Case study 2

Mike is the budget manager for a consultancy firm that operates Australia-wide. It provides services in relation to hazardous materials and protection of the environment.

Mike has a team of people spread across the country operating in each of the offices. His team members are responsible for all aspects of expenditure in each of the offices and the processing of any documentation relating to material purchase, equipment purchase (such as air sampling devices or chemicals of sample testing), salary/wages and processing of hours worked, allowances etc., and payment for other inputs such as expert advice when required such as legal advice.

When running various company reports at the end of the month Mike notices that the profit margin is smaller than usual and that, on investigation, the offices inPerth and Adelaide are primarily responsiblewith actual expenditure above the budget. The main cost in Perth appears to be insalary/wages and overheads; in Adelaide the cost overrun appears underconsumable chemicals equipment and travel.

An investigation by his team members results in the following conclusions.

Perth

Analysis and areas for improvement

Some errors have been made in processing time sheets with data entry, especially by new staff.

The average salary in Perth for consultants and scientific staff doing sample analysis is high.

Lease payments for the building they occupy have increased as well.

The incorrect data entry is to be addressed by additional training.

The salary increase is still an issue but documentation is provided showing that some staff have been awarded an increase to keep their services, as a competitor was offering higher pay. Higher salaries were also introduced to attract some key analysts from Sydney and Melbourne. The expectation is that this will be an ongoing issue.

Adelaide

Analysis and areas for improvement

Significant car travel has been incurred with staff driving to the mine site and development sites in the centre of the state.

New equipment has been purchased in excess of the budgeted items.

Additional chemicals have been purchased but there are concerns that the purchasing process has resulted in incorrect orders and wrong quantities being ordered.

There appears to be clear errors in the procedure for purchasing and also in the method of collecting, processing and storing of some source documentation/records.

Similarly, the record keeping and justification of travel expenses is not consistent. Staff need training in these areas.

The team is going to consider teleconferencing to reduce travel.

1. Listthree (3) strategies that Mike could adopt to reduce cost overruns.
2. Draft procedure steps (include a checklist if this is appropriate) to process documentation for data entry into the finance system for each of the following:

• Salary and wages
• Travel claims using an employee's own vehicle
• Ordering equipment
• Storage of source documentation including time frames for storing the records

3.Explain why having proper procedures to process documentation for data entry into the finance system improves financial management.

4.Suggesttwo (2)procedures or initiatives that Mike could introduce to improve his financial management of the officers across the country.