Making management accounts effective tools

Ways to make management accounts more accessible

Management accounts should inform a wide range of stakeholders, including project managers, the organisation's management and trustee board, funders and regulatory bodies. For many people in voluntary organisations, though, 'management accounts' mean reams of paper covered in numbers that are produced by the accounts department and ignored by everyone else. So what should be done to make them more accessible?

Presentation

The design and content of management reports should be determined by the needs of each audience - it is not enough to follow a predetermined template. The internal audience would usually be presented with management accounts consisting of income and expenditure and cash flow reports, whereas for external audiences - such as funders and the Charity Commission - the form and content will often be prescribed beforehand.

Relevance

Management accounts must contain the financial information that the reader actually needs to plan and control the financial resources for which he or she is accountable.

Currency

There is a trade-off between accuracy and speed: the more accurate the information, the longer it will take to produce. Management needs to understand the organisation well enough to determine at what point accuracy ceases to affect the decision being made.

Accuracy

Inaccurate information is worse than no information at all. Accuracy here means not only eliminating data handling errors but also ensuring that nothing is omitted.

Intelligibility

Management accounts frequently contain too many numbers presented in a discouraging format. However timely and accurate the accounts may be, they are of no use if they do not inform the reader.

Availability

Users should have access to management accounts at the times when they need them. This is unlikely to coincide with predetermined deadlines for monthly reporting.

For many organisations, however, this flexibility may be impossible, particularly if the accounts are held on a manual system. But it should remain an objective for organisations with computer accounting systems to allow non-accounting staff 'read only' access to information.

Clarity

Does the audience understand that expenditure and payments are not the same thing? What the user of management accounts sees in the 'actuals' column will depend on the method of accounting for transactions that is adopted. If users are not clear about which transactions are included, they can seriously misinterpret the true financial position.

Context

Figures are useless in isolation. To make sense of them, a user needs to compare them with suitable other comparators. Some useful comparisons of results might be:

The five most successful UK charity results, suitably adjusted
Your best ever performance
Any commercial organisations listed as an example of best practice in the DTI Inside UK Enterprise scheme
Your closest competitor
Your equivalent organisation overseas

Ownership

Because budgets are produced by the accounts department, that department is often seen as owning them. Users need to feel that they are the owners of management accounts rather than merely passive recipients. This question of ownership can be resolved by addressing the following issues:

Involvement

The more the user can influence the management accounts, the more likely they are to value them as a decision-making aid. This does, however, require the user to have commitment and the relevant skills. Involvement is more likely when:

Operating or programme staff (those involved in spending the money) prepare the budgets
Programme staff have a detailed understanding of the organisation's priorities
Programme staff contribute to the design of reports, albeit within the statutory framework
Programme staff perform the inputting of data - such as invoice details - instead of accounts clerks
Users are able to get reports whenever they need them

Transparency

Organisations should recognise that information is a resource which should be made freely available to all staff (but without compromising privacy). In this way, both good and bad news can be communicated.

Accountability

Those who make decisions about the use of the charity's financial resources should be held accountable for those decisions. Accountability can be achieved by requiring the users of management accounts to:

Prepare budgets using a zero-based approach where the user has to justify the resources needed
Explain variances that arise, so that problem areas are identified and action taken
Reforecast year-end results as the year progresses, so that programme staff are encouraged to think about whether they are on track
Revise budgets if the resource requirement for the programmes has changed

Trust

The accounts team must strike a balance between trust and stewardship.

In practice, trust means:

Examining the authority users have to spend resources, and perhaps increasing it
Managing expectations by stressing that the budget is a plan based on assumptions that may not hold true
Reassuring that the budget will not be used for disciplinary purposes