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The Role of Finance in Procurement In a traditional business structure, procurement and finance are two separate departments, working alongside one another within the organization. While this works, it isn’t the most efficient and effective way to handle operations. Though the two business functionsRead more
In a traditional business structure, procurement and finance are two separate departments, working alongside one another within the organization. While this works, it isn’t the most efficient and effective way to handle operations.
Though the two business functions are different, the relationship between the two is highly intertwined. The procurement function is about spending the money well, and the finance function is all about keeping the balance sheet in the black.
For the best possible outcomes, the two departments must work together and align their goals. Organizations that allow the departments to function as partners give themselves a competitive advantage and often see improved business performance.
The Role of Finance in Procurement
Finance sets spending limits for procurement, and procurement aims to save money when and where possible through both cost savings and cost avoidance measures. Using an automated procure-to-pay, or P2P system to connect procurement to back office functions, from purchase requisition all the way through invoice processing helps to improve efficiency and mitigate risk. Finance is able to pay for everything procurement orders and receives, and procurement is able to use three-way matching to ensure the items they order are what they receive, and what they receive is what they pay for.
Finance provides spend management reports, revenue reports, and other critical data that demonstrates overall company health. Procurement should use these reports to facilitate day-to-day decision-making processes, along with budgeting and financial planning.
The Financial Supply Chain
Businesses tend to focus most of their attention on the physical supply chain and fail to recognize the attention they should place on the financial supply chain. It is, after all, the reason there’s enough cash flow to keep the business operating. The financial supply chain is what keeps the bills paid so you can continue to order supplies, have power, internet, and water in your facility, and keep employees paid so they continue coming to work every day. As costs continue to rise, it becomes just as important to manage working capital and cash flow as it does to manage supplier relationships.
Beyond working together on technology surrounding the P2P system, the procurement department should be willing to demonstrate the return on investment their actions provide. By showing the finance department positive impact of their choices – whether it be in the form of cost reduction, cost avoidance by mitigating risk, or other achievements, the two departments can work much better together.
To facilitate better collaboration between procurement and finance, it’s essential to establish clear parameters as to who is responsible for what. Key activities should be assigned to one department to take the lead, based on team strengths. This ensures no one is left fighting over who leads what and everyone gets credit for the role they play.
When it comes to spend management, finance often looks at it from the accounts payable perspective. This means they’re more focused on accounting issues surrounding the budget, accurate cost recording, and invoice processing. Procurement, on the other hand, looks at it as maintaining compliance with an approved supplier list and negotiated contracts, while managing maverick spend.
Encourage members of the procurement teams and financial services to see issues from both points of view. Understanding each other’s point of view is important to keeping goals aligned, as procurement can work toward contracts and deals with suppliers that not only add value but provide cost benefits such as more flexible payment terms, and risk reduction, which is generally a high priority for finance. And finance can help procurement understand the importance of efficient supplier onboarding, for example, to ensure those suppliers get paid on time and reduce fraud risk.
When procurement uses the term “cost savings” typically, it means they’re seeing a decrease in price. When finance hears that term, they’re expecting to see a reduction in expenses compared to the previous year’s statement. There are many price reductions that aren’t reflected on income statements, which can lead finance to be wary of procurement’s claims. Agreeing on the standards and terminology makes it easier for the departments to work together.
Finance sets the expense limits and goals, but if those goals involve community purchases, they may not have the same knowledge as procurement does. Finance may have no idea about how wildly commodity prices fluctuate and end up creating nearly impossible financial limitations for procurement. By working together, your business can avoid setting unrealistic financial goals.
The finance department often uses the inventory line on the balance sheet as a performance indicator. Without understanding the nuances of inventory the same way procurement does, it’s easy for them to feel like procurement is wasting money on items that just sit on a shelf in the warehouse. Procurement knows additional inventory is often necessary to operate through supply interruptions and demand spikes. Collaboration in this area ensures a balance between working capital strategy and operations management.
When credit is difficult to obtain, it’s common for finance to push for better payment terms – better for their company, but not the vendor. Though 90+ day payment terms make it easier for your business to manage cash flow, they aren’t ideal for your vendor, because they too, have cash flow issues to consider. Procurement understands this makes supplier management more difficult because it strains relationships, and often leads to price increases in compensation for the lack of prompt payment. In some situations, it may even mean some suppliers refuse to do business with your company, so while it sounds like a good option on the surface, it can have serious unintended long-term consequences.
If you’re currently operating in a silo structure where procurement and finance have little to do with one another, smooth collaboration won’t happen overnight. Encourage the CPO and CFO to come together and discuss ways the two departments can help make one another’s lives easier, and then begin implementing strategies, starting with P2P automation.
Public Sector Accounting PDF this article will focus on Lecture Notes On Public Sector Accounting-Ghana Pdf as been most of the important part of public sector accounting students in Ghana. here you will get all the public sector accounting, not in a single PDF Several developments in recent decadeRead more
this article will focus on Lecture Notes On Public Sector Accounting-Ghana Pdf as been most of the important part of public sector accounting students in Ghana.
here you will get all the public sector accounting, not in a single PDF
Several developments in recent decades have made the subject of Public Sector Accounting an important part of accounting studies the world over. Firstly, the size of the government budget and the contribution of public expenditure to the Gross Domestic Product (GDP) are very enormous, especially in developing countries.
Download: Lecture Notes On Public Sector Accounting-Ghana Pdf
Secondly, an analysis of the concept and techniques of accounting applied to public sector accounting and general commercial accounting shows that there is only a thin line between the two accounting systems, mainly in the area of accounting methods and management principles.
Thirdly, accounting as an information system is very dynamic and its transformation, storage, retrieval and reporting very much depends on new and emerging technologies and information systems.
These new computerized systems are developed to apply to both general commercial accounting organizations and public service organizations with virtually very little or no modifications.
For example, several ledger systems, payroll systems, and pension administration vary little. Fourthly, governments throughout the world have quasi-commercial or sometimes purely commercial, state-owned enterprises.
Accountancy training must, therefore, be comprehensive enough so that a professional accountant can apply his knowledge and skills in a wide range of organizations whether commercial, quasicommercial or a governmental unit.
Download Lecture Notes On Public Sector Accounting-Ghana Pdf
Public sector accounting has a long history in Ghana. The first legislative reference to government accounts seems to have been made in 1954, in the Gold Coast (Constitution) Order in Council of that year.
But the reference is an oblique one, contained in Section 68, which provides for the “accounts of all departments and offices of government” to be audited by the Auditor-General.
This simply assumed that accounts existed and no obligation was imposed on anyone for keeping and rendering accounts; in fact, accounts of government had been kept and published under the authority of Colonial Regulations since the establishment of the Gold Coast Government in 1874. All constitutional legislation since 1954 has similarly repeated this oblique form of reference to the accounts of the government.
However, it was not until 1957, when the country attained its independence that the first comprehensive attempt was made to give legislative recognition to the accounts of the government.
This was the Public Accounts Ordinance, 1957 (no.37 of 1957). This was an enactment enabling rules relating to public accounts to be made; the Public Accounts (Audit) Rules were issued in the same year. They chiefly related to the audit of accounts but contained a section specifying the accounts and statements to be presented for audit by the Accountant-General.
The 1957 Ordinance was replaced for the making of rules. Three sets of rules were issued – Public Accounts (Railway and Harbours Administration) Rules, 1959, Public Accounts (Treasury) Rules, 1959, and Public Accounts (Audit) Rules, 1959.
The Treasury Rules did provide for keeping and rendering accounts, and for several rules relating to how they should be prepared, e.g., specifying the financial year, and that the statements presented to Parliament “shall include only sums which have been paid or received within the period of account”.
The Financial Administration Decree 1967 (NLCD 165) includes a Part VI- Public Accounts (Consolidated Fund), containing two paragraphs, “Keeping public accounts” and “The Public Accounts”.
These paragraphs, drawn partly from the Treasury Rules of 1959 Act, 1959 (Act 3) were eventually repealed by the Audit Service Decree, 1972 (NRCD 49), although some rules are still extant (e.g., the duration of the government’s financial year) had not been replaced.
The scope of activities of government has expanded tremendously since the country gained its independence initially from maintenance of law and order to a corpus of welfare schemes and social development activities.
At the same time over the years, the government has involved itself in creating jobs and providing goods and services for the citizenry by embarking on large scale public ownership of industrial and agricultural development and commercial enterprises.
The dynamic nature of governments and their programs in the country’s history has led to the restructuring, reforming, privatizing and re-organizing of the public sector. Hence the creation of diverse government organizations and administrations, the institution of new methods and management of operations that reflect the diversity of public sector accounting in Ghana.
The composition of the public sector in Ghana may be identified as follows:
The essential features of these organizations may also be as follows:
Stewardship and control
The public sector accounting system involves recording, analyzing, classifying, summarizing, communicating and interpreting financial information both in aggregate and in detail.
These activities should reflect all government transactions which involve the receipt, custody, transfer and disbursement of government funds and property. The main reason for these practices is that public officials need to demonstrate the propriety of transactions and their conformity with established rules.
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It is also to give evidence of accountability for the stewardship of government resources and to provide useful information for the good control and efficient management of government operations.
It is also necessary to recognize that public sector organizations tend to have an excessive emphasis on rules and procedures, a concern for details often dominated by budgeting and financial controls.
In light of the nature of public sector accounting, attempts are made to define public sector accounting. Several ideas that come to mind include:
An information system designed to measure financial information (transactions) of public sector organizations for purposes of the planning, appraisal, reporting, evaluation and management of the organizations.
A financial system designed to capture all transactions involving government funds, allow for comparison of actual and budge Led results, give government timely information about revenue and expenditure, and provide information useful to assess the efficiency of government programmes.
The totality of methods and procedures necessary for accounts keeping to produce the desired results of the objectives of government programmes and activities.
A set of methods and procedures adopted by public sector organizations to manage the financial business of the organizations.
Public sector accounting is concerned with recording, controlling, analyzing, classifying, summarizing, measuring and reporting the financial flows of government. It involves the receipt, custody and disbursement of public and trust monies as
required by law. The purpose is to demonstrate fiduciary stewardship that is to show that government resources have been approved and handled properly by ensuring that government monies are applied honestly, using proper procedures, within budgeted levels and legal limits.
All the definitions sound convincing although the last description of public sector accounting appears to be more comprehensive. The main points we need to know, however, are that public sector accounting is:
A dynamic financial information system.
It is broad-based and limited only to the needs of the information user.
It is based on laws, rules, regulations, policies, methods and procedures.
To determine that the information produced is analyzed and communicated in a timely way.
To ensure that stewardship and accountability to the public are major hallmarks of the system.
Whenever a state exists, and the government exercises coercive power by collecting taxes (revenue) and spending the money (disbursements) for the maintenance of law and order or a form of state activity some form of public sector accounting, whether primitive or rudimentary, would be practised. It can also be said that modern states cannot function effectively without public sector accounting. The reason is simple.
All government decisions, even in primitive societies where barter is practised, have to be ultimately broken down into financial terms. In recent years, however, a major effort has been made in several countries especially in the United States, Great Britain and Canada to bring modern techniques of management and financial analysis to bear on public sector accounting.
continue here: Download: Public Sector Accounting Pdf