Organization of the Finance Function

1. Introduction

The organizational structure of the finance function varies across companies, influenced by factors such as size, business nature, financial philosophy, and the capabilities of financial officers. However, certain common roles and responsibilities are typically present, especially in larger organizations.

2. Key Roles and Responsibilities

2.1. Chief Financial Officer (CFO)

• Top Financial Role: The CFO is the head of the finance function. Their specific title can vary (e.g., financial manager, vice-president of finance, director of finance, financial controller).
• Strategic Role: The CFO is a member of top management, involved in policymaking and strategic decision-making.
• Line and Staff Responsibilities: The CFO is directly concerned with financial planning and control and supervises other finance personnel.

2.2. Treasurer

• Funds Management: The treasurer's main function is to manage the firm's funds.
• Key Duties:
  • Forecasting financial needs.
  • Administering cash flow.
  • Managing credit.
  • Floating securities (issuing stocks and bonds).
  • Maintaining relationships with financial institutions.
  • Protecting funds and securities.

2.3. Controller

• Asset Management: The controller's functions relate to the management and control of the firm's assets.
• Key Duties:
  • Providing information for accounting and costing policies.
  • Preparing financial reports.
  • Directing internal auditing.
  • Budgeting.
  • Inventory control.
  • Tax management.
• Focus: The controller's functions are concentrated on the asset side of the balance sheet, while the treasurer's are more on the liability side.

3. Organizational Structure

• Board of Directors: At the top, they set the overall strategic direction for the company.
• Managing Director: This role reports to the board and oversees the overall operations of the company.
• Production Director: Responsible for the production aspect of the business. The financial function is not part of this.
• Functional Directors: Reporting to the Production director are the functional heads such as:
  • Production Director: Responsible for the company's production processes.
  • Personnel Director: Manages the company's human resources.
  • Financial Director: Oversees the company's finances.
  • Marketing Director: Manages the company's marketing and sales activities.
• Financial Director (or CFO) is at the top of the finance function.
• Treasurer: Reports to the Financial Director. Responsibilities include:
  • Auditing
  • Credit Management
  • Retirement Benefits
  • Cost Control
• Controller: Reports to the Financial Director. Responsibilities include:
  • Planning
  • Inventory Management
  • Performance Evaluation
  • Accounting

4. Relationship Between Treasurer and Controller

• Reporting to CFO: Both the Treasurer and Controller typically report directly to the CFO in larger companies.
• Specialized Functions: The treasurer focuses on the company's funding and liquidity, while the controller is concerned with internal controls, reporting, and asset management.
• Overlapping Functions: In practice, the functions of the treasurer and controller can overlap.

5. Variation in Organizational Structure

• No Single Structure: The exact organization structure for financial management differs across companies.
• Factors Affecting Structure: Structure is influenced by:
  • Firm size.
  • Nature of business.
  • Financing operations.
  • Capabilities of financial officers.
  • Financial philosophy of the firm.
• Multi-Divisional Companies: In large, multi-divisional companies, the organizational structure may be more complex, as shown in Figure 1.4 (mentioned in the text but not depicted)

6. Conclusion

The finance function's organizational structure is crucial for efficient financial management. While the specific setup can vary, the key roles of the CFO, Treasurer, and Controller remain fundamental to ensuring a company’s financial stability, and sustainable growth. The relationship between these roles, as well as the connection to other business functions, is essential for effective financial planning and control.