What Does a Controller Do?

Introduction to Controllership in Finance

The controllership function bridges financial management's operational and strategic dimensions, acting as a steward of an organization's financial activities. From handling intricate processes to enforcing crucial policies, from driving comprehensive reporting to ensuring strict compliance, the controllership role lays the bedrock for sound financial operations. Hiring a full-time Controller is one of the first major hire for a growing accounting department.

As we explore the role of the controllership function, we'll explain how it maintains the financial health of an organization.

What Does a Controller Do?

To perform their job well, a controller has to do these four things:

• Oversee financial processes
• Implement and enforce financial policies
• Develop and maintain internal controls
• Ensure compliance 

So, let’s explore each one and see what it entails.

Oversee Financial Processes

At the heart of the Controller's role is the oversight of diverse financial processes. These processes range from accounts payable and receivables to budget management and payroll processing. Usually, a controller will have other finance professionals, such as bookkeepers, helping them.

By monitoring these activities, controllers ensure they run smoothly and efficiently and follow all applicable standards and regulations. Their oversight ensures the machinery of financial operations keeps ticking with precision. 

Here are some of the primary responsibilities the Controllership function will oversee:

• Accounts Payable (AP): This involves managing all payments to suppliers, service providers, and other creditors. AP ensures that payments are made accurately and on time while looking for opportunities for discounts or improved terms.
• Accounts Receivable (AR): AR oversees the collection of payments, ensuring they are collected promptly and accurately. This often involves managing billing processes, credit control, and dispute resolution.
• Payroll: Payroll is responsible for ensuring that employee payroll is processed correctly and on time. This includes overseeing deductions for taxes, benefits, and other items and ensuring compliance with labor laws and tax regulations.
• Budgeting: Controllers often oversee creating, managing, and adjusting the organization's budgets. This involves working closely with other departments to forecast revenues and expenses and track actual performance against these budgets.
• Cash Management: Controllers also play a key role in managing an organization's cash flow. They oversee processes for tracking cash inflows and outflows, forecasting cash needs, and making short-term investments or borrowing decisions.
• Financial Reporting: They manage the preparation of financial reports, ensuring they are accurate, timely, and compliant with accounting standards and regulations. These reports might include income statements, balance sheets, and cash flow statements.
• Costing and Inventory: For businesses with significant inventory or production activities, controllers oversee cost accounting processes. This includes tracking the costs of goods sold, managing inventory levels, and analyzing cost trends.

It's important to note that these responsibilities and others may be shared with other finance functions depending on the organization's size, complexity, and structure. Depending on the organization they support, the Controllership function may have a smaller or larger part to play in these responsibilities.

Implement and Enforce Financial Policies

Financial policies, from investment guidelines to expense reporting protocols, form the backbone of an organization's financial health. As stewards of these policies, Controllers implement them across the organization and enforce compliance. This enforcement ensures procedural uniformity, minimizes risk, and boosts organizational integrity. The Controller may not be the sole author of these policies; thus, they must proactively identify the correct team members to collaborate with in drafting a policy.

Financial policy examples include but are not limited to:

• Investment Policy: This will underscore the primary areas a company sends its excess cash. This policy will consider yield, liquidity, and risk as it best supports the company's circumstances. 
• Expense Reimbursement Policy: This policy will cover the guidelines on reimbursement for employee-incurred expenses, detailing the expense submission, approval, and reimbursement process. The policy will explain what expenses are eligible for reimbursement.
• Internal Control Policy: This policy outlines the company's approach to internal controls. Many other documents will support the company's internal controls procedures. This policy can be best seen as an overview of the definitions, best practices, and philosophy of the internal controls in place. 
• Cash Management Policy: This policy will address everything related to ensuring liquidity, minimizing costs, and optimizing returns. It may include guidelines for managing receivables and payables, cash forecasting, and contingency planning.

Develop and Maintain Internal Controls

Internal controls support the integrity of financial information, promote accountability, and help prevent fraud. The Controller has direct oversight of a company's internal controls environment. The controllership function's role is to properly develop, maintain, improve, and document all internal controls. Many organizations choose to follow the COSO framework as it provides a comprehensive and widely accepted approach to internal control.

Ensure Compliance

The controllership function ensures the company complies with all relevant laws, regulations, standards, and internal policies. This responsibility is wide-ranging and encompasses various aspects of business operations. Compliance affects financial reporting, tax, internal controls, and more. Compliance also extends to internal policies and procedures, including ethical standards and codes of conduct.

The Role of Controllership in Financial Reporting

When looking at the four main responsibilities of a controller, we mentioned that at the top of that list was overseeing financial processes, which included managing financial reporting. Now, given the impact of financial reports on the fate of any company, both big and small, it is worth taking a minute to explore how a controller can play an integral role throughout the whole reporting process.

Ensuring Accurate and Timely External Reporting

Whether it's shareholders, regulators, or the public, external stakeholders require timely and accurate financial information. The Controller ensures that financial statements, annual reports, and other documents are correct and timely and adhere to the principles of transparency and accountability.

Month-End Close

Running an efficient month-end close process is essential to producing timely financial reports. Public and private equity-owned companies will have rigorous financial reporting expectations, requiring a fast and efficient close. A good benchmark to complete the month-end close would be 5 to 10 days, but this timeframe can vary based on company size, complexity, and ownership.

The Significance of SEC Reporting

For publicly traded companies, reporting to the Securities and Exchange Commission (SEC) is critical to external reporting. The Controller helps ensure these reports are accurate, complete, and submitted promptly. SEC reports are more than just regulatory obligations—they're an opportunity for companies to present their financial health and success to potential investors.

The Value of Effective Internal Reporting

While external reporting focuses on stakeholders outside the organization, internal reporting is no less important. It provides critical insights to decision-makers. Controllers ensure these reports are comprehensive, accurate, timely, and easy to digest, providing the information necessary for strategic planning, budgeting, and other critical business decisions. 

Controllership and Tax Compliance

Another critical pillar covered by a controller is ensuring compliance. And this includes navigating the intricate web of taxation, which is no easy feat. From income tax to sales tax, payroll tax to corporate tax, the tax landscape is complex and often fraught with potential pitfalls.

Tax Planning

An integral part of this role is strategic tax planning. Planning requires understanding and analyzing how the organization can optimize tax assets and reduce liability. This process is often a collaborative effort involving tax consultants, ensuring the company navigates the intricate landscape of business structures, investments, special credits, and operational strategies to its advantage.

Point of Contact

As mentioned above, the Controller will work closely with outside consultants and specialists supporting the organization's tax processes. They will also serve as the primary point of contact for tax authorities, handling responses and providing necessary documentation when needed. 

Staying Current with the Law

Any future changes in tax law can significantly impact the company's tax strategy. The Controller will either need to remain apprised of upcoming changes or work closely with outside experts that can advise on future changes in a timely manner. The IRS has several helpful suggestions on staying informed with current and upcoming changes to the law.

The Power of Internal Controls in Controllership

One of the most important aspects of the controllership function is the implementation of strong internal controls—systems and processes designed to safeguard a company's assets and ensure the accuracy of its financial records.

Designing Robust Internal Controls

Effective controls mitigate risk, prevent fraud, and promote adherence to policies and regulations. This may involve everything from access controls for financial systems to expenditure approval processes. Controls are designed to either prevent or detect errors and fraud. 

Some examples of preventative controls include:

• Segregation of Duties: These controls distribute duties between multiple individuals, preventing one person from having too much control over a financial process.
• Authorization and Approval: Approval processes ensure that only authorized transactions are processed.
• Physical Controls: These controls protect physical assets (like cash, equipment, and inventory) through restricted access. 

Some examples of detective controls include: 

• Reconciliations: Cross-referencing data to multiple sources, like a bank statement, to ensure validity. 
• Audits: Regular reviews of transactions and the internal control system. 
• Exception Reporting: Highlights transactions that fall outside of an established parameter. For example, any amount above a given threshold could trigger a notification for review.
• Asset Surveillance: Protecting physical assets through surveillance systems and alarms can detect theft and prevent unauthorized access.

Where possible, these controls should be enforced through the use of technology. With segregation of duties, for example, the financial system should not be fully open to all users, and defined access areas should be established. 

Monitoring and Improvement of Internal Controls

Internal controls should be continually tested for deficiencies. When deficiencies are identified, the Controller's responsibility is to act quickly to correct them and enhance the control system's effectiveness. Audits are an opportunity to test the strength of these internal controls. They can make the life of the Controller easier as the auditors will make recommendations on how to improve these controls. The Controller must ensure that controls are reliable and comply with relevant laws and regulations. 

Best Practices for Controllership

Effective controllership isn't just about what you do—it's also about how you do it. By following best practices, controllers can ensure they're fulfilling their duties most effectively and efficiently.

Continual Evaluation of Financial Processes and Policies

Financial processes and policies should never be static; they must evolve as the organization and its environment change. Controllers should regularly evaluate these processes and policies to identify improvement areas and ensure they meet the organization's operational needs and compliance requirements.

The policy life cycle is represented by the below graphic. 

Developing a Proactive Approach to Compliance

Controllers should take a proactive approach instead of simply reacting to compliance developments as they arise. This involves staying up-to-date with the latest laws and regulations, planning for tax obligations, and other financial reporting changes in advance. This will allow the company to take advantage of available benefits and avoid critical risks. Even though experts may be needed, the less you rely on them to know everything, the better.

Strengthening Internal Controls for Operational Efficiency

Internal controls are a crucial defense against financial mismanagement and fraud, but they have another role. Internal controls can make the financial operations duties much easier for the Controller and the rest of the finance department. Controllers should constantly strive to strengthen these controls by improving existing controls and identifying areas where new controls may be needed.

Look for Opportunities to Leverage Technology

Technology supports every facet of the company's financial operations, and new developments can significantly impact processes. The Controller and every other business leader are responsible for continually looking for opportunities where technology can be leveraged to improve processes. Staying educated on the offerings of large enterprise software players, like Oracle, can help you discover opportunities for your business.

The Future of Controllership

As we look to the future, the role of controllership is poised to change as much as any within the finance function. These changes are already underway and will only continue to accelerate into the future. 

Rapid Changes in Technology

Some functions in finance are more affected by changes in technology than others. The controllership function is heavily and immediately affected by new technological developments. With an array of repetitive processes, there is ample opportunity for automation and intelligent technologies. The booming popularity of language models like OpenAI's GPT-3 has made AI an even larger topic of discussion than it was previously. This draws more attention to the pressures put on businesses to find creative ways to stay ahead of the curve. 

As the future rapidly approaches, Controllers will not need to be experts in developing and implementing these technologies, but it will be required that they are well-versed in their capabilities and understand the use cases intimately. Controllers are primary leaders in implementing these technologies throughout the organization, as their duties affect almost every aspect of the business. 

Cybersecurity Needs

Controllers work with sensitive financial data, giving them a clear perspective on the areas of opportunity for cybercriminals and the risks to the company. They can guide efforts to secure critical assets and contribute to developing and implementing cyber risk management strategies. The controls established and maintained by the Controller are a primary line of defense against cyber threats. The growing involvement of the Controller in cybersecurity follows the central theme of the growing relationship between the Controller and IT.

Conclusion

So long as stakeholders want to have clarity into the financial health of the organization, controllership will remain vital to operations. The controllership function is core to the role of the CFO and represents one of McCracken's Ten Pillars of Finance. In organizations without a Controller, the CFO manages the duties we covered in this article directly. A Controller supporting a CFO has more of an opportunity than ever to add value to the business and make an impact with their role. For help running or evaluating the health of your controllership function, feel free to contact us.