Study tips: Management Accounting: Decision and Control. High low with Discounts

Posted by & filed under Professional Diploma, Students.

MDCL: High low technique series for AAT Professional Diploma students

How do you decide between two suppliers of services that are paid for per unit, but which also incur a fixed fee, when both suppliers offer a bulk discount for purchases over a given quantity? 

In previous articles we have looked at the high low technique, which separates a total semi-variable cost into its variable and fixed elements. We have also considered how, at professional level, we are expected to adjust the basic technique to accommodate situations where the fixed element also includes stepped fixed costs (article on this aspect coming soon).

In this article, we’re going to focus on using the high-low technique when a bulk discount has been applied to the total semi-variable cost. Quantity discounts complicate the variable element of the total cost because they only apply after a certain quantity. Often the discount is stepped, for example 2% after 1,000 units which is 98p per unit, or 5% after 3,000 units which is 95p per unit. The general idea of bulk discounts is economies of scale, in other words, the more you buy in one go, the cheaper it is!

Sounds great, doesn’t it?  So what’s the problem?

Well, if the discount is applied to the whole purchase then there isn’t an issue because it just reduces the variable cost per unit and the high low technique can be applied as normal. However, the stepped nature of quantity discounts can complicate the calculations because the discount only applies after a certain level.

Tackling quantity discounts as a cost accountant

Let’s assume we’re the cost accountant for a manufacturing organisation and we’re forecasting costs for the next quarter. Two suppliers have been asked to tender for the contract of a service which is charged per unit but also incurs a fixed fee. Both have submitted quotes that include bulk discounts. 

We have information about previous purchases from both suppliers and know that the discounts have been incorporated into the total cost figures and that the fixed costs do not include any steps in cost. The following quarter will require 5,500 units so we need to calculate how much that will cost from each supplier, then decide which will be awarded the contract. Let’s start with supplier X whose quote shows:

Notice that only one of the previous purchases was for a quantity that would qualify for the discount. Therefore, the simplest solution to forecasting the future cost, is to use the information we have and remove the effect of the discount from the quantity to which it has been applied.

That way, the two previous sets of information become comparable. The high low technique can then be applied in the normal way to calculate the variable cost per unit and the fixed element. Finally, the discount can be reapplied to forecast the cost of 5,500 units.

Step 1 – remove the effect of the discount

Due to the terms of the discount, it will only have been applied to the previous order of 5,000 units.

Therefore, the total cost for 1,500 units is £2.50 per unit more that total cost for 5,000 units. In order to accurately use the high low technique, we need to make the total cost figures comparable by increasing the cost of 5,000 units by £12,500 (5,000 x £2.50) to £135,000 (£122,500 + £12,500) because that would have been the cost if the purchase hadn’t been discounted.

Step 2 – high low technique

Now the total costs are comparable we can use the high low technique as usual:

The variable cost per unit is the difference in the adjusted total costs (£135,000 – £47,500 = £87,500) divided by the difference in the quantities: £87,500 ÷ (5,000 – 1,500) = £25 variable cost per unit. 

The value of the variable element for 1,500 units is therefore £37,500 and is £125,000 for 5,000 units: The fixed element is calculated by deducting the variable element from the total cost at both levels and ensuring the figures reconcile:

Step 3 – forecast

Now we have established the variable cost per unit and fixed cost, we can apply the discount and calculate the forecast cost of purchasing 5,500 units, all of which qualify for the discount:

  1. Variable element is £123,750 (5,500 units x (£25 – £2.50) per unit)
  2. The fixed element is £10,000

Therefore the cost will be £133,750 if the materials are purchased from supplier X.

What about the second supplier’s quote? The terms of the bulk discount from supplier Y are couched in slightly different terms but the solution for accurately forecasting the purchase cost is similar. Here are the details from supplier’s Y quote:

Notice that neither of the previous purchases were for quantities that would qualify for the discount. This means that we do not have to remove the effect of the discount before we use the high low method, just adjust the variable cost per unit by the discount, before we forecast the purchase cost of 5,500 units.

Have a go and then decide which supplier you would place the order with, if the decision is purely based on cost.

Click here to check your answers against mine.

Head over to part 2 now, where we look at using the High Low Technique with stepped fixed costs.

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6 incredible accountants who changed the world

Posted by & filed under Inspiring stories.

We’ve all heard the old joke about accountants being boring. But while anyone who works in the financial sector knows that’s certainly not true, it can be harder to get the message across to friends and family.

So the next time someone teases you about your choice of career, have the last laugh by telling them how these audacious number crunchers – including an inspirational war hero, a game-changing feminist pioneer, and a crime-fighting investigator – made their mark on the world today.

Itzahk Stern: the compassionate bookkeeper who became a World War Two hero

You’ve probably heard of Schindler’s List.

But did you know the famous World War Two list of hundreds of Jews saved by Nazi industrialist Oskar Schindler might not even exist if it weren’t for bookkeeper Itzahk Stern?

A friend of Schindler, Stern forged documents to classify otherwise ‘nonessential’ Jewish workers as experienced machinists and factory operators in order to protect them from execution.

He is even credited with typing the list of names known as Schindler’s list.

As such, his work helped save the lives of up to 1,200 Jews during the holocaust.

Frank J Wilson: the determined tax investigator who put Al Capone in jail

Tax investigator Frank J Wilson headed up the team of US Internal Revenue accountants who put infamous gangster and mob boss Al Capone behind bars.

From Chicago, Capone ran a huge organised crime organisation during the prohibition era.

Despite his numerous crimes, he eluded jail for many years because prosecutors could never pin anything on him.

But despite never filing a tax return, Capone was eventually brought to justice thanks to the hard work of Wilson and his team, who scoured more than two million financial records to find the evidence to end the gangland legend’s reign of terror.

Their achievement has been hailed as one of the earliest examples of forensic accounting.

Mary Addison Hamilton: the talented accountant who became a feminist icon

Known as Australia’s first lady of numbers, Mary Addison Hamilton was the first woman admitted membership of a recognised professional accounting body in the British Commonwealth.

Born in 1893, Hamilton passed the Fremantle Chamber of Commerce examinations in 1908 with the highest scores in Western Australia.

By 1916, she had become the country’s first female Certified Public Accountant – paving the way for other women to infiltrate the male-dominated professions and overcome the prejudices of the time.

Josiah Wedgwood: the forward-thinking businessman who invented cash accounting

Midlands-based china and pottery maker Wedgewood is still going strong more than 250 years since being founded in 1759.

One reason for its longevity is that founder Josiah Wedgwood invented what we now call cost accounting.

A potter by training, Wedgewood came up with the first reliable system to track bottom-line costs and profits in 1772.

When he tested his system out on his company, he uncovered an embezzlement scam being run by his head clerk.

By implementing weekly accounting strategies, he also managed to make economies of scale and survive numerous economic crises – meaning you can still buy a Wedgewood dinner service today.

Cynthia Cooper: the diligent auditor who blew the whistle on accounting fraud at WorldCom

American auditor Cynthia Cooper made global headlines when she blew the whistle on accounting fraud at telecommunications giant WorldCom in 2002.

As Vice President of Internal Audit at the company, Cooper and her team often worked at night and in secret to investigate and unearth the $3.8 billion fraud at the heart of WorldCom’s accounts.

Her bravery and honesty were rewarded when the influential Time magazine named her as one of its three 2002 “People of the year”.

Her book about the experience, “Extraordinary Circumstances: The Journey of a Corporate Whistleblower”, was published in 2008.

John Pierpont Morgan: the skilful accountant who became an American financial services heavyweight

Now the figurehead of a global financial services firm, J.P. Morgan was born in Connecticut in 1837.

The son of a successful financier, he studied in Boston and Germany before starting his working life in 1857 as an accountant at a New York banking firm.

He went on to work for his father’s company, which changed its name to J.P. Morgan and Company in 1895.

He was heavily involved in the railroads and formed a syndicate that bailed out the American banking system during the 1890s depression.

In 1912, he cheated almost certain death by cancelling his booking on the maiden voyage of the Titanic, which famously sank after hitting an iceberg.

When he did die in 1913, the New York Stock Exchange suspended trading until midday on the day of his funeral out of respect for his life’s work.

How to follow in their footsteps…

The accountants described above all have a few things in common. These include:

  • Dedication to the cause – whether your aim is to catch a criminal or to keep your company afloat, hard work will help you achieve your goals
  • An ethical approach – from using your skills to help those less fortunate to exposing fraudulent activity, it’s vital to keep your integrity
  • An eye for detail – there’s no doubt the devil is in the detail when it comes to accounting, so it pays to be precise

Read more about inspiring accountants:

Excel study tips: Creating lists with validation

Posted by & filed under Excel tips.

Working with spreadsheets can make accounting tasks much more efficient and reliable, once we have learnt to use the required functionality. 

However, in order to achieve that we have to combine accounting knowledge with spreadsheet skills and for many of us, bringing both areas together is a real challenge. In this article we’re going to use data validation to create lists and thereby control the information that is contained within cells.

The context for this article is a children’s home and its monthly petty cash record. The issues are that the information is produced by a number of non-accounting staff who have a range of Excel skills, and that the current template is designed to fulfil internal needs as opposed to accounting requirements. Therefore, we’re going to amend the template to try to overcome these issues by building in some restrictions.

Issues in a month-end spreadsheet report

Download the raw data to have a go as you read through.

You can see in the spreadsheet the complete record for September and the range of descriptions used over the course of the month. There are also a number of spelling mistakes, a range of formats, like hyphens, and the inconsistent use of capital letters. The information needs to be analysed into accounting categories so it can be posted to the accounts, however the descriptions used to do this don’t match the accounting categories.

A further problem is that the inconsistencies in the raw data means the sorting function wouldn’t work properly. Manually analysing the information at month end is a time-consuming task but could easily be done by staff at the point they record the petty cash transactions, if they knew the accounting categories.

This is where providing a list starts to solve our issues.

Fixing the spreadsheet issues

Copy and paste the first eight rows into sheet 2, insert a new column for the accounting category and adjust the column widths:

The source data for lists can be created in a number of ways but for transparency we’re going to create the list of options so it is visible to the users. Mine is in column I:

We’re also going to name our list of options so that it is easier to use when we create the list. Highlight the cells and name them in the ‘name box’ which is under the Ribbon on the left hand side of the screen:

I named my data Options. A relevant name is always more memorable but mustn’t include spaces or numbers. Clicking on the drop-down arrow will always show any named data in a spreadsheet:

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Setting up data validation

The list can now be created by using the data validation tools in the Data ribbon. Click into cell D4 then select data validation:

This brings up the ‘data validation’ box which currently shows any value is allowed in D4:

Validating the data will restrict what can be entered into a cell. For example, specifying that data must be a whole number, decimal, date or within a certain the length of text. In this case we want to restrict what is entered into D4 to one of the options in the list we’ve created. Therefore, select ‘list’ from the drop down choices and type in =Options for the data source:

A drop down arrow now shows on D4 and when opened, reveals the list of options for the accounting categories:

‘YP – other’ can now be selected for the description ‘GM Haircut’.

Naming the source data gives flexibility to add or amend information within the source data. For example, maybe it would be clearer to write Young People’s instead of YP. Rather than having to start again we can simply amend the source data in cell I9 and the change will be reflected in the list in D4:

Note that the exception to this is adding extra data at the bottom of the list as this will not be automatically incorporated.

We now have a list that means that the petty cash transactions can be categorised consistently in a way that will allow them to be analysed for accounting purposes.

However, if you remember, the staff who complete the spreadsheet are non-accounting professionals who have a range of Excel experience. Therefore, they may not notice the drop-down arrow and try to type into D4 instead. This will result in a standard error message:

Therefore it will be a good idea to provide some training on how to use the new template, and to use the built-in data validation messages.

Personalising the data validation error messages

Click into D4 and bring up the data validation box. Select the ‘error alert’ tab and add some text to explain that information in this cell can only be selected from the list:

Now if staff try to type into D4 themselves they will receive the customised message:

It’s never nice to be on the receiving end of an error message though, regardless of how polite it is, but we can supply an initial instruction so that hopefully the error message is redundant.

Creating initial instructions for Excel cells

Click into D4 and bring up the data validation box again. Now select the ‘input message’ tab and add some text to explain to staff what is required when they input data:

The instruction is now shown when the cell is selected:

Finally we can drag the data validation down column D so that the list and its associated messages are shown in all the cells. Note cell D4 should be blank before you drag the formatting.

The completed exert now looks like this:

How to clear your data validation settings

The last thing to note is that if you need to start again or make an amendment then you can simply clear the data validation by highlighting the required cells, bringing up the data validation box and selecting ‘clear all’:

Read more tips on Excel here

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You’ve just discovered your boss is a crook. Now what?

Posted by & filed under AATPowerUp, Anti-money laundering.

Uncovering something illegal going on in your company may be one of the most challenging situations you will face in your career. So what do you do if you find out your boss is involved in dodgy dealings?

John Smith* was the head of the finance and accounting team at his company when he discovered his boss was committing fraud.

“She defrauded the company, I found out about it and was left to tidy it all up,” he says. “It was a nightmare.”

Gathering evidence

On uncovering the dodgy dealings, Smith’s first thought was “what if I’m wrong?” Even though it’s there in black and white in front of you, it’s a once-in-a-career experience, he says. “What if I break the trust with my boss? That’s my time in that job over.”

Once you make it formal, there will be some impact on you, he adds. “I tried to get as much evidence as I could before taking it further”. He says he wanted to get a feel for her attitude – and in this case, her dismissive response was another red flag.

“Then I went to her boss because I didn’t know who else to ask. It was a big call for me personally, to call out my boss to her boss, especially if I had got it wrong.” Smith says he knows he did the right thing in voicing his concerns, but looking back now, he would have taken a few different steps.

Taking on the investigation

Because of his position at the company, senior management asked Smith to do more investigation into the situation and present it.

“I saw it as an opportunity for me to be helpful, and possibly get a promotion. I was encouraged to do it because it was a good opportunity.” He found himself in a very difficult situation – looking further into the fraud he had uncovered, while still performing his day-to-day role. “I shouldn’t have taken it all on,” says Smith.

“I burned out because I was doing two jobs. In hindsight, they should have brought people in to investigate. The worst moment was when I presented my findings to the corporate lawyers. My boss and her husband were in the room at the time. I didn’t know how she was going to react. It was so stressful.”

Getting support

Eventually, it got to the point where he knew he couldn’t do both jobs anymore. He didn’t get the recognition or reward he had worked so hard for, as the directors of the company felt like they would be rewarding him for something negative.

“I left the company in a cloud,” says Smith. “Because I did all the work – the overtime and the late nights – I was just completely worn out.” He resigned and joined a start-up to retake control of his career.

More than 10 years on, Smith says the situation still affects him. “It’s important that people hear this story because they are rare experiences.” He urges anyone that finds themselves in the same position to get support. “Share the burden or the responsibility of the situation,” he advises. “If you can be aware of what to do, and be brave enough to do it, you’ve done an amazing thing. It might take you by surprise one day.”

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Spotting fraudulent activity

Mike O’Neill is the managing director of Optimal Risk Group, which provides risk management consulting services to help businesses be prepared for a “crisis”. These services include helping them avoid fraud and illegal activities, but also setting them up with the right plan to respond if a situation does arise.

O’Neill explains that accountants, who deal with different types of financial information, could come across many kinds of fraud.

A whistle-blowing policy

“It’s always very challenging for someone to find themselves in that position,” says O’Neill. “Sometimes, senior management will just be looking to solve the situation and move on quickly. There will be a certain amount of embarrassment that the situation was allowed to occur. They don’t want it to be seen as evidence of poor management.”

Corporate culture comes into it, O’Neill adds – businesses should be thinking about how they will respond to an incident like this. “This should be part of their crisis management planning. They should make it a positive thing – for them to say ‘someone tried to commit fraud in our company, but fortunately, it was picked up’.

O’Neill says businesses should have a whistle-blowing policy in place, and that this should be communicated to staff. “A whistle-blowing policy is important so that people have some formal guidance about voicing concerns.” If you do find yourself in a situation where you need to report something, start with consulting your organisation’s policy manual for information.

Protect yourself

Self-protection is essential – make sure you thoroughly understand the situation and have as many facts as possible. Use your instincts. Know what your options are and how your decision will affect the involved parties. Then approach someone trustworthy, who will handle the situation in a sensitive manner, O’Neill advises. “If you have a concern about your line manager, you should look to someone higher up that you have a relationship with – someone you can trust – and report the issue. You need to trust that you will be treated sensitively.”

Communicate that you have a “concern” about the person, O’Neill adds; do not declare that the person is a fraudster. “By raising it as a concern, it allows normal relationships to be resumed.” Depending on the situation, he also recommends that you should be as reserved as possible when voicing the concern. “Raise the concern in an unemotional way,” he says.  

What to do if you suspect your boss of wrongdoing

  • Use your instincts and make sure you are protecting yourself
  • Collect as much information and as many facts as possible
  • Approach someone you trust and raise the concern discreetly.

Further reading:

*Name has been changed to protect contributors privacy.

Being an AAT licensed member has given me countless opportunities

Posted by & filed under Career.

Diana Mikolajewska, MAAT, a single mother of three, has overcome considerable odds to become an AAT licensed member.

“I would be lying if I said it has been a piece of cake,” she says. “It’s not easy, to sum up, the struggle and effort I have made to make it work. It’s involved many long days and nights. Good organisation and planning have been the key.”

Accountancy dreams

Mikolajewska came to the UK in 2002 from Poland and worked in mental health care for several years but always dreamed of becoming an accountant. “As a child, I often helped my Dad complete his VAT returns, tax returns and payroll,” she says.

“From the age of 10, I helped him with calculation and double checking the numbers. Dad was too stubborn to use the computer so my task felt quite crucial, essential in fact.”

Overcoming the odds

Mikolajewska didn’t speak much English when she first arrived in the UK, after studying law in Poland, and, after her English improved, she began studying AAT level three and four in 2011. She completed her NVQ in 2013 then took a one year break before starting her ACCA.

She became licensed at the end of 2015, a few months before her youngest child was born. “I found it very difficult to work and look after a baby at the same time so ended up working during his naps and late evenings when he was asleep,” she says. “A year later when my business was picking up and I was expecting things to progress, my eldest son suffered a cardiac arrest and became disabled.”

Mikolajewska says the flexibility and freedom the ACCA has given her as been essential. “Having three children on my own is more challenging than I ever thought and flexibility is essential to be able to work and look after them and work around their sickness, holidays, half terms etc.”

Starting out

Since gaining her MAAT status and AAT licence, Mikolajewska has started her own practice.  “I was quite surprised how quickly I attracted a few small clients at the beginning,” she notes. “I did a bit of advertising but much of it came through friend’s recommendations and from the first month, I became profitable.”

There were, however, a few issues along the way. “The downside of working for myself and not having colleagues meant that I could no longer ask for help or advice if I came across an issue I had never dealt with,” she explains. “I often had to ring HRMC, the VAT office or Companies House etc. and even got advice from friends to deal with ethical matters.”

Battles with Brexit

She has also struggled with Brexit over the last year or so. “Following the referendum, several clients started to panic and decided to leave the UK and go back to their countries. I have lost some revenue due to that. Not only this, I was bombarded by phone calls, sometimes up to fifty per day from potential clients, asking me about Brexit.”

Mikolajewska says she spent the majority of her time helping clients to complete their forms to obtain permanent residence and later on the settled status and that is not really what she’d planned to do.

In light of this, she is considering teaming up with another accountant with more experience.

She has felt that belonging to AAT has given her considerable confidence and credibility though. “Belonging to AAT makes me feel very professional and recognizable,” she notes. “I’ve also taken advantage of the many AAT events and materials available on the website. Having MAAT letters after my name makes me feel very proud,” she says.

The opportunities are endless

“There were times my children were upset about not seeing me much but I created a star chart, where they were rewarded for playing nicely in their rooms while I studied and over the weekend we always had nice quality family time,” she notes. “I also used part-time cleaners and babysitters.”

Mikolajewska loves the opportunities having a recognised qualification has given her. “I know that I can apply for jobs literally anywhere: schools, hospitals, manufacturing, hospitality, banks, all sorts of financial institutions, courts, army, etc.  Plus having a globally recognised qualification will allow me to travel and relocate for work.”

She is justifiably proud of all she has achieved. “I think many others would give up being stuck in the situations I found myself in.

Over the last two years, I have extended my circle of work friends and returned to my ACCA studies and I will be fully chartered in a years’ time. Flexibility and freedom was the best thing about becoming AAT licenced member as it gave me the work/life balance my family and I so need.”

Becoming self-employed with AAT

If you’re an AAT professional member, you can apply for an AAT licence to become self-employed. This entitles you to start taking on clients and offering professional services on a self-employed basis.

If you’re interested in becoming an AAT Licensed Bookkeeper or Accountant and starting up your own business, the first step is to check out the information online to ensure it’s right for you, then download the AAT licensed member application form, and follow the guidance on how to complete the form.

Further reading

Foods to help you relax

Posted by & filed under Study tips.

If someone asked you to choose one thing that you could have more of in your everyday life, what would it be?

More money? More free time to do the things you love? More time with family? More time to study?  How long would it take for you to say, ‘more time to relax’?

Could you honestly say that in your busy day/week/month – in between working, studying AAT, family commitments and social events – you schedule enough time purely for yourself to relax?

My guess is no.

You know that when you’re tired, eating bad foods and feeling overworked, your memory doesn’t perform as well as you want to.

There are the well-known ways to relax such as:

  • having a hot bubble bath
  • curling up in a comfy armchair with a cup of tea and a good book
  • exercising for a release of endorphins (the feel good hormone)
  • and having a technology free start to the day.

There are also certain foods we can eat to help reduce cortisol and catecholamine (the stress hormones) and relax that little bit more.

Great news for us students.

Eggs

Eggs are a great source of essential amino acids; one of which is tryptophan. Our bodies need this to create serotonin which is a neuro-chemical needed to relax the brain.

Key tip: poach two fresh free range eggs on top of mashed avocado on toast for a protein packed, nutritious breakfast.

Nuts and seeds

Nuts are packed full of zinc, magnesium, vitamins E and B complex, which all help the brain relax when eaten often.

Pumpkin and chia seeds are also rich in magnesium and protein, which also help to balance stress levels in the body and relax muscles.

Mix up a few clear food bags of a mixture of nuts, seeds and dried raisins for a healthy mid-morning or afternoon snack.

Key tip: steer clear of large amounts of peanuts which have high sodium content. This can increase ‘brain fog’ and put strain on your heart and stress on your body.

Honey

Like eggs, honey also contains a high amount of tryptophan which has been proven to reduce anxiety and relax nerves. Honey is also an infection fighting, nutritional powerhouse containing potassium, which is also great for soothing overworked brain muscles.

Potassium fights off stress hormones and acids in the body, overall relaxing the nervous system.

Key tip: drink a mug of hot water, a slice of lemon and a teaspoon of pure honey before breakfast to clear toxins in the body that have built up overnight.

Dark chocolate

Dark chocolate and cacao (pure, raw, unrefined chocolate and one of the best natural sources of magnesium) balance stress levels in the brain due to their high contents of dopamine, endorphin and serotonin hormones.

Be sure to eat high percentage dark chocolate (e.g. look at Green & Blacks labels, you want 70% and above) and if opting for the superfood cacao, look for companies that offer unrefined, raw, organic cacao in its most natural form possible.

Whole Foods offer a really great selection of pure cacao products.

But avoid supermarket chocolate bars which are packed with refined sugars. Your body struggles to digest this kind of processed food, therefore adding more stress to our bodies and reducing our ability to relax.

Key tip: mix four teaspoons cacao powder, one cup unsweetened almond milk, a quarter of a teaspoon turmeric, one teaspoon vanilla extract, and two teaspoons coconut sugar in a saucepan and heat on low for eight minutes until gently bubbling, for a delicious, relaxing superfood hot chocolate.

Broccoli and spinach

Low potassium levels lead to fatigue, anxiety, tiredness and increased irritability. So what great news it is that we have delicious ingredients like broccoli and spinach in our lives to avoid a potassium deficiency!

These two leafy greens pack a high dose of potassium, beta carotene and vitamins C and E, all which strength our immune system and help steer off anxiety and fatigue – enemies of relaxation.

Key tip: stir fry broccoli florets, spinach, winter squash, peppers, red onion and carrots in garlic, coconut oil and tamari and serve with buckwheat noodles for a gluten free, potassium packed veggie stir fry.

In summary

As you can see, it’s vital we have a consistent dose of potassium, magnesium, vitamins and amino acids in our diets to steer off unwanted negative feelings, and to help our bodies and minds to relax whilst we have so much going on in our everyday lives.

Review your weekly diary – where can you fit in more relaxation time and how can you incorporate some of these foods into your diet?

Read more on staying calm while studying;

Browse the full range of AAT study support resources here

A golden opportunity for small, speedy businesses

Posted by & filed under Members, Run your business.

Caroline Plumb OBE, former Business Ambassador for the UK Prime Minister, thinks there’s a golden opportunity for small businesses; hear how to take advantage.

In the business world, is big still better? I’ve been giving this question a bit of thought recently, as we gear up for a period of growth at Fluidly.

A recent grant win will likely put us into competition with larger and better-funded rivals; companies for whom we weren’t even on the radar before.

Given the levels of uncertainty in the world at present, it’s easy to assume that the answer to the size question is yes, bigger is better. After all, a giant oil tanker is a lot more stable and secure in stormy seas than a tiny vessel.

While the sheer commercial bulk of big companies may be reassuring though, the advantages of size aren’t what they used to be.

It’s good to be nimble

When it comes to coping with a fast-changing environment, being nimble enough to grab opportunities and dodge trouble is smarter than relying on your size to soak up the punishment.

Business strategy is no longer about picking a single destination and getting your head down for a five-year journey. A great strategy is now about scanning the horizon and course-correcting frequently in response to the information you receive; a more flexible approach.

Life aboard the supertanker may be more comfortable in the short-term, but a large vessel will take a long time to stop or change direction. Better to suffer a bit of motion sickness in exchange for the ability to turn on a dime.

Levelling with tech

And even the deep pockets of large firms aren’t as big an advantage any more.

Thanks to the cloud and open-source software, tech barriers are crumbling. Today’s small businesses have access to a range and quality of technology that would have been the strict preserve of multinationals a few years ago. HSBC, Barclays, NatWest and others are even seeking out small, tech-forward start-ups for valuable collaborations.

In accountancy, the Big Four do still dominate, but they no longer have the privileged access to talent and tech that they enjoyed in the past. The democratisation of AI and data means that smaller outfits can compete on quality of service, while being inherently closer to their clients and their shifting business needs.

It’s a golden opportunity to go beyond reporting the past and build more valuable strategic advisory relationships for tomorrow.

I’d go one step further and say that it’s no longer a question of “big is beautiful” and more a case of “fast is fabulous”. Speed, urgency and momentum are what matter most when it comes to future success.

In summary

If you’re struggling to position your small business in order to compete, it’s time to play to your strengths. Forget about what you don’t have, and focus on the benefits your size brings to the table.

Smaller businesses can move and react quicker, taking swift action on opportunities that crop up for their clients. Strong customer relationships have always been an advantage for smaller companies, but now tech and talent are at your disposal too.

The business world is evolving in your favour; it’s time to take advantage.

Further reading;

Are you being duped? 10 signs of money-laundering

Posted by & filed under Anti-money laundering.

Are you sufficiently aware of the signs of money laundering?

Senior police officers say accountants are not doing enough to identify suspicious activity and report potential crimes.

Would you spot the signs of suspicious activity? Here are ten tell-tale indicators that could have you going online to file a Suspicious Activity Report.

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1. Unexplained third-party investment

Business funding that comes from apparently unconnected sources could be a red flag. According to Jeremy Clarke, Assistant Director of Practice at ICAS, specific signals to look out for include a “disproportionate amount of private funding or cash which is inconsistent with the socio-economic profile of the individuals involved”, and also where there is no logical explanation or economic justification for the finance being provided.

2. Difficulty identifying everyone in the business

Look out for individuals trying to hide their identity or the identities of beneficial owners or partners in the business. This could be by withholding or falsifying identification documents, for example, or where the money is paid out by the business to numbered bank accounts. The onus is on you as an accounting professional to know who your clients are. One red flag highlighted by the Financial Action Task Force is when a client avoids personal contact without good reason. Documents issued by public authorities such as passports and driving licences are the most reliable forms of identification because they are difficult to forge and have a photograph of the holder, so another suspicious sign is if one of these official proofs of identification is not forthcoming.

3. The business operates in high-risk countries

Look at whether any business assets, such as properties, are located in high-risk countries – including countries that are tax havens. The business could also have directors or owners (or other people involved with the company) that are residents in high-risk countries.

The European Commission identifies “high-risk third countries” and its latest list contains 16 countries: Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu, Yemen, Ethiopia, Sri Lanka, Trinidad and Tobago, Tunisia, Pakistan, Iran, and Democratic People’s Republic of Korea.

You are required to apply enhanced due diligence measures to mitigate the risks arising in any business relationship or transaction with a person established in one of these countries.

4. High volumes of cash transactions through the business

Certain business sectors are more susceptible to money laundering. For example, the “archetypal” money laundering business is a pizza restaurant or a nail salon or similar, where there are high volumes of cash transactions, and “dirty” money can be added in by inflating the turnover. This should arouse particular suspicion when there are no records such as till receipts to back up the cash volume.

Other warning signs include large cash deposits being made using night safe facilities and cash deposit machines, thereby avoiding direct contact with the bank; and a large aggregate amount of cash being deposited with the bank in numerous small amounts, or at different branches, to avoid scrutiny.

5. Finance from poorly-regulated sources

Ron Warmington, previously head of global investigations at Citibank, says that around 20 years ago, the organisation was tipped-off about its branch at Puerto Banus, Marbella. “We’d have expected the biggest loan in a retail bank in Marbella to be maybe $800,000, this bank had $40m loans on its books.”

Many of the loans were guaranteed by a Finnish bank and were in turn underwritten by a Russian bank. In Europe, countries like Cyprus, Malta, Latvia and Estonia have built their economies around attracting foreign money, without effectively policing its origin.

Money from non-banking sources, such as Bitcoin finance, is often completely unregulated.

6. Unusual behaviour or actions that are out-of-character

If someone asks you to complete a transaction quickly without giving a reason why or to short-cut normal processes, then alarm bells should ring. Individual transactions that are disproportionate or don’t fit the usual pattern of the business are also a cause for concern. And if you have an established client whose lifestyle is familiar, and you suddenly find out they are buying a Ferrari, or playing the casinos in Monte Carlo, that might also be a reason to suspect something untoward is going on.

7. Transactions that don’t appear to make sense

If a business sells an asset for less than its market value, this can often be an indicator of money laundering.  Property is a particular case in point, where the price can be manipulated to hide proceeds of criminal activity. For example, you could buy a property using illicit funds and then sell at a loss to make the proceeds “legal”.

It can also work in the other direction: you could understate the value of the property and pay the realtor the balance behind the scenes using illicit cash – then sell again at the market value and appear to have made a profit.

8. An overly-complicated ownership structure

A company could have several complex, illogical layers of corporate officers, shareholders and people with significant control, which could make it difficult to see who the beneficial owners are.

Ownership structure becomes even more difficult to determine when companies based overseas are appointed as shareholders (often from tax havens or offshore locations). “Unnecessarily complex group structures and investments in areas with no obvious geographical connection can both be indications of money laundering,” says the Consultative Committee of Accountancy Bodies (CCAB).

9. A frequent change in accountants

A business that frequently changes its accountants or other professional advisers is a classic red flag. The rationale behind this is that no adviser is ever allowed to get too close to the business and to spot changes in financial or behavioural patterns.

A business that chooses advisers who are geographically remote without any obvious explanation should also ring alarms.

10. Politically-exposed persons involved with the business

Evidence shows that a politically exposed person is likely to abuse their position for the purpose of committing money laundering and terrorist financing offences. A politically-exposed person could be a current or former senior official in the executive, legislative, administrative, military, or judicial branch of a government (elected or not), or a senior official of a major political party.

For further information about money laundering and how to spot it, visit flagitup.campaign.gov.uk.

Read more on AML as part of our #AATPowerUp Anti Money Laundering campaign for November:

Challenging times ahead? Bring them on, says new AAT president

Posted by & filed under Inspiring stories.

John Thornton is determined that his year in office looks to the future of the accountancy profession and how to rise to the challenges ahead.

Thornton started out working for a shipping company when he left school after A levels.  But he wanted a career in which he could progress professionally and thought accountancy was ideal.

First steps

Thornton says: “I looked into it and at the time, some local authorities in London were offering training. I’ve not looked back since; accountancy has given me a skill set which has enabled me to move across sectors, to travel the world and experience different roles”.

Life-changing

Thornton adds: “That’s why I am so enthusiastic about the AAT. You might have someone who didn’t do so well at school – but why should that hold them back in the future? It is crazy to say that you should make important decisions about your future career when you are a teenager.

If you screw up at school, it doesn’t mean you can’t have a great future and earn qualifications later. That’s what AAT does, it gives you the opportunity to get qualifications which are globally recognised and enables you to forge a great career”.

Prestige

Thornton saw for himself how holding AAT qualifications can be life changing. “What is fabulous about the AAT is the opportunities it offers. I’ve met many people whose lives have been transformed, whose standing in the community and their own confidence has grown thanks to holding AAT qualifications. It can change lives”.

He explains: “I was in Botswana recently presenting Achievement Awards to newly-qualified AAT members. There was one lady there who came with her mother. They’d spent nine hours on a train travelling across the country to receive her award. She explained how her AAT qualification had changed her life and how her pride in her achievement was felt through her whole community”.

Climate of change

There are many challenges ahead for those in the accountancy profession, says Thornton. But he’s determined that AAT members will face these head-on. And while, for example, increasing regulation – particularly in the UK – might seem a burden, Thornton says that AAT members are well-positioned to help.

“Our members are the people who can interpret and apply the rules, helping to ensure their organisations and clients comply with the regulations. Globalisation too brings challenges”.

Artificial intelligence

Even possibly difficult changes can be positive, says Thornton. “The tectonic plates of accountancy are moving and the AAT is helping our members respond to the challenges ahead. We hear about the increasing growth of AI (artificial intelligence) and how that will mean fewer accountants in the future.

But actually, I think the impact of AI will be that the role of accountants and accounting technicians will change. AI might be able to produce figures but you need someone to sanity-check them and explain what the numbers are telling you. And that’s what accounting technicians will increasingly be doing”.

Aspirations

Helping AAT members with their changing roles is the central aspiration of Thornton’s presidency. “The other is to help accountants and accounting technicians embrace the changes in technology. We need to plan for the future, for the changes in the world and that is what the AAT can help with.

We need to focus on how accounting technicians can better exploit innovation and changes in technology. We don’t have all the answers and we have a long journey ahead of us but it is vital that we start to ask the questions” he adds.

Worldwide reach

Thornton points out that the AAT has currently some 80,000 students and 50,000 members worldwide, a total of more than 120,000 people studying for and holding AAT qualifications. “That’s nearly twice the capacity of Wembley stadium” he points out. “What we do, how the AAT and its member progress is hugely significant.

I am proud to be the President of this organisation at such an important time for the accountancy industry. Together, we can have an impact on so many lives”. From a village in Botswana to a worldwide membership of 120,000 the AAT is doing just that – and Thornton is keen to play his part in preparing all of them for a challenging future.

Further reading

Should you take work home with you?

Posted by & filed under Career.

Are you risking your personal life or your career by not having a balance between home, social and work life?

Some thrive on work so much they carry on when they get home.  Others want no mention of the office – and certainly no contact – when they aren’t there.

Reducing employee burnout

Across the channel, employee burnout is taken so seriously that there are laws to prevent employees from having to read work emails at home. And Lidl in Belgium has banned all work emails between 6 pm and 7 am.

German carmaker Volkswagen has configured its server so employees can only get emails to their phones from half an hour before and after work and not at all at the weekend. 

However closer to home, researchers at the University of Sussex found that banning staff from looking at work emails while at home could be counterproductive.  It said that strict policies on email could be bad for employees “with high levels of anxiety and neuroticism”.

Clear guidance on working remotely

Ben Willmott, Head of Public Policy at the CIPD (the Chartered Institute of Personnel Development) told BBC News: “Simply banning the use of emails out of hours may actually make some people more stressed because they would like to, or need to, work flexibly.

Employers need to provide clear guidance on remote working, including on the use of email and other forms of digital communication, to ensure that if people are accessing emails out of hours they are doing so because it suits them.”

Key takeaway: It’s not as simple as saying all communications outside work should be banned: some employees would find that added to their stress.

Identifying what works best for you

How much you blur your working and home life should be up to you. Paula Gardner is a business psychologist working with organisations on communication and productivity. “The choice between working or not working when not at work should come from you” she says.

“Think about what you want and what you are comfortable with. If you’ve got a young family you might reasonably want clear boundaries”.

Keeping in touch

Don’t feel guilty if you let work-life encroach on your home life. “Some people like to keep on top of things perhaps because they don’t want to go back to chaos,” says Gardner. “I am one of those people who want to keep up to date with emails on holiday even if it’s just a ten minute catch up once a day. I am comfortable with this and wouldn’t relax if I didn’t know what was going on”.

Key takeaway: If it would stress you too much not to be in touch with work while you’re not there, then stay in touch.  

Considering the needs of others

Do remember that while you might be happy to be called at all hours at home, you might have partners/families/friends to consider. “They have needs too and if you’re working when you should be having family time that’s not conducive to good family life” says Gardner. But at the same time, those you live with need to be considerate too.

You might have to take work home because there’s an urgent project to be done. “If you do want or need to take work home then it’s a good idea to set a time aside and once you’ve done that, you can give your family your complete attention” says Gardner “Keep the barriers firm!”

How do you like to be contacted?

Think about how you like being contacted in or inside work. “I’ve heard of a company which asks its employees how they like to be contacted” says Gardner. “Some, for example, always want to be emailed because there’s an audit trail, while another person likes quick conversations to get things sorted.

If you can say this is what works for me (and why) in contact terms in and out of the office, then it sets boundaries”.

Harnessing technology

You can use technology to control the times and methods you use to keep in touch with work. Heather Black is a Salesforce Consultant and Co-founder of Supermums which upskills parents to work in salesforce roles flexibly, whether from home or from the office, full or part-time.

She says: “Our emails are set up so they automatically show the hours we work so anyone contacting us will know when we will be contactable.

“Another tool is to use a service such as Calendly which lets you book in times for appointments in your absence – it’s like having an automated PA”. In addition, technology can allow you to have face-to-face conversations with colleagues when you’re not in the office: if you want to.

Key takeaway: Use technology to keep in touch and limit contact to when you want it.

 What’s the culture?

The problem might be that even if you are happy with the job you’re doing, you’re actually not suited to the culture of the organisation. Identify what that is, and you’ll know if it suits the way you work and play.

Gardner explains: “Are people wanting to keep their heads down and work or is there a more social aspect? You might find that you are in the right job but in a company with the wrong culture for you – if so, my advice would be to look around for someplace with a culture which will suit you”.

Key takeaway: Think about how you like to work while at work – and look for a company which suits your choice of working lifestyle

In Summary

Think about how you want to balance your work and home life. There’s nothing wrong with reading work emails or doing some writing while you’re at home if that’s what makes you happy. On the other hand, if you really want to keep work and home separate then you need to make this clear to colleagues so you won’t be contacted out of hours.

Further reading: