During the Texas oil boom of the 1980s, I worked with a company to help get its finances in order. I walked into a financial meltdown, and in the course of my work, I uncovered a slew of management errors — and even some full-on deceit and treachery — that was bringing the company to ruin. This third part in my series examines another critical lesson that came through my accounting work with this company.
The Problem: The High Cost of Poor Accounting Software
When I started examining the company’s finances, I immediately discovered the inadequacies of its accounting software. The company used its own homegrown accounting software, employed an IT staff of two, and leased an IBM System 38 in a temperature-controlled environment.
But the programmers didn’t understand oil and gas accounting, and there’d been insufficient upfront work done on application design. The result was an expensive accounting system that impeded the company’s ability to conduct and manage its operations.
Here’s how bad the problem was. The accounting manager in charge of production revenue showed me his “management reports,” which were one-foot-thick journals without proper control totals. He informed me that, while some of the wells produced both oil and gas, the IT staff had told him they would have to cut separate royalty checks and produce separate reports for oil and for gas sales.
Changing accounting systems presented a substantial risk to the chief executive officer’s job security. The company was working its way out of bankruptcy and this would be a bold move to make under the close scrutiny of creditors and a court-appointed judge. Consequently, I held off proposing a change until I had established my own credibility with a track record of successful changes in other areas.
The Solution: Less Cost and Better Reporting with the Right Accounting Software
I began a search for commercial accounting software that would meet the specific demands of a pipeline gas gatherer and oil and gas producer. Through previous industry connections, I found a commercial software application enhanced from an application I had successfully implemented before by a company whose operations were identical to those of Grant Corp., the company in trouble.
The software was proven, the support staff was well-versed in our accounting needs, and they demonstrated valuable software capabilities beyond our expectations. In addition, the software ran on computer hardware that didn’t require an IT staff. It cost a fraction of the price of the current system, and we would still have access to custom programming.
I ultimately presented my recommendation to the CEO, and the executive committee travelled to Dallas to confirm that the software and support met their needs and that the company behind the software was solid. We talked with existing application users and made the decision to proceed. We all had a major stake in the decision because failure would be disastrous. It was up to me to make sure that didn’t happen.
How to Successfully Change Accounting Systems
- All stakeholders must participate in the planning process. This maximizes the probability that all issues are addressed in advance, that everyone understands how the process will proceed, and that there’s a common understanding of how the post-conversion process will work. Don’t begin the conversion until you have a clear vision of the process and the end game.
- Always have a backup strategy. Plan on running parallel systems, if possible, to guarantee that unanticipated problems won’t interrupt operations. If this is absolutely impossible, plan the system changeover at the beginning of a weekend to maximize the nonoperational time to get the new system running smoothly.
- Expect the software vendor to include training and support, including clear reference materials to ensure that system users have ongoing resources available to properly use the software and hardware. Factor training of new users into your analysis. Ask other application users about the adequacy of training and support before making a purchase decision.
- If you’re the senior accounting manager, it’s up to you to be the most knowledgeable user of the software. It’s up to you to understand what accounting controls are available to you and where the threats to reliable information exist. Your job is to manage by exception, assure existing accounting controls are being implemented, and vet management reports before presentation to management. This is especially critical in the early post-conversion period when users are learning and most likely to make mistakes.
The conversion went incredibly smoothly. We were up and running software that allowed us to further reduce the accounting staff, grab very tight control of our financial information, and obtain excellent management reports. We did all of this and cut our overhead by more than $20,000 per month.
Next up: Ongoing financial analysis, predictive analysis, and the discovery of embezzlement and murder.