Harvard Case - NCEM: Improving Accounting Processes for a Canadian Charity
"NCEM: Improving Accounting Processes for a Canadian Charity" Harvard business case study is written by Brian Lane. It deals with the challenges in the field of Accounting. The case study is 9 page(s) long and it was first published on : Mar 4, 2021
At Fern Fort University, we recommend NCEM implement a comprehensive accounting process improvement plan focused on streamlining operations, enhancing financial transparency, and improving cost management. This plan will involve a combination of adopting best practices in accounting procedures and policies, implementing a robust activity-based costing system, and leveraging technology to enhance efficiency.
2. Background
NCEM, a Canadian charity, faces challenges in managing its accounting processes due to rapid growth and increasing complexity. The organization's current system relies heavily on manual processes, leading to inefficiencies, inaccuracies, and difficulties in generating timely and reliable financial statements. The lack of a clear cost accounting system hinders NCEM's ability to effectively allocate resources and track program performance.
The case study focuses on the experiences of two key protagonists:
- Mary Jones, the organization's Executive Director, who recognizes the need for improved accounting processes to support NCEM's growth and ensure financial sustainability.
- John Smith, the Finance Manager, who is tasked with implementing the necessary changes and faces resistance from staff who are accustomed to the existing system.
3. Analysis of the Case Study
This case study highlights several critical issues:
Financial Management:
- Lack of standardized accounting procedures and policies: NCEM's current system lacks consistency and clarity, leading to discrepancies in data recording and reporting.
- Inefficient cost allocation: The organization struggles to accurately track and allocate costs across its various programs and departments, making it difficult to assess program effectiveness and make informed budget decisions.
- Limited use of technology: Manual processes create inefficiencies and increase the risk of errors. Implementing technology solutions like accounting software can streamline operations and improve data accuracy.
Organizational Structure and Design:
- Resistance to change: Staff members, accustomed to the existing system, may resist implementing new processes and technologies.
- Lack of communication and collaboration: Clear communication and collaboration between finance and program staff are essential for successful implementation of changes.
Strategic Considerations:
- Growing complexity: NCEM's rapid growth necessitates a more robust accounting system capable of handling increasing data volume and complexity.
- Financial transparency: Effective accounting processes are crucial for maintaining financial transparency and building trust with donors, stakeholders, and the public.
Framework:
This analysis utilizes a Strategic Framework, considering both internal and external factors impacting NCEM's accounting operations. The framework helps identify key areas for improvement and develop a strategic plan for implementation.
4. Recommendations
NCEM should implement the following recommendations to improve its accounting processes:
1. Develop a Comprehensive Accounting Policy Manual:
- Define clear and consistent accounting procedures and policies for all aspects of the organization's financial operations.
- Ensure compliance with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), depending on the organization's reporting requirements.
- Develop a comprehensive chart of accounts to ensure consistent and accurate data recording.
2. Implement Activity-Based Costing (ABC):
- Implement an ABC system to accurately allocate costs to specific programs and activities.
- This will provide a more accurate picture of program costs and allow for better decision-making regarding resource allocation and program prioritization.
- Use ABC to track and analyze profitability of different programs and identify areas for improvement.
3. Leverage Technology Solutions:
- Invest in accounting software that can automate key processes, such as data entry, invoice processing, and reporting.
- Implement a robust accounting information system to streamline operations and improve data accuracy.
- Explore cloud-based solutions for increased accessibility and collaboration.
4. Foster Change Management:
- Communicate the benefits of the new system to all staff members and address their concerns.
- Provide comprehensive training and support to ensure smooth transition to the new processes.
- Establish a clear implementation timeline and assign roles and responsibilities to ensure accountability.
5. Enhance Financial Reporting:
- Develop standardized financial statements, including a balance sheet, income statement, and cash flow statement, to provide a clear and comprehensive picture of the organization's financial performance.
- Implement financial performance measurement metrics to track key indicators and assess the effectiveness of the new system.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Improved accounting processes will enable NCEM to better manage its resources and achieve its mission of providing essential services to the community.
- External customers and internal clients: The new system will enhance financial transparency and accountability, building trust with donors, stakeholders, and internal staff.
- Competitors: Adopting best practices in accounting will allow NCEM to remain competitive in the non-profit sector and attract funding.
- Attractiveness: The implementation of ABC will provide a more accurate understanding of program costs and allow for better decision-making regarding resource allocation, leading to increased efficiency and effectiveness.
All assumptions regarding the organization's resources, technology capabilities, and staff acceptance are explicitly stated throughout the recommendations.
6. Conclusion
By implementing these recommendations, NCEM can significantly improve its accounting processes, enhancing financial transparency, streamlining operations, and ultimately achieving its mission more effectively. The organization will be better positioned to manage its resources, track program performance, and build trust with stakeholders.
7. Discussion
Alternative options include outsourcing accounting functions or hiring additional staff. However, these options may be costly and may not address the root causes of the existing issues. The recommended approach focuses on internal process improvement, leveraging technology and best practices to achieve long-term sustainability.
Key risks associated with the implementation include staff resistance, technology challenges, and potential budget constraints. However, these risks can be mitigated through careful planning, communication, and training.
8. Next Steps
NCEM should create a detailed implementation plan with the following key milestones:
- Month 1: Conduct a thorough assessment of current accounting processes and identify areas for improvement.
- Month 2: Develop a comprehensive accounting policy manual and implement a new chart of accounts.
- Month 3: Begin implementation of ABC system and select and implement accounting software.
- Month 4-6: Provide training to staff on the new system and processes.
- Month 7-9: Monitor the implementation process and make necessary adjustments.
- Month 10-12: Evaluate the effectiveness of the new system and develop ongoing improvement strategies.
By following this timeline and implementing the recommended changes, NCEM can create a robust and efficient accounting system that will support its continued growth and success.
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Case Description
The general director of Northern Canada Evangelical Mission (NCEM) wanted to make some changes to the organization's accounting system to coincide with the calendar year-end. The changes involved consolidating the financial records for 20 separate ministries operating across the country to reduce the number of redundant, time-wasting, manual entries needed and to align the general ledger accounts with the charitable activities report required by the government. As well, the process for tracking and reporting taxes needed to be improved. Finally, NCEM's board of directors wanted an increased level of professionalism and timeliness in the organization's financial statements. The chief financial officer and accounting staff would need a carefully planned schedule to carry out the changes, which would involve bookkeepers, ministry leaders, and the executive team, all while minimizing the interruption to NCEM's operations. How could the general director make the changes without causing additional problems along the way?
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