Summary of Issues
Of course the corporation's set of Financial Budgeting and Accounts will obviously have one or more line items covering the money set aside for, or spent on, each approved project, or perhaps groups of projects. And as I write this up many months later, I do recall being asked to reconcile my project's Cost Control Accounting records with the corporate Financial Accounting records. While we could get close by analysis we were never able to reach exact agreement, partly because of the difficulty of reconciling the respective cut-off dates.
The reasons for the difference were several:
- The Financial Accounts lumped together several smaller projects under one-line entries.
- At any given time, we always had larger projects "in-progress", the positions of which we had to estimate. This was especially the case where subcontractors were involved and their sub-trade progress invoices had either not yet been submitted, or had been submitted but not yet reviewed and approved.
- The Financial Accounts opened a new record at the start of each financial year, whereas the project cost accounts accounted by individual project, some of which spanned across financial year-end boundaries.
- At the end of the year, the Financial Department distributed corporate overheads across all accounts. The amount depended on the corporate revenue and expenditures during the year including that spent on projects. In poor economic times the distribution was higher than in good years. We never knew what that amount was or would be and how it was arrived at.
- At times, some of our projects were charged with unbudgeted corporate services such as legal services, or staff recruiting costs, over which the project manager had no control.
- In house work was charged at some internal average "cost of labor" rate based on time sheets or weekly reports. We suspected that some projects were seen as "happy hunting grounds" for undocumented effort.
Recommendations:
- Keep the individual project cost control accounting on a project-by-project basis.
- Keep it separate from the corporate central Financial Accounting records.
- Establish clear practices connected with overhead distribution, including corporate services.
- Establish hourly rates for in-house time allocation.
- Make sure that in-house time-to-projects is collected on a reasonably reliable basis.
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