective and Reliable • minute(s)Information Technology projects are some of the most complex and high-profile that you will encounter in your professional life as a finance department team member. Perhaps you have read about the trouble of the new Phoenix payroll system being implemented by the Canadian public service. Maybe you have direct experience with severely compromised IT investments where you work. There is no shortage of examples. So, what can finance do to help? In October of 2016, the Auditor General of British Columbia made some suggestions when they released their report "Getting IT Right: Achieving Value from government information technology investments." The Report in 60 Seconds Regardless of your industry, it is a valuable read for accountants, and we recommend reading the full report. In case you don't have time, here is a quick summary of the major points: IT is important because "every aspect of government depends on IT." Only 29% of IT projects globally are rated "successful." Success defined as: On Time On Budget AND Value Success depends on: People Planning Consultation and Governance The report is an absorbing read, but it fails to elaborate on a significant element: What is "Value" and how do you calculate it? What about "Value"? The report uses the word "value" 57 times with no explicit definition. The only comment on how to achieve it is to assess:  alignment of the project with the organization’s specific needs, priorities and strategies contribution to the organization’s desired outcomes cost the level of risk While these are good points, they provide no particular direction to those attempting to assess the possible value of a project or measure the success of a project during implementation or after completion. ROI to Assess Value Before & After Perhaps it is just that we believe that numbers are the key to all universal truth (no really, we do), but we argue that finance should calculate proposed and achieved value for IT projects. The accountant in us is likely very comfortable with Return on Investment (ROI) calculations: This type of calculation should be used to determine the optimal use of your organization's investment. But our experience is that these calculations are rarely utilized when considering IT solutions, particularly in the public sector. Why? There are at least two problems with the word "Profit" in the context of Public Sector IT projects. Public Sector organizations typically do not think in terms of profit. Even if you work outside of the public sector, you may reasonably ask, "How does an ERP system (for example) generate profit for any organization?" Thus, profit (and therefore ROI) seems like a non-starter. But with a minor change in terminology - replace "profit" with "calculable benefit" - the concept retains its applicability to the public sector. The "calculable" part is important; you don't want this exercise to dissolve into imprecise speculation about intangible benefits. Those may also warrant a discussion, but you should not give up the important quantitative analysis. You should focus on those aspects to which you can assign a real dollar value. There are two broad categories of calculable benefit that you should consider: Efficiency of Staff Resources Your staff spends their entire working lives involved with IT systems. A more efficient, convenient, and highly automated solution will help them do their work faster, more reliably, and with less cross-checking and manual review required. If you estimate the hours saved that a new IT system might enable, and multiply it by your staff's hourly cost, you can measure the economic impact of those time savings. Reduction or avoidance of Direct Expenses There are many direct expenses which a new IT system can help to reduce or eliminate. You pay fees to an external accountant - would it reduce fees if you automated a significant portion of the work they performed? What if your new system could help to avoid late payment of invoices and thereby reduce your late fees and penalties to vendors? Perhaps a new system would provide a reduction of ongoing annual maintenance and support costs? An Example Consider the scenario where your current ERP system is no longer supported. You determine that the risk level of continuing with an unsupported system is unacceptable. You have identified three possible solutions and are working through the selection process. You have seen demonstrations and received fee estimates. You have contacted references and determined they each have strengths and weaknesses. Clearly, there are many considerations (some of which are intangible). But don't underestimate the value of performing an ROI calculation. Calculable Benefit: How much money will we save with each solution? For example, estimate the following separately for each solution: Hours of staff time saved by reduced data processing. Hours of staff time saved by automating report creation, Estimated late payment fees to vendors avoided due to improved A/P processing abilities. Decreased finance costs due to accelerated AR collections. Cost: What is the cost of each solution including all features/modules etc. necessary to facilitate the above benefits over a 5 or 10 year period. 3 Advantages of this Approach 1) Forces Detailed Assessment: All too often we see clients that have only a general understanding of how a particular system will help them. Vendors often don't do anything to help except provide marketing double-talk; "Work Smart", "Improve Productivity", or "Improve Efficiency". These aspirational comments are great, but you need measurable results. 2) Easy Comparison of Alternatives: You can immediately begin to see some interesting relationships between the options that were hard to see at first: Solution 3 is four times as expensive as Solution 1, but it provides 4.5 times the value. If all else is equal, and the organization can find the100,000 budget, Solution 3 is the better choice for your organization. Solution 2, while more expensive than Solution 1, it does not provide a commensurate increase in benefit. Thus, if the budget did not allow for $100,000 investment, the next best option is Solution 1. 3) Clear Monitoring of Performance: Another advantage of this approach is that your team has very specific, measurable goals to monitor the project and assess success. For example, you estimated a calculable benefit value based on specific time savings in report creation and data entry. These time savings should be measured to see if you got the benefit. Moreover, if your vendor is confident in their abilities to deliver these time savings, you can attempt to include attainment of the advantages into the contract. The AG-BC included in her report this clear statement of the importance of measuring value: "IT-enabled projects aren’t just about technology – they involve substantial changes to an organization’s culture, business processes and customers. These projects are really IT-enabled business change. A successful project improves services and allows for more effective use of taxpayer money. And, their success or failure is about more than just being on time and on budget, it’s also about achieving expected value." Carol Bellringer, FCPA, FCA Auditor General The ROI calculation is an important tool that finance department staff should use to estimate, measure, and demonstrate the value of their IT project. From replacing your ERP to implementing a new payroll system we illustrate just how powerful ROI is for setting & measuring IT project success. ### How to improve CaseWare performance by 20% • Darryl Parker • Tips and Tricks • minute(s)During our introductory CaseWare training sessions, we focus on the fundamentals. To move users beyond these basics and ensure an even faster year end, we regularly provide CaseWare tips & tricks in this blog series. Our advice in this article is simple: eliminate unnecessary groupings from your file. It nearly always means better performance and less confusion! Why Purge? Why should you care about cleaning up (purging) your mapping and grouping codes? You want as comprehensive a grouping structure as possible - initially.That way you know you have an appropriate location for every G/L account. Once you have grouped all your accounts though, a typical file will have a large number of groupings that are not necessary. Those unnecessary groups slow down the file. They also slow you down, as you have to scan through long columns full of zeros and determine whether they are noteworthy.$0.00 of "Fishing Revenue" might be expected for your statements, but what about $0.00 of Account Receivable? That's why purging the map numbers or group numbers in any file can be a significant improvement. It moves the file from a generic setup to one tailored exactly for this year-end. In large, complex files we see dramatic results: Opening large financial statements: up to 10% faster. Opening group assignment window: up to 10% faster Opening grouped lead sheets and trial balances: up to 60% faster. In one of our large IFRS client files, cleaning up the groupings resulted in a more than 20% improvement in speed across a simple set of tasks (opening the file, reviewing the consolidation and mapping, and looking at automatic documents and the financial statements). Note - in a very simple file, the speed improvements may not be noticeable but the benefits of a file that is easier to navigate remain. We’ve posted recently about the standard Mapping Purge feature in CaseWare Working Papers. Read that article for an understanding of the built-in features, and then get ready for a more advanced map purge that addresses the limitations of the standard one. The Advanced Purge tool Perhaps you tried the regular map purge in your own Working Papers files. Or maybe you read about the problems that the built-in mapping purge has (can only work on mapping, cannot check account assignment, required knowledge of dBase filters) and thought it was not a good fit for your organization. We want you to be able to quickly and easily clean up the unneeded grouping numbers in your file so you have an even faster year-end. So, we built a tool to allow you to do just that. And we are providing it to CaseWare users for free. The Advanced Purge Tool will: Allow you to choose any of the mapping or 10 grouping structures to clean up. Never delete a map/group number with any adjustments related to it. Never remove a map/group number with any account allocated to it or any of its child map/group numbers. Check three years of historical balance data to determine if prior year adjustments should preclude deletion of a map/group number. Allow you to choose whether calculated map numbers should always be saved, or should apply the balance-checking logic to them. Define a “root” or “base” map number length that will not be deleted under any circumstance. BEFORE YOU START - A Word of Warning!!! The Advanced Purge tool will delete group numbers out of your Working Papers file, and there is no undo button. You must take a backup before running a purge. Even better, take a disposable copy of your file and thoroughly test a purge and verify its effects before running it in your live file. And even then, you should take a backup of that live file in advance of running your thoroughly tested purge! To use the tool: Download the tool. It is a compressed (Zip) file so you will need to extract it after downloading. The tool is a single CaseView document. After extracting, drag and drop this document onto the Document Manager of the file to be improved. Launch the CaseView document. Confirm you understand the risks of purging groups. Choose the grouping mechanism from which you wish to eliminate zero balance. Choose what balance type to examine for balances and if Other Basis entries should be considered. Specify if you want to keep calculated group numbers. Specify if you would like to keep base group numbers. If selected, you must also note how many digits are represented in your definition of a base group number. Once completed, select Perform Purge. When finished (it may take awhile), you will get a confirmation of how many unused groups have been eliminated. You can get a copy of the tool to see how it will simplify and streamline your own data files. All you have to do is click the image below! Consider our more advanced CaseWare training if you want your CaseWare Black Belt! Our tip in this article is simple: purge unnecessary groupings from your file to improve CaseWare Working Papers performance by up to 20% ### CaseWare Feature Spotlight: Diagnostics • Darryl Parker • CaseWare Feature Spotlight • minute(s)CaseWare's financial reporting solutions provide massive benefits to finance professionals. How? By providing the most sophisticated features in the industry. We've developed this article series to outline many of these features to: help prospective users appreciate all of CaseWare Working Papers' power, and encourage existing users to maximize their utilization of the software. "Tick & Tie" for hours & hours All of us know the pain of manually footing and cross-footing and cross-checking a large financial report. It's time consuming and the risk of error is significant. Even worse, as soon as you have an adjustment or update to the numbers, you've got to do it all over again. That's why the ability to automate the diagnostic tests for correctness in your reports is so important. One professional we respect greatly (Joy Richardson) explains the power of this feature set as follows: In addition to making the import of data simple and providing tons of grouping flexibility, Working Papers allows the user to define and enforce rules about their data. We have already discussed one example of this; Automatic Rounding. Diagnostics is a broader - and in some ways, a more powerful - feature that users can and should take advantage of. Rules-Based Data Management When data is imported, we define the nature of accounts that have been imported. This is done by assigning group codes to each account. CaseWare's understanding of accounting principals allows it to perform validation and testing of the resulting financial reports. For example, when we assign an account to a group called "Allowance for Doubtful Accounts", CaseWare is able to automatically determine: this account belongs on the balance sheet (or statement of financial position if you prefer), normally the balance is a credit, this account should be netted against our Accounts Receivable accounts when we present A/R Net of Allowances, If I define these as rules within Working Papers' groupings, Diagnostics will monitor my data and find any examples of where these definitions are violated. What happens if someone modifies these assignments? As you see in the following clip you will be notified: Working Papers also notifies end-users of common issues that might occur inside your reports: Finally, Working Papers' Custom Diagnostics feature allows end-users to define their own rules within their reports - without the help of a programmer! If these rules are broken, you will know about it immediately: Diagnostics are another example of the features that enable CaseWare users to dramatically reduce the time spent on the creation of complex reports while eliminating errors. CaseWare's diagnostics significantly reduces time spent to generate CAFRs, annual financial statements, budget books and other complex reports. ### Is Self-Implementation right for you? • Jamie Black • Efficient, Effective and Reliable • minute(s)In order to make the most of tight budgets, efficiency is key for government finance officers. The RIGHT tools and technology can aid significantly with improving efficiency. This is of course assuming you can fit that technology into your tight budget. Many of our government clients are looking to find ways to implement technology as inexpensively as possible. For some tools, this can mean self-implementation. How do you know when this approach is right for your finance department and when it is a mistake? This article examines the criteria that determine if you are likely to be successful self-implementing a particular new finance-related system (ERP, payroll, CAFR or financial statement automation etc.). Over the last 20 years we have implemented hundreds of technology solutions for clients: CAFR and financial statement automation systems, custom designed mobile applications, ERP systems, local and wide area networks, servers, and of course continuous monitoring systems. During the course of these implementations I think we have tried every possible model: 100% delegation of implementation tasks to client's staff 100% retention of implementation tasks by our team Every task-sharing split possible We have had major success with each of these options. Frankly, we have also had some disappointments. This has given us a wealth of experience and allowed us to come up with the following guidelines for determining which approach to take. Self-implementation Requirements: When you engage consultants / vendors to help with the implementation, there are really two major benefits that they provide: relevant expertise and time to dedicate to the project. As you consider if your organization can self-implement a particular system, assess your team to see if you have the "right-stuff" in these categories. 1) Expertise: An objective assessment of your team's expertise is critical to ensure you are capable of taking on the implementation yourselves. Technology: The initial configuration of some systems require considerable technology knowledge that is not necessary for their day-to-day operation. Server setup, database configuration & optimization, custom code for integration with existing tools are some common areas of required expertise. Do you have team members with this expertise already? If not, you should carefully consider whether it is a wise investment of your time and money to develop this expertise internally for the self-implementation project. On the other hand, some systems do not require this sophisticated technological expertise about the support systems. All that may be necessary is strong knowledge about that particular application and its day-to-day features. In some cases, a strong user of Microsoft Windows and Microsoft Office could have all the technological expertise required for a self-implementation project. Questions for the software vendor: What technology does your system rely on? Are there servers to set up or databases to administer? Is there any programming or scripting required to implement this system? Specific subject-matter: Subject-matter expertise depends upon the system you are implementing. If you are implementing a new ERP system, are you expert in the functioning of your current system? Have you worked with many different systems? Have you ever been responsible for administering a new ERP system? If you are considering self-implementing a year-end reporting automation tool (CAFR / financial statements), does your team have a lot of experience preparing these reports today? Do you understand how these balances come together and know what G/L accounts get grouped in each number on your statements? Or is this your first year-end and you do not have any support from the people who prepared prior year reports? Questions for the software vendor: What subject-matter skills do you require of your implementation consultants? What experience is essential for a successful implementation? When you have seen implementations fail, what skills were missing from the implementation team? Project management: The size and complexity of the project will determine how sophisticated your project management skills will need to be. For example, if the project requires collaboration from a large team over many months / years, with many individual milestones, lots of complexity and great risk should the project fail, you want a very seasoned, professional project manager. On the other hand if the project will only involve one or two people, is reasonably straightforward and you have a great fall-back plan in the event of delay or failure, basic skills may suffice. At a minimum we recommend candidates who have good attention to detail, strong organizational and communication skills. That might be sufficient to guide the self-implementation of some systems. Questions for the software vendor: How long and complex is a typical implementation project? Do you offer project management services if we deem it necessary? What guides or checklists can you offer us to assist in managing a self-implementation? 2) Staff Availability: One of the many reasons organizations pay for professional implementation is not due to a lack of expertise but a lack of available staff time. Being short-staffed or just overloaded with work likely means that you will not be able to prioritize the implementation tasks and you will wind up with a system that is never fully / properly implemented. For many systems, considerable time is required to successfully implement the tool. The tasks may or may not be complex from either a technology or subject-matter perspective but, they may take considerable time. You need a clear understanding of both how much time is required and how much time your team has available. Consideration should also be given to how frequently you will need to break-off from the project to tackle your other duties. The more frequent the interruptions, the more difficult it will be maintain momentum, remember training etc. Questions for the software vendor: How much time would you allow for your consultants to implement this system for our organization? How much more time should we allow given we do not have your experience? Should we multiply the vendor's time estimate by 2? By 3? Measure Your Options As you obtain answers from your vendor, score and plot the responses on a graph like the one pictured here. Projects that fall into the green zone are obvious "self-implementation" candidates. If you plot your project in the yellow or orange zones, it becomes apparent that the demands of the project are higher and careful consideration of your availability and / or expertise is warranted. Should you determine that the project falls into the "red zone" it usually means that it would be wise to abandon self-implementation and investigate other options. Joint Implementation This is not an all-or-nothing decision between self implementation and fully outsourced implementation. Another option to consider is to share the workload with the vendor in a joint or guided implementation. You may be able to do major portions of the work yourselves which will yield significant fee savings and make use of their professionals' expertise and time strategically. Use their team to provide oversight, to remedy any expertise weaknesses or to supplement for any resource availability issues you may have. By balancing the use of your time, your expertise, and your budget for external services, you can often develop an implementation plan which provides the highest return on your technology investment. To implement technology as inexpensively as possible many governments consider self-implementation. How do you know if this is right for your organization? ### Lipstick on a Pig: 6 Spreadsheet-based CAFR & Budget Book Tool Flaws • Jamie Black • Automating Financial Reporting • minute(s)You may be familiar with the expression "Lipstick on a pig". Variations of the expression date back nearly 130 years but the meaning has not changed; Superficial improvements that do not change the underlying nature of something. Spreadsheets by any other Name We have seen an increasing number of spreadsheet-based reporting automation tools promoted as ultimate solutions for CAFRs & Budget Books. This is ironic considering many organizations are using spreadsheets today and are looking for a better approach. Sometimes these solutions are desktop add-ons to enable better connections to a source of data. Sometimes these are cloud-based solutions that rely on spreadsheets to maintain their data and develop their reports. Hard to Tell They are Spreadsheets The fact that these are spreadsheet-based tools may be hard to tell on initial review. You can spend hours reviewing their websites and sitting in presentations and still not recognize it. It's not surprising they don't advertise their reliance on spreadsheets given the scientific evidence of their weaknesses and the numerous stories of very public disasters caused by spreadsheets. The Lipstick In fairness, these tools often have improvements over the desktop spreadsheets you are used to, such as: Better collaboration abilities for sharing comments, tracking changes or assigning tasks. Better audit trails and change management. Ability to tie supporting documents to a given value / cell. More granular security / permissions. The Pig But the core of these products are still spreadsheets. That means they suffer from the traditional spreadsheet weaknesses: No database - All data resides in spreadsheets / workbooks not in a database. This means you must build all your own personalized systems to: ensure your G/L balances identify the 100 - 1000 new G/L accounts added each year No processes/workflow - There is no structured system that you can leverage to support industry best practices. What steps should be followed and in what order? You must develop all of these processes on your own and maintain them separately from your reporting environment. No grouping mechanisms - The G/L accounts that sit in your spreadsheet must be summarized in numerous different ways (by object, by fund etc.) to power your CAFR or Budget Book. If you use spreadsheets, formulas must add the right accounts together. This is fragile and susceptible to error. Moreover, unless you interrogate every formula, there is no way to know what is being included in a given number; there is no legend. Assuming you do get this right in year one, all the new accounts next year means these formulas must all be updated. Tons of custom formulas - All values are derived by "linking" - which is to say writing spreadsheet formulas of varying complexity. Any mistakes you make means errors in your report. Consistency in how these formulas are written or maintained is entirely dependent on the user's expertise, accuracy and completeness. No content libraries - Reporting standards are continually evolving. There are new GASB pronouncements all the time and keeping up with them and what new statements, schedules or footnotes are required this year can be daunting. Spreadsheet solutions do not come with any content. It is entirely up to you to figure out what must be presented and how. No adjusting journal functionality - Adjusting or changing balances is an absolute requirement for financial statement / CAFR production. In spreadsheets you are left with no tools for the following: The values in your G/L are typically maintained on a modified accrual basis. For many of your statements, you need full accrual. Debit balances in A/P accounts or credits in A/R are just two examples of balances you need to reclassify. Prior year adjustment / restatement caused by changes in accounting policy. Our message in this post is not that the additional features - the "lipstick" - have no value, or that there is no situation when spreadsheets should be used. We are saying that when finance & budget officers evaluate possible solutions for their most complex reporting tasks (CAFRs & Budget Books), they must exactly match the critical requirements of their processes to the solution's abilities. If they do this carefully, they will find that spreadsheet-based "solutions" are only marginally better than their own collection of desktop-based spreadsheets. Comprehensive Annual Financial Reporting (CAFR) and Budget Book tools based on spreadsheets are all the rage. Don't overlook their considerable weaknesses. ### 5 Best Practices for Updating Critical Software • Waldo Nell • Tech for Execs • minute(s)Finance officers, accountants and auditors are expert in a very specific field of knowledge. Generally speaking that does not include great depth related to IT systems and best practices. Yet finance officers, accountants and auditors rely on software (and hardware) to allow them to complete their work, often under very tight deadlines. This article will layout the case for finance involvement in the process and provides 5 key steps for finance. Running with Scissors Almost certainly all of your critical applications (ERP, budget, HR, financial reporting, payroll etc.) get updated from time to time. For many of our clients, finance leave this process entirely in the hands of IT. Often finance does not even know updates have occurred until they come in Monday morning and detect that something looks different. This is a very dangerous approach. Updates are risky. Kind of like running with scissors. You may have done it a hundred times with no problems, but one little misstep and it can be disaster. You may appreciate this if you ever lived through a failed update. To give you a little more control and allow you to better mitigate this risk, we recommend our clients follow a 5 step process to manage their updates. 1) Work with IT - Make sure IT knows that they need to include finance in all critical update processes. This does not mean sending an email to finance when the job is done. It does mean advising finance before anything happens (ideally when updates are first made available) so you can work collaboratively to ensure everything works well. 2) Know the benefits - Ensure you have a clear idea of what the benefit to the organization of the upgrade will be. Amazing new features that you have been dying for? Major bug fixes that will prevent lots of errors? If not, the right answer may be to sit this upgrade out, unless the upgrade is required to improve upon network security for example. 3) Don't upgrade during critical periods - Now that IT is communicating with you when updates are pending, you can advise IT when a good time for finance to do the update is. For example, in the middle of year-end is NOT a good time for just about anything, let alone an update to your CAFR / financial statement software. Now some processes never stop (payroll for example). For systems that relate to these processes, look for the least-bad time periods to do upgrades. 4) Test first - Develop a testing plan to ensure that all features function acceptably in your environment with your data, before you roll them out to the live system. This will involve several steps: Install in a test environment first or take full backups of all data before installing the new versions, and plan for some downtime if you need to roll back in the latter approach. Get key system users to test all functions that they rely on to ensure they perform as expected. Note - if you used the backup live data option above you will need to notify users that the system will be unavailable while testing is occurring. If the new version passes all testing, take a backup of the live data and update the real / live server or environment. If you did not have a test environment and took backups of data before testing, you have no more work to do other than advising users they can use the application again. 5) Plan for failure - Develop a plan to deal with failed test results. If you followed steps 3 & 4 above, even with failed tests you are safe, no harm done. If you took a backup and then installed over the previous version of the software, now is the time to recover from the backup. Next, communicate the problem with the vendor about the problem. If it takes the vendor a month to resolve your issue, day-to-day operations have not been effected and while not optimal it is survivable. When they give you a new update version, start at Step 1 above and repeat. Following this simple 5 step approach is guaranteed to limit your stress, and avoid the vast majority of problems that haunt the dreams of finance officers everywhere. You rely on your key applications but updates and upgrades can be risky. Here are 5 steps to mitigate risk and guarantee better outcomes. ### What You Need to Know about 64-bit Working Papers • Darryl Parker • What's New • minute(s)Recently CaseWare International sent out notification that a new version (2016.00.115) was released in both a 32-bit version and for the first time ever, a 64-bit version. Likely, two questions immediately arise for you: Should I upgrade to 2016 at all? Which version (32- or 64-bit) should I upgrade to? The answers to both of these question need a bit of consideration. 1) Should I Upgrade to Working Papers 2016? If you are in the middle of year-end / quarter-end or other significant reporting period - do not upgrade now. Otherwise, the short answer is yes. There are 3 major reasons why: CaseWare Working Papers 2016 has a variety of improvements and enhancements over the prior versions of the software. You should review the Enhancement tab of the Working Papers page on CaseWare's web site and determine if anything there is a real game changer for the way you use the software. Another important consideration is what other products from CaseWare International you use. Their latest versions may require you to have Working Papers 2016. For instance, users of the Financials Template who want to upgrade to version 14 must have Working Papers 2016 as a technical prerequisite. Finally, all Working Papers users should keep in mind CaseWare International's technical support policy, which only extends back one major version. If you are currently using Working Papers 2014 or earlier, you cannot receive technical support. You should strongly consider upgrading as soon as possible. 2) 32-bit or the 64-bit Version? As we recently told you want to be using 64-bit. However, some of you may not be able to with your current computer. The first step is to check whether you can run the 64-bit version. If you are not sure how to check yourself - ask one of the FHB consulting team or your own IT department. Now, if you are able to run 64-bit software, Stop. Your current version of Working Papers is 32-bit. That means when it was installed it was almost certainly saved in a 32-bit directory (likely C:\Program Files (x86)\CaseWare). If you install the 64-bit version into this directory, the upgrade will run as expected. Your IT department may wish to install it in 64-bit location (C:\Program Files\CaseWare). If they do this, the 64-bit version will not replace your 32-bit version. You will wind up with a second version of Working Papers alongside the existing version. That can be confusing! Further, all your templates are installed in the 32-bit version directory and don't get moved to the other directory. If IT wishes to install into the 64-bit location the approach is simple: Repackage all templates Uninstall all templates after verifying your CWP files Uninstall 32-bit version of Working Papers Install 64-bit version of Working Papers Re-install templates into 64-bit path If you have any questions or concerns about the upgrade procedure, contact the FHB consulting team and we'll be happy to discuss! CaseWare has released a 64-bit version of Working Papers. This is excellent but some consideration is required for a smooth upgrade. ### Navigating PSAB: Asset Retirement Obligation Standards • Bill Cox, BDO • PSAB • minute(s)Could Be Some Big Changes - And Some Unexpected Ones How Did We Get Here? The relatively new[1] Public Sector Accounting Board (“PSAB”) standard “PS 3260 Liability for Contaminated Sites” turned out to not have much of a financial statement impact for most governments and government organizations. Certainly the Federal, Provincial and Territorial Governments ran into some of the most significant challenges. But most others were not faced with hugely significant liabilities to report. Likely the most significant reason for this is that PS 3260 applies, for the most part, to assets that are not in productive use. It was a logical progression for PSAB to consider whether standards were required for Asset Retirement Obligations (“AROs”). That is, standards that apply to assets that are in productive use. In addition to being a logical progression, many government organizations that moved to Public Sector Accounting Standards (“PSAS”) recently [2] had been applying ARO standards pursuant to the previous accounting framework they had been following. It was time for PSAB to look to see what, if any, standards were required in this area. An ARO project was set in motion, a task force put to work, and a Statement of Principles issued in August 2014. The main features of the Statement of Principles were: Legal, constructive and equitable obligations could create an ARO. The carrying value of the tangible capital asset is increased by the ARO and expensed through amortization of the asset. Subsequent remeasurement of liability would require adjustment to carrying value of the asset if it is still in use. Post-retirement operation, maintenance and monitoring form part of the ARO. A present value technique is often the best method with which to estimate the liability. In the period since the issue of the Statement of Principles the task force has been reviewing responses and developing a proposed standard. Expect an exposure draft in December 2016. Does It Make Sense To Have Different Standards For Similar Types of Liabilities? When the ARO standards arrive there will be three PSAS standards that deal with items that, at least on the surface, appear to have some similarities. These will be: - the pending ARO standard - the recent PS 3260 Liability for Contaminated Sites standard - and long-existing PS 3270 Solid Waste Landfill Closure & Post-closure Liability standard Each of these standards deals with situations related to clean up of land. On closer review though, it might be reasonable to consider Contaminated Sites as the odd one out. This standard deals with existing contamination as opposed to the other standards which deal with anticipated future costs. But, the requirements for closure and post-closure activities and monitoring of a landfill are identical concepts to those of AROs. Should they not then have the same accounting requirements? Accounting for Landfill Obligations The current Landfill Liability section has some similarities and some differences to the ARO proposals. Likely the most significant difference is that estimated liability amounts are not capitalized to an asset. Why is that? Quite simply the standard came into play in 1998 - a full 11 years before the adoption of PS 3150 Tangible Capital Assets. Capitalization really was not an option at that point. It is only logical that the ARO Task Force will consider whether there should be harmonization of the ARO and Landfill Liability standards. What Would a Harmonized ARO/Landfill Liability Standard Look Like? At first glance, one might expect that the liability amount would not change by the applying ARO concepts to landfill liabilities. After all, both standards suggest that you may want to look at present value techniques to account for future obligations. Yet, there could be a distinct difference in one area. Change could occur in accounting for costs that will be incurred regardless of the level of activity of the landfill. A portion of capping, closure and monitoring costs will be incurred whether the landfill contains 1,000 tonnes of waste or 100,000 tonnes. These “fixed” costs would likely be immediately capitalized at the time of opening the landfill under an ARO standard. Under the current Landfill Liability standard these costs, like those related to volumes, are accounted for as the capacity of the landfill is used. The impact of this different treatment would be an increase in a government’s Net Debt. Net Debt is an important indicator, and one that is watched by many, including bond rating agencies. This possible outcome is one that should be considered so that it does not come as surprise to watchers of the government. Explanations should be made in budget documents, annual report Financial Statement Discussion and Analysis, and other relevant reports and communications. Landfill closure and post-closure costs that are variable to volumes would likely be accounted for similarly under an ARO standard as they are under the current Landfill Liability standard. The liability related to these costs increases proportionate to volumes. But, of course, as the volume housed in the landfill increases the future life of the landfill decreases - it is becoming more full. Thus it does not make sense to capitalize these costs to the asset. Instead such amounts would be expensed as the capacity is used - exactly analogous to the current Landfill Liability standard. A Rudimentary Example It is always difficult to discuss accounting results using just words, so it may be best to look at a rudimentary example. Consider the following fact pattern: Assumptions Item Cost/Factor Cost of closure$10,000,000 Portion of closure costs not impacted by volume $4,000,000 Annual post-closure monitoring$50,000 Monitoring period 15 years Life of landfill 10 years Discount rate 5% Engineering cost inflation 3% Capacity usage Evenly over life The resulting differences in approach between possible ARO treatment and current Landfill Liability standard can be significant in impact to liabilities and net debt. Impact at Different Points Item Current Standard ARO Treatment Difference Year 1 Liability $920,572$4,039,254 $3,118,682 Year 5 Liability$5,594,807 $7,700,794$2,105,987 Year 9 Liability $12,240,941$12,752,909 $511,968 Year 10 Liability post closure$841,933 $841,933$0 Year 15 Liability $681,423$681,423 $0 Year 1 Expense$920,572 $920,572$0 Year 5 Expense $1,332,097$1,377,762 $45,665 Year 10 Expense$2,040,157 1,874,709 ($165,448) Year 15 Expense$36,050 $36,050$0         Year 1 TCA $0$3,118,682 $3,118,682 Year 5 TCA$0 $1,732,601$1,732,601 Year 10 TCA $0$0 \$0 The Exposure Draft is Coming! The take away from all this is that those governments with landfills should be paying particularly close attention to the development of the ARO standards. As before noted, the first Exposure Draft is expected in December 2016 and this will create an excellent opportunity for interested parties to closely review the proposals. Most importantly, interested parties should respond with their critiques and suggestions. Even a response that supports the Exposure Draft without reservation is appreciated by PSAB because there is often a relatively low response rate to Exposure Drafts from those that will actually have to implement the proposals. Effective for fiscal years beginning on or after April 1, 2014 ↩ Government not-for-profit organizations, for example, generally adopted PSAS for their 2012 fiscal year. ↩   Provided as a Guest Post, by Bill Cox Bill Cox is a Partner in Audit and Assurance and has been with BDO Canada LLP for over 20 years.  Bill’s practice is focused on work with government, not-for-profit organizations and financial institutions.  He also maintains a significant small/mid-sized business client base.
When the Asset Retirement Obligation standards arrive there will be three PSAS standards. Bill discusses what you can expect from these standards.

### In Control: Why Monitor When We Know it is Broken?

• Holly Ueland
• In Control
• minute(s)In part 1 of this series, we discussed how continuous controls monitoring is incredibly valuable for management. In this installment of the series, we address a recurring question we hear.  When chatting with clients we hear "Listen, I know our processes is broken. Why waste time monitoring it when we could spend that time fixing it? Aren't checking the pulse of a dead patient?" This statement does seem to have some logic to it. But it over-simplifies the situation. The reality is that monitoring your control activities is an integral part of the effort to fix them. When we say "broken" we typically mean that the process is failing to achieve its objective. Translating this into Internal Control terminology we mean the control activities are failing to mitigate risk.  Business processes are often very complex with many steps, risks, controls, stakeholders and participants. When we say "the process" is broken we mean one or more risks are not being controlled. But which controls? Why? That information is going to be critical in determining how we fix "it". Monitoring controls that we suspect are not functioning can tell us which controls are failing and why. This information is critical to making good decisions about how to resolve the issue: Further, once we resolve the issue (Repair, Implement, or Remove) we will want to monitor to ensure new problems don't crop up or old ones reocur. If you go in for heart surgery, Doctors want to keep a close eye on you for some time thereafter! How does your organization determine what expected controls are for various processes and determine which ones to monitor? Through best practices, which we discuss in part III of this series.
The importance of Monitoring is often overlooked in internal control systems. Even when processes are"broken", it turns out monitoring is essential.