Master Thesis
Master of Science in Business Administration O&MC
Decentralization
&
The Quality of Cost Information
A case research within
SCA/UcM Hoogezand
BY BI R T H E BA L S T E R
UN I V E R S I T Y O F GR O N I N G E N FA C U L T Y O F EC O N O M I C S A N D
Master Thesis
Master of Science in Business Administration O&MC
Decentralization
&
The Quality of Cost Information
A case research within
SCA/UcM Hoogezand
Studentnr.: s1907107 Adress: Loozeweg 19 Zipp code: 9321 ED Peize E-mail: b_balster@live.nl Phonenr.: 06-30406536 Supervisor: Prof. dr. H.J. ter Bogt Co-assessor: Dr. R.B.H.Hooghiemstra Supervisor SCA/UcM: Mr. B. Egberts
BY BI R T H E BA L S T E R
UN I V E R S I T Y O F GR O N I N G E N FA C U L T Y O F EC O N O M I C S A N D
Preface
This thesis is the last part of my study, Master of Science in Business Administration. In general, I have learned a lot and I really enjoyed this study. This master provided me with some in-depth insights into the financial processes and the related internal control. Apart from the study, this thesis shows me the linkages between study and practice. Additionally, I am very grateful to Prof. dr. Henk Ter Bogt for his useful comments and thoughts when I was writing my thesis. It was a pleasure to write my thesis under his supervision. Furthermore, I would like to thank dr. Reggy Hooghiemstra for taking the second assessment of this thesis.
Apart from the completion of my study, this thesis is also written for the financial manager of SCA/UcM Hoogezand, Bram Egberts. I would like to thank him for his permission to do this internship, his support during my internship and for sharing his opinions about the budgetary control within SCA/UcM Hoogezand. As a result of his opinions, the subject of this thesis could be determined. Furthermore, this thesis would not have been possible without the assistance of Greetje Mulder. I would like to thank her, because she made it possible to do my internship within the department Controlling. Moreover, I would like to thank Roelof Moek for his support and his supervision during the operational tasks I performed within SCA/UcM Hoogezand. I would also like to acknowledge all the employees within SCA/UcM Hoogezand, who provided me with the necessary information for this thesis. I really liked to write my thesis and perform some operational tasks within the department controlling of SCA/UcM Hoogezand.
Abstract
This paper discusses the way in which the decentralization of responsibilities in the area of costs affects the quality of cost information in SCA/UcM Hoogezand. The literature mentions that there is a development towards decentralization and flatter organizational structures, in which the employees at lower levels in the organization function like a kind of ‘hybrid controllers’. Empirical research, conducted in SCA/UcM Hoogezand, shows that the decentralization of responsibilities in the area of costs affects the quality of accounting information. The most common errors are errors of commission and ‘disagreement in judgement’.
Key words: decentralization, cost information
Table of contents
Preface ... 2
Abstract ... 3
1. Introduction ... 5
2. Review of literature ... 7
2.1 Management control systems and accounting information systems ... 7
2.2 Structure and Management Control Systems (MCS) ... 9
2.3 Budgetary control ... 11
2.4 Decentralization and the quality of accounting information ... 13
2.5 Consequences of misrepresentation of accounting information and possible solutions . 15 2.6 Summary and points of attention from the review of literature ... 17
3. Research design ... 19
3.1 Empirical research ... 19
3.2 Svenska Cullulosa Aktiebologat group (SCA)... 21
4. Empirical findings ... 23
4.1 MCSs and MAS within SCA/UcM Hoogezand ... 23
4.2 The structure of SCA/UcM Hoogezand ... 26
4.3 Delegated budgetary control and processes within SCA/UcM Hoogezand... 28
4.4 The quality of accounting information within SCA/UcM Hoogezand ... 30
5. Discussion ... 35
6. Summary, conclusion and recommendations ... 38
Reference list... 41
1. Introduction
Parmalat, an Italian company specialized in the production of dairy products, became a well-known scandal in 2003 when large amounts of debts were acquired, whereas non-available cash reserves were administered (Ferrarini & Giudici, 2005, p.13). Another large fraud case is Worldcom, which became fraudulent as the directors used accounting methods to mask the declining earnings, gave rise to the profitability figures and consequently tried to boost the stock prices (Beresford et al., 2003, p.9). Both scandals can be classified as the misrepresentation of figures. Albrecht et al. (2008, p.187) have made a distinction between frauds and errors; frauds result from intentional manipulation of figures, whereas errors can be described as unintentional errors in accounts or ledgers. The examples mentioned above can be regarded as frauds, but errors are probably much more common in organizations.
Hybridization might be an important cause of errors. According to Kurunmaki (2004, p.330) hybridization occurs, for example, if employees with no financial background are made financially responsible through delegated budgets. The last decades there is a development towards flatter organizational structures, in which the responsibilities -also some financial ones- are delegated towards lower levels in the organization. Nowadays, organizations, like SCA/UcM Hoogezand in the Netherlands, face the favourable and unfavourable effects of delegation, misrepresentation of figures is an example of the latter.
SCA/UcM Hoogezand is working with Team Based Work Systems (hereafter TBWS); one element of TBWS is that some employees are appointed as ‘budget holders’. These budget holders are responsible for some costs and have to enter the cost figures into one of the many cost sections∗. Due to this process, SCA faces some difficulties with the delegated tasks. The management of SCA/UcM Hoogezand observed that this moment the budget holders sometimes enter the cost figures into the wrong accounts, which leads to some questionable figures. As a result, these questionable figures in the internal management accounting system have some consequences for the financial reporting to internal and external stakeholders. For that reason, the delegation of tasks will not always benefit the organization. Consequently, questions have arisen about how many costs are questionable and whether this is only due to the delegation of tasks to employees lower in the organization -who in fact are ‘hybrid’ budget holders now, but who might have limited financial knowledge-, or also to the wrong arrangement or improper functioning of the management accounting system.
Therefore, the main focus of this thesis is to identify the impact on the quality of cost information, when giving ‘hybrid’ budget holders an active role in cost management and how this can lead to the distortion of cost information. Furthermore, this thesis focuses on, if necessary, finding some possible solutions to keep the quality of cost information at a sufficient level.
The aim of this research results in the following research question: What is the effect on the quality of
cost information- and the extent to which such information is distorted- when an organization largely decentralizes many responsibilities in the area of costs and what can be done, if necessary, to keep the quality of the cost information at a sufficient level? Whereas there is a lot of literature on the subject of
delegation and the development of management control systems (MCSs), the relationship between the decentralization of responsibilities and the quality of accounting information is not generally known. This research focuses on the effect of decentralization on the quality of accounting information and therefore contributes to the existing literature.
In this thesis, first the different definitions of MCSs and the accounting information systems (AIS), also called management accounting systems (MAS) will be outlined (Chenhall, 2003; Abernethy & Chua, 1996; Kaplan et al., 1998). Furthermore, the linkage between structure and MCSs will be described (Bruns & Waterhouse, 1975; Sisaye, 2005; Herath, 2007; Lind, 2001). Further, based on Melumad et al. (1992), Arwadi & Samuelson (1993) and Malmi & Brown (2008), the linkage between the changing structure and budgetary control in an organization is discussed. More specifically, an explanation of budgetary control and the rise of responsibility accounting will be given (Mc. Nally, 1980; Reddy & Venkatrathnam, 2003). Moreover, the trend of decentralization and its influence on the quality of accounting information is discussed (Llewellyn, 1998; Kurunmaki, 2004; Nyland & Pettersen, 2004). Finally, the consequences of the misrepresentation of financial statements and possible solutions will be described (DeFond & Jiambalvo, 1991; Merchant & van der Stede, 2007; Brown et al., 2009). On the basis of this literature review and some important points of attention that are distilled from the review, empirical case research is conducted at SCA/UcM Hoogezand.
2. Review of literature
2.1Management control systems and accounting information systems
Both the implementation of management control systems (MCSs) and the use of accounting information systems (AIS), also called management accounting systems (MAS), can influence the behaviour of employees, specifically the way in which cost information is gathered and processed (Chia, 1995, p.813). Hence, both the MCSs and the MAS influence the quality of cost information. The MCSs and MAS have changed as a consequence of changes in the organizational structure. During the years, a lot of research is conducted about the influence of structure, more precisely decentralization, on MCSs and MAS. The influence of structure on MCSs and MAS, specifically budgetary control will be described in the next sections. In this section, different definitions of MCSs and the relation between MCSs and MAS will be mentioned.
During the years, MCSs are defined in a number of ways. A broad definition is provided by Chenhall (2003, p.129), who defined MAS as the systematic use of the collection of practices such as budgeting or product costing to achieve some goal. In addition to the definition of MAS, Chenhall (2003, p.129) defines MCS as a broader term that encompasses MAS and also includes other controls such as personnel and clan controls. Furthermore, Abernethy and Chua (1996, p. 573) specify “organizational control systems broadly as systems that comprise a combination of control mechanisms designed and implemented by management to increase the probability that organizational actors will behave in ways consistent with the objectives of the dominant organizational coalition”. Finally, Otley (1999, p.364) indicates that “management control systems provide information that is intended to be useful to managers in performing their jobs and to assist organizations in developing and maintaining viable patterns of behaviour”. In this thesis the definitions of Chenhall and Abernethy and Chua will be central, because these definitions provide some insight in the usage of MCSs as a ‘MCS package’. This ‘MCS package’ is described in more detail below.
be subject to manipulation or errors is recorded in one of more accounts, which is the output of the MAS. In order to detect or prevent errors that may arise in the processes MCSs are used (Kaplan et al., 1998, p.3).
Several researchers have investigated MCSs in isolation, however, Malmi & Brown (2008, p.291) use the term ‘MCS package’. The authors indicate the ‘MCS package’ as a number of MCSs which are designed and coordinated intentionally, e.g. planning, cybernetic control, administrative and cultural controls. First, planning is an ex ante form of control which sets out the goals for a functional department and it provides standards to be achieved in relation to the goals. Second, cybernetic controls are information and decision-support systems in which managers themselves can detect unwanted variances and modified the underlying behaviour that influence this variance (Malmi & Brown, 2008, p.290-291). Furthermore, Malmi & Brown (2008, p.292) define administrative control systems as “those systems that direct employee behaviour through the organizing of individuals (organization design and structure); the monitoring of behaviour and which employees are made accountable to for their behaviour (governance); and through the process of specifying how tasks or behaviours are to be performed or not performed (policies and procedures)”. Budgetary control can be considered as both cybernetic control and planning, because it focuses on the planning of acceptable performance levels and evaluating the performances against those plans (Malmi & Brown, 2007, p.293). Finally, cultural control systems are the values, beliefs and social norms which are established to influence the behaviour of employees. An example of cultural control is training, in which employees get training over appropriate values in an organization. However, training is also considered as administrative control (or personnel control, yet another type of control) if it includes teaching individuals about policies and procedures (Malmi & Brown, 2007, p.294).
In most organizations there are a number of such devices and systems, which are all used to ensure that the behaviours and decisions of employees are in line with the goals of the organization. The ‘MCS package’ thus consists of several interrelated systems, including MAS, which provide information for managers to fulfill operational goals and ensure that employees behave in line with the organizational goals.
2.2Structure and Management Control Systems (MCS)
Due to changes in the organizational structure, the MCSs and MAS can change. The changes in organizational structure affect the kind of MCS used and the design of the MAS and the way in which it is used. In this section the possible influence of organizational structure on the MCSs will be described. In the next section (2.3), the influence of organizational structure on MAS, particularly budgetary control, will be discussed.
Chenhall (2003, pp. 145-147) mentions various contingency variables, i.e. strategy, external environment, technology and structure, that can influence the ‘MCS package’ used in a particular organization. Generally, these contingency variables are linked with each other and therefore cannot be seen completely isolated from each other. Thus the different variables can be regarded as an integrated system; if the variables are perceived as separate the MCSs will be ineffective (Herath, 2007, p. 906).
Organizational structure and strategy are seen as two variables that can be regarded as such connected components when designing a MCS (Herath, 2007, p.906). These two components often have a close relationship; i.e., the structure is dependent on the organizational strategy and strategic situation (Herath, 2007, p.906). Strategy determines the relationships between employees, the organizational shape, the assignment of roles to different employees and the structure of decision-making within an organization. These elements together are resulting in a unique organizational structure. Herath (2007, p.906) described the organizational structure as a means of co-ordination and control through which organizational actors’ behaviour can be directed towards organizational goal achievement. Moreover, “Structural arrangements influence the efficiency of work, the motivation of individuals, information flows and control systems and can help shape the future of the organization” (Chenhall, 2003, p.145).
Specifically, manufacturing companies are changing from the more traditional manufacturing (‘traditional’ characteristics and ‘traditional’ MCSs) towards the so called World Class Manufacturing (WCM) (Lind, 2001, p.42). WCM can be illustrated as a management philosophy, which consists of changes in several areas, like management of quality, labour relations, the product line, the accounting system and the role of computers, management of the workforce and manufacturing techniques (Schonberger, 1986, p.1; Maskell, 1991, p.18). Lind (2001, p.44) compares the general characteristics and the control characteristics of traditional manufacturing with the WCM. Traditional manufacturing is characterized by a high degree of centralization and specialized functions, several organizational levels, activities are combined into simple tasks and the responsibility is concentrated at one point in the organization. Furthermore, the control within traditional manufacturing is characterized by, e.g.: (i) the usage of only financial measures and in particular standard cost variance analysis for both day-to-day and long term control; (ii) information from the accounting system is slower; (iii) budget is the primary benchmark; (iv) the employees are rewarded on individual bases (Lind, 2001, p.47). In contrast, WCM can be characterized by a high degree of decentralization, less need of specialized functions, few organizational levels, activities are combined in complex tasks and the responsibility and authority are delegated. Furthermore, the control of WCM is characterized by, e.g.: (i) the usage of both financial and non-financial measures; (ii) new real-time information systems are implemented; (iii) budget is eliminated as a standard for performance evaluation, focus is on actual results compared with the historic outcome; (iv) the employees are rewarded on a team-based performance through group bonuses (Lind, 2001, p.47). The above characteristics indicate that the reliance upon traditional mechanistic control systems is changing and moving towards more organic control systems.
As mentioned above a common feature of WCM is that responsibility and authority is delegated to more or less independent teams. In WCM there is mostly a change ‘from top-down control to bottom up control’; the structures are generally more organic, there are few hierarchical levels and the responsibilities are delegated to multi-skilling product teams. These multi-skilling employees are all responsible for, e.g., quality control, improvements, maintenance and short run planning. In terms of cost management, the employees are responsible for cost reductions, target setting, diagnosis and problem solving (Jazayeri & Hopper, 1999, pp.1-6).
ERP system that is widely used now in large organizations is SAP. SAP enables employees at lower levels, e.g. to monitor their production output and check their schedules and orders (Scapens & Jazayeri, 2003, p.219). Due to the high degree of accessibility and the availability of up-to-date information provided by SAP, the budgeting processes have changed from formal and static budgets to more flexible budgets (Scapens & Jazayeri, 2003, p.220). Budgetary control and the change from static to more flexible budgets will be described in the next section.
2.3Budgetary control
As mentioned earlier, budgetary control can be considered as both cybernetic control and planning, because it focuses on the planning of acceptable performance levels and evaluation of performances against those plans (Malmi & Brown, 2007, p.293). While budgetary control is a part of the ‘MCS package’, budgeting can also be perceived as an element of the MAS, while it presents and compares the actual results with the forecasted figures and highlights trends and variances (Gordon & Miller, 1976, p.62). On the basis of the information provided by the budgeting systems, managers can coordinate and control the organization (Nicolaou, 2000, p.94). In this section the effect of structure on budgetary control and the change from so-called static budgets to more flexible budgets will be outlined more extensively.
Due to the changes of organizational structures and computerization the budgeting systems in organizations are changed (Arwadi & Samuelson, 1993, p.94). The development towards flatter organizations, with fewer levels in the hierarchy, stresses the importance of delegation of decisions and responsibilities (Arwadi & Samuelson, 1993, p.102). In the past, budgeting was used for cost accounting (a more administrative order) and it was highly centralized and short term oriented. During the last decades it has developed towards more delegated budgets, i.e. budgets are more decentralized, but also more long term oriented, and they are used as means to delegate responsibilities. Additionally, Malmi & Brown (2008, p.293) mention that in a delegated budget situation subordinates are required to report on costs relative to the budget.
2008 p.293). The ongoing computerization was widely used as a support for budgeting and contributed to a further refinement of data and therefore responsibilities (Arwadi & Samuelson, 1993, pp.95-98).
As a result of these two developments, i.e., development towards flatter organizations and computerization, Nyland & Pettersen (2004, p.79) have stated that accounting information and the related MAS are considered now as more important in the management control processes. Consequently, certain accounting entities arise and more specific responsibility areas can be defined (Nyland & Pettersen, 2004, p.79). Arwidi & Samuelson (1993, p.100) mention that financial responsibilities for different units are a necessary prerequisite for a well-performing budgetary control system. The budget system will then operate inside a structure of different responsibility centers.
Responsibility centers are a common feature in large organizations and making use of responsibility centers is a form of decentralization (Melumad et al., 1992, p.445). Often, three types of responsibility centers are distinguished, i.e. investment centers, profit centers and cost centers. Firstly, investment centers are those centers in which managers are held accountable for the profits on the investments. Secondly, profit centers are responsibility centers in which the managers are held accountable for profit, the difference between the generated revenues and costs. Finally, in cost centers, also called expense centers, the managers are responsible for some elements of costs, e.g. resources consumed by the center, and an efficient production (Merchant & van der Stede, 2007, p.271-273). Decisions with respect to certain aspects of financial performance are delegated to managers of such a responsibility center.
2.4Decentralization and the quality of accounting information
In relation to the trend towards responsibility cost control as introduced in the previous section, Kurunmaki (2004, p.330) mentions that there is a trend towards making professionals with no financial background responsible through delegated budgets. Additionally, Ter Bogt & van Helden (2007, p.121), use the term ‘hybrid controller’, who can be described as a person who performs controlling tasks, while he/she has a completely different educational and/or professional background. Nyland & Pettersen (2004, p.99) say that also at lower levels in the organizations employees today are responsible for the operations and are administratively responsible for controlling their budgets. Employees who accept and administer the budgets are generally called budget holders (Abraham et al., 2008, p.171). By the delegation of budgets, the financial responsibility is thus allocated to employees, namely the budget holders (Llewellyn, 1998, p.295).
As mentioned in the introduction, the delegation of responsibilities can have several beneficial effects, like motivational effects to improve performance, quicker decision making, management development and learning and a sharper focus of managers (Bhimani et al., 2008, p.617; Arwadi & Samuelson, 1993, p.104). However, there are also problems that can occur when responsibilities are delegated, e.g. when goals of the subordinate differ from those of the organization and monitoring costs have to be made.
Additionally, the delegation of tasks to budget holders can influence the quality of the information. As mentioned earlier, the MAS consist of several elements, i.e. processes, information forms, control procedures and accounts (Kaplan et al., 1998, p.3). The quality of information can be affected by the processes, like the processing of cost information, which are now not only employed anymore by financial specialists, like accountants, but by the budget holders at lower levels in the organization.
The quality of information can be defined as the fit of the information for the intended use by information consumers. This quality of accounting information can generally be identified by several dimensions, namely accuracy, timeliness, completeness and consistency. In this thesis there is a focus on both accuracy and consistency, because it can be assumed that these dimensions of information quality can both be influenced by the processes of the MAS (Kaplan et al., 1998, p.3). Accuracy occurs when the recorded value is in conformity with the actual value (Xu et al., 2003, p.461). Consistency occurs when the representation of the information values is the same in all cases (Xu et al., 2003, p.461).
there is a high emphasis on the need to meet the budget and an inflexible way in which the supervisor uses the budgetary information to evaluate the performance, i.e. not taking into account uncontrollable factors (Briers & Hirst, 1990, p.375). Jaworski & Young (1992, p.187) stated that dysfunctional behaviour is any action in which a subordinate attempts to manipulate elements of an established control system for his own purposes. Birnberg et al. (1983, p.120) mention six categories of dysfunctional behaviour, i.e. smoothing, biasing, focusing, gaming, filtering and “illegal acts”.
Another form of dysfunctional behaviour can arise from budgetary participation. Due to the dissatisfaction with the setting of ‘top down budgets’ and its negative effects on motivation of subordinated employees, budget participation can arise. Budget participation is the extent to which subunit managers can influence and are involved in the determination of budgets (Brownell, 1982, p.125). In the beginning, budgetary participation was believed to create only some positive side effects, like increasing organizational commitment and greater acceptance by subordinates of standards set. However, budgetary participation can also lead to some unfavorable job-related outcomes, like gaming and slack (Subramaniam & Mia, 2001, p.14; Birnberg et al., 1983, p.117). Budgetary slack is a phenomenon that occurs when workers consciously attempt to establish a budget target that is relatively easy to achieve (Reid, 2002, p.125). It is also described as a way in which subordinate managers protect themselves against budget pressure and negotiate highly achievable targets (Merchant & van der Stede, 2007, p.185).
In addition to the mentioned intentional manipulation, i.e. forms of dysfunctional behaviour, Albrecht et al. (2008, p.187) specify certain unintentional mistakes, like errors and ‘disagreement in judgments’. Errors are unintentional mistakes that can enter in the accounting system at the transaction and journal entry stage or when journal entries are posted to accounts; thus these mistakes are errors in accounts and ledgers. Rajasekaran & Lalitha (2011, p.170) have made a distinction between errors of principle and clerical errors. Errors of principle are defined as transactions that are not recorded against the fundamental principles of accounting, like International Financial Reporting Standards (IFRS)/Dutch Generally Accepted Accounting Principles (GAAP). Clerical errors are divided into two kind of errors; omission and commission. Errors of omission are described as a transaction that is omitted for recording in the books of accounts. Errors of commission are described as an entry which is incorrectly posted. In practice, it can be quite obvious that information is incorrectly posted, but persons involved might also hold different opinions about how information should be classified or reported. Albrecht et al. (2008, p.187) called the latter ‘disagreements in judgments’.
holders. The development of SAP enables the processing of accounting information everywhere in the organization. Due to this change, employees have more ownership over information (whilst accountants were losing control over the quality of accounting information). In cases in which a system such as SAP is used, employees, i.e. budget holders, (i) need accounting knowledge to manage their own costs and budgets, (ii) have to learn how to work with SAP and (iii) have to cooperate and communicate with the accountants (Scapens & Jazayeri, 2003, pp.227-228). Generally, as mentioned by Cappelli & Rogovsky (1994, p.211), an up skilling of production employees occurs in such cases.
Shortly, when one or more of the elements like accounting knowledge, knowledge about the SAP system and the cooperation and communication are missing, errors of omission or commission as well as disagreements in judgments can easily occur in the accounting information.
2.5Consequences of misrepresentation of accounting information and possible solutions
This section will give a short overview of the consequences of the just called errors, which reduce the quality of accounting information. Moreover, an extensive outline of the possible solutions, to overcome the consequences and prevent or reduce the misrepresentation, will be given.
Gordon & Miller (1967, p.59), as well as Christensen (2010, p.1827), mentioned that accounting information can guide effective decision making within organizations. It is important to address accounting errors, also called unintended mistakes, because the errors reduce the usefulness of accounting information for decision making (Christensen, 2010, p.1828). In this context, it is important to mention the consequences of, on the one hand, intentional misrepresentation (such as frauds) and on the other hand unintentional mistakes (errors). Whereas there is a lot of literature about the consequences of frauds, in particular, there is less information about the consequences of errors in accounting information.
Apart from the just mentioned possibility of reduced usefulness of accounting information, the financial errors can affect the performance evaluation of employees. As mentioned earlier, the trend towards decentralization results in responsibility accounting, in which a budget holder is responsible for the actual costs in comparison to the budget. When a manager relies heavily on the accounting information and does not take uncontrollable factors into account, subordinates might be more inclined to manipulate the figures (Briers & Hirst, 1990, p.375). Additionally, when errors occur in the accounting information, the employees are evaluated on the wrong base; this can work out both positively and negatively for them (Kren, 1997, p.27).
the consequences of misrepresentation are often large, organizations try to ensure that the monitoring policies as well as management control systems are designed well to overcome the consequences of frauds (The chartered accountant, 2002, p.510). In addition, intentional misrepresentation and unintentional misrepresentation can have large consequences for both decision making and the organization more in general. Consequently, it is important to design proper MCSs and internal control systems to overcome or prevent certain negative consequences.
According to Abernethy & Chua (1996, p.573), the misrepresentation of financial statements can be prevented or reduced by well designed MCSs, which increase the probability that organizational employees act in a way consistent with the organizational goals. DeFond & Jiambalvo (1991, p.646) say that the presence of effective internal control systems reduces the intentional as well as the unintentional errors in accounting information. Effective internal control systems will prevent, detect or correct errors before the financial statements are released (DeFond & Jiambalvo, 1991, p.646). Just like DeFond & Jiambalvo, Merchant & van der Stede (2007, p.80) describe that action control can serve to prevent or detect undesirable behaviour. There are several forms of action control, e.g. behavioural constraints, action accountability and redundancy.
Behavioural constraints can both be physical and administrative constraints. Physical constraints can be described as some technical devices, such as limits on access or some fields in an administrative system that have to be filled in by employees mandatory. Administrative constraints consist of the restriction of decision making and the separation of duties. Action accountability involves holding employees accountable for the actions they take. This form of control consist of (i) defining what actions are acceptable or unacceptable; (ii) communicating those definitions to employees; (iii) observing or otherwise tracking what happens and (iv) rewarding good actions or punishing actions that deviate from the acceptable (Merchant & van der Stede, 2007, p.78). Redundancy involves assigning more employees to a task than strictly speaking should be necessary. This is done in order to increase the probability that a task will be performed satisfactorily (Merchant & van der Stede, 2007, p.79). These three forms of action control address control problems such as a lack of direction, motivational problems and personal limitations. Therefore, these forms of control can be used to prevent certain errors or fraud. Physical constraints, as systems controls, described by Xu et al. (2003, p.465) are not always sufficient to prevent errors; the systems are operated by employees who always can make mistakes. Therefore, it is important to invest in the employees; if employees have to perform certain accounting tasks organizations also have to provide them with the necessary knowledge and information about accounting. Lack of education and training will have an adverse effect on the quality of accounting information. Such needs point to the relevance of personnel control, which consists of several forms of control: selection and placement of employees, training and job design and the provision of necessary resources (Merchant & van der Stede, 2007, pp.83-84).
their key internal control elements are mentioned. According to this model, the most relevant elements for the explanation of errors or frauds are personnel, segregation of duties, processes, policy and documentation. The key element ‘personnel’ as it is described by COSO, is closely related to the concept of personnel control as described by Merchant & van der Stede (2007, pp.83-84). In the COSO model this element consists of “insufficient personnel with appropriate qualifications and training in accounting, finance or information systems and lack of adequate personnel to effectively perform supervision or review”. The element of processes and policy in the COSO model consists of the lack of an appropriate policy for financial reporting or specific accounts, or insufficient monitoring of appropriate methods or assumptions. Finally, the element documentation consists of insufficient, inappropriate documentation with respect to the policies, procedures and data entries (Brown et al., 2009, p.20). Xu et al. (2003, p.467) mention that simple, relevant and consistent data quality policies and standards, as well as an organizational culture on focusing on data quality, will decrease the amount of errors or frauds.
To conclude, both intentional and unintentional misrepresentation have consequences for organizations as well as their employees. To prevent this intentional and unintentional misrepresentation the effectiveness of the internal control systems has to be increased. The effectiveness can be increased by providing employees at lower levels in the organization who have no financial background, with the right knowledge, information, procedures and policies, and by performing the right supervision. The possibility of errors in accounting information is increased by the fact that nowadays more employees with a non-financial background have to perform certain administrative tasks, like processing orders and costs, and the management of cost items.
2.6Summary and points of attention from the review of literature
the so-called static to more flexible budgets. In the manufacturing industry there is a trend towards the so-called WCM, in which responsibilities and authorities are delegated towards lower levels in the organization. The activities and processes in the MAS are also processed then at lower levels of the organization. According to Kaplan et al. (1998), these processes can lead to, e.g., manipulation and errors and thereby influence the quality of accounting information.
The review of literature gives also insight into the extent to which the delegation of responsibilities and budget participation can influence the MAS of an organization and the quality of accounting information this system produces, as well as the reasons for that. That is the role of accountants has changed, i.e., the accountant becoming more dependent on people in the production departments for the provision of cost data. Line managers may now act as a kind of ‘hybrid controllers’. These ‘hybrid controllers’, who originally had no financial background, perform various administrative tasks, like processing orders and costs, and the management of cost items. ERP systems contribute to the accessibility and availability of information to subordinate line managers. The administrative tasks performed by the subordinate managers, also called processes within a MAS, can both unintentionally as well as intentionally lead to manipulation of information. Untentional errors, e.g. errors of omission, errors of commission and disagreement of judgment, often occur as a result of a lack of accounting knowledge or cooperation and communication with the accountant. Intentional errors, e.g. dysfunctional behaviour and budgetary slack, often occur as a response to a feeling of budget pressure, or when employees try to ensure a budget target that is highly achievable.
Finally, the literature that depicts the consequences of errors in accounting information, and the possible solutions to reduce errors is of help to give direction to the empirical research and this also provide helpful information to answer the research question. The quality of accounting information can be retained or improved by proper MCSs. Both action control (e.g. behavioural constraints, action accountability and redundancy) and personnel control (e.g. selection and placement of employees, training and job design and the provisions of necessary resources), can be necessary to overcome unintentional and intentional errors.
Based on the review of literature and the relationships between aspects of the organization sketched above, these points might be of interest when conducting research in an organization which has decentralized several accounting responsibilities to low levels in the organization.
The various issues discussed in the literature -and mentioned above- can be regarded as useful building blocks for the empirical research. These issues draw the attention to certain elements of and practices in the case organization that might deserve attention; and in that they give guidance to the empirical research in the case organization.
3. Research design
3.1Empirical research
To provide insight into the relation between decentralization and the quality of cost information, the basis for this study is a review of literature and empirical research conducted at SCA/UcM Hoogezand. Based on the previously presented review of literature the interview questions for this research project were formulated. In this section the design of the empirical research will be outlined and in the next section a more detailed description of SCA, particularly SCA/UcM Hoogezand, will be given.
Flynn et al. (1990, p.250) as well as Malmi & Granlund (2009, p.598) describe the need to fill the gap between theory and practice. Baldvinsdottir et al. (2010) also under line the importance of a clear link between research and practice, i.e. practical relevance of research. Accordingly, more research on data from the real world seems to be needed. As Malmi & Grunland (2009, p.609) stated, “let us build theories which are useful in accounting practice”.
This research falls mainly in the category of theory building, whilst it is also a descriptive and explanatory study (see Flynn et al., 2009, p.250; Blumberg et al., 2008, p.10). First, as mentioned already in the introduction, there is little research done on the relation between decentralization and quality of cost information. Therefore, this research has to be based on different types of data; such as previous literature, an analysis of the MAS of the case organization and the way it is used, ad hoc collection of cost information and an analysis of the various data to build a theoretical framework (Flynn, et al., 1990, p.253). Second, this research can be described as a descriptive and explanatory research. On the one hand it describes the relation between decentralization and the quality of cost information and on the other hand it tries to explain the reasons why the phenomenon of errors occurs.
descriptive case study and explanatory case study (Scapens, 2004, p.25). A descriptive case study describes the accounting systems, techniques and procedures used in practice, whereas an explanatory case study tries to explain the reasons for the observed problems within SCA/UcM Hoogezand. In short, case studies can provide a deep and rich understanding of the accounting practices within their organizational, economic and social contexts (in this thesis within SCA/UcM Hoogezand) (Scapens, 2004, p.26). However, case studies also have limitations. One of the major limitations is time; sometimes the researcher requires more time to employ an in-depth investigation. Furthermore, there is a lot of criticism on case study research. Flyvjberg (2006, p.219), mentioned in his article that people often say that case study research is subjective, giving too much scope for the researcher’s own interpretations. Secondly, people often argue that single or multiple case studies are not easy to generalize. Despite such limitations, a single case study provides the researcher with insights in the specific problem and it will provide possibilities and new avenues for future research (Anthony & Otley, 2004, p.24).
One of the features of a case study is the use of multiple information sources. Consequently, this is also a characteristic of this research. First, SAP, the enterprise resource system (ERP system), is used to analyze the errors in the system and the process by which budget holders have to enter figures. Furthermore, data about the information provision to employees is analyzed. The information provided to employees could be relevant because it will provide insight into the MCS, e.g. personnel control, used in SCA/UcM Hoogezand. Finally, semi-structured interviews were conducted with budget holders, unit managers, employees of the department controlling and accounting and the Shared Service Center Zeist. These interviewees were selected because they can provide relevant information about the developments on decentralization, the effect of these developments on the MCS and MAS, especially the budgeting process, and the processes related to the data entry.
Semi-structured interviews were chosen for two reasons. First, semi-structured interviews were held to offer sufficient flexibility for the interviewee and the interviewer for questioning as well as answering. Second, giving a clear structure to the interviews is important to be sure that the answers of the interviewees cover the needed areas of data collection relevant to answer the research question (Noor, 2008, p.1604).
clear exposition and to overcome reflexivity, after an interview the minutes were sent to the interviewee. In this way the interviewees had the opportunity to verify the answers and provide them with comments. Moreover, the interview questions are enclosed in this report to increase repeatability and the reliability of the research. Finally, to be sure that the all information is presented in a proper way (free from ‘technical’ mistakes), a draft version of this report was sent to the plant controller of SCA/UcM Hoogezand.
3.2Svenska Cullulosa Aktiebologat group (SCA)
Svenska Cellulosa Aktiebolaget group (SCA group) is a global hygiene and paper company that develops, produces and markets personal care products, tissue, packaging, publication papers and solid-wood products. SCA is established in Sweden in 1849, at that time it was called Mölnlycke. Mölnlycke was established as a textile factory, since the 20th century it began to focus on medical products. Hence, this was the beginning of the Health Care division. Since 1950, Mölnlycke started with the production of Hygiene products, i.e. towels and diapers. In 1975 Mölnlycke merged with SCA, which was a part of the Swedish SCA group. SCA was a paper factory which particularly produces pulp. Pulp is the main material for paper as well as towels and diapers (Bunt, 2003, p.9). Consequently, SCA started to grow and on this moment SCA operates in about 100 countries all over the world and employs about 45.000 employees.
SCA’s main goal is to sustainably develop, produce and market increasingly value-added products and services within the business areas. SCA intends to offers products that make everyday life for people considerably easier. Additionally, SCA tries to increase its market share by distinguishing itself from competitors and develop products which exactly fit the needs of its customers. The SCA group consists of four business areas: Packaging, Forest products, Tissue and Personal Care. This research focuses on SCA/UcM Hoogezand, which is a part of the division Personal Care, which mainly produces incontinence material, like lady towels and baby diapers. SCA/UcM consists of three separate production-units: UcM Inco, UcM Baby and Tena Lady, and employs about 550 employees. UcM Inco and UcM Baby are a partnership between SCA and the Japanese Unicharm. UcM Inco is responsible for the production of heavy incontinence products,UcM Baby provides pants diapers Libero Up & Go and Tena Lady is manufacturing the light and medium incontinence care products. In addition to the production-units there are two supporting groups; Technical Support and Logistics. Furthermore, there are four staff departments, i.e. HR, ICT, Qresh, Controlling and the Executive Secretary (SCA Personal Care, 2011). This master thesis will be employed at the department Controlling.
the value creation of SCA. The rationale behind this delegation is the creation of some ownership low in the organization, which is also supported by another core element in SCA, namely Team Based Work System (TBWS).
SCA is working with TBWS since 1993. TBWS can be described as a process in which employees are fully responsible for their machines and the production process at this machine. Furthermore, the employees are responsible for improvements, maintenance, quality control and safety. By TBWS, SCA/UcM Hoogezand wants to create a culture in which employees behave in line with the organization’s goals and create some creativity to support the value creation. Moreover, by passing responsibility to employees low in the organization commitment and motivation will be created. As already mentioned in the introduction, one of the elements of TBWS is that some employees are appointed as ‘budget holders’. Due to the process of the delegation of some accounting tasks to lower levels in the organization, the management of SCA/UcM Hoogezand observed that the company faces some problems. These problems are the questionable figures in the accounts and, as a consequence, in the income statement. Therefore, delegation of tasks will not always benefit the organization and questions arise how many costs are questionable and whether this is only due to the delegation of tasks to employees lower in the organization, or also to the wrong arrangement or improper functioning of the MAS. In relation to this management problem, it is interesting to investigate the relation between decentralization and cost information. In order to analyze these problems and find possible solutions to these problems, empirical research is conducted in the organization. The empirical findings and an analysis of these findings are shown in the next chapter.
4. Empirical findings
4.1MCSs and MAS within SCA/UcM Hoogezand
In this chapter the findings from the interviews as well as the documents analyzed will be described. This first section will give an outline of the MCSs and the MAS used within SCA/UcM Hoogezand. Firstly, a general overview of the MCSs used within SCA/UcM Hoogezand will be given in this section. Secondly, a short description of the used MAS is given. Finally, the MCSs already used within SCA/UcM Hoogezand to maintain the quality of accounting information are described.
Within SCA/UcM Hoogezand there is a clear definition of Management Control Reporting System (MCRS). Within one of the documents (Workshop OE-MCRS Principles, 2011) a MCRS is defined as “a closed-loop system, comprising of information, documents and meetings, which is used to steer our business processes to meet our long and short time goals”. This definition is closely related to the definitions of Abernethy and Chua (1996, p.573) and Chenhall (2003, p.129), who describe MCSs as systems/practices to achieve some goal.
Aligned with the so-called MCRS within SCA/UcM Hoogezand are the basic operational key performance indicators (kpi’s), result orientation, data collection, roles and responsibilities and the visual factory (communication about how things should be done). Central in the MCSs within SCA/UcM Hoogezand is the MCRS structure, which is a meeting and review structure. Several employees of SCA/UcM Hoogezand mentioned in the interviews that this meeting and review structure is important and provides the basis to manage and control the organization. One interviewee defines the MCRS structure as “an annual plan which will be more specifically outlined on a weekly, monthly and quarterly level and which is drilled down through all levels of the organization”.
accountabilities for performance and identify possible causes and issues which affected performance. One of the managers stated “it is important to create some cost/result awareness, to ensure this awareness I use a kind of kpi dashboard. By this dashboard employees can easily see the actual performance in comparison to the planned performance, i.e., in the area of illness, overwork, wages and maintenance costs”. In the whole MCRS structure there is a constant focus on kpi’s and the Plan, Do, Check and Act cycle.
Additionally, the administrative control systems mentioned by Malmi & Brown, 2007 (p.292) are visible through the organizational design and structure of SCA/UcM Hoogezand. The structure of SCA/UcM Hoogezand can be typified as a structure which is strongly based on TBWS. The organizational structure and the influence of structure on MCSs will be outlined within section 4.2. Moreover, SCA/UcM Hoogezand uses ISO documentation, in which job descriptions and task descriptions are available. Furthermore, training, global performance review, code of conduct and authorization schemes are used to specify roles, responsibilities and the way in which tasks have to be performed or not performed. The global performance review specifies individual goals and team goals, assesses progress towards these goals and develops an individual development plan. The authorization chart specifies the lines of authority in different areas, e.g. separation of duties/decisions due to the ‘four-eyes principle’ and access to records/data in the system. Most of the documentation concerning administrative controls is available on the intranet to which all employees have access. However, some interviewees mentioned that the ISO documentation is not generally known within the organization. Moreover, one manager addresses that rigid procedures do not fit with the culture of SCA/UcM Hoogezand, because the culture is characterized by a high degree of trust in people. Additionally, an interviewee that “within SCA/UcM Hoogezand there is a culture of responsivity, in which the employees address each others behaviour”. In addition to the documents, the MCRS structure and the usage of budgets within SCA/UcM Hoogezand clarify the authorities as well as roles and responsibilities; e.g. the kpi’s and budgets which are used to report on the performances and variances creates some ownership and thereby some responsibilities. Most important in the MCRS structure is the budgetary control, which will be described in section 4.3.
Finally, the core values, i.e. excellence, respect and responsibility, are central within SCA/UcM Hoogezand. The core values fall within the category of cultural control systems described by Malmi & Brown (2007, p.294). Every employee receives training about the core values. Furthermore, the just called responsivity as well as trust are typical within the culture of SCA/UcM Hoogezand.
(2007, p.11), the MAS within SCA/UcM Hoogezand provides the information that is used for decision making. One of the documents within SCA/UcM Hoogezand says that “systems are used to evaluate or measure the output or effectiveness of a process and to provide information with which to make decisions”. One of the managers mentioned “in general we use SAP as one of the systems to follow-up our budgets. Additionally, we use Excel for the reason that SAP does not enable us to signal trends and therefore is not sufficient to control the whole organization”. Other employees mentioned PLAIN, SAP, SAP PR and some subsystems like RUPS and MAP XR as important elements of the MAS. This thesis will focus on PLAIN, SAP and SAP PR, which play an important role within the control of non-financial and non-financial kpi’s and through that in the control of costs at all levels in the organization. The PLAIN system is mainly designed for people working in the production. PLAIN collects data automatically from the machines in which data can be gross-, net- and waste counters, stops and stop reasons, process parameters, consumption of raw materials, quality data etc. This data is presented in graphs and reports, which are used for analysis, statistics and as a basis for production control (Lindroth, 2001, p.4).Additionally, interviewees stated that “PLAIN is a system in which the results, generally on non-financial kpi’s, like waste, efficiency, production and stops can be followed”. SAP is already introduced in section 2.2 and is generally used within SCA/UcM Hoogezand as a budget control system. SAP PR is an application within SAP by which employees at all levels of the organization can prepare an order. As introduced by Kaplan et al. (2003, p.3), processes, like the preparation of orders, can create errors and thereby might decrease the quality of accounting information. Several interviewees indicated, that the different MCSs used within SCA/UcM Hoogezand have to prevent or reduce possible errors.
As described in the review of literature, the MCSs and MAS can change as a consequence of changes in organizational structure. In the next section, the organizational structure of SCA/UcM Hoogezand and the influence on the MCSs and MAS will be sketched.
4.2The structure of SCA/UcM Hoogezand
One of the employees stated “the activities used to control and manage the organizations are in my opinion a result from the organizational structure within SCA/UcM Hoogezand. In which our structure is typically based on TBWS”. SCA/UcM Hoogezand has changed in line with the contention of Arwadi & Samuelson (1993, p.100) and Sisaye (2005, p.52), who mention that there is a trend towards decentralization, flatter organizational structures and TBWS. One of the employees stated “SCA/UcM Hoogezand is a flat organization and has little organizational levels. However, it contains specialized functions and nowadays is working with a lot of multi-tasking teams”. The structure of SCA/UcM Hoogezand has changed, as several employees stated. The biggest change in the organizational structure was in the 1990s. In 1992, SCA/UcM Hoogezand has changed as a result of the low efficiency as well as the bad organizational structure. Before 1992, the plant manager did not have financial accountability, the department managers used their own reporting methods and were not accountable to the plant manager. In those days the departments operated more separately and the managers of these departments were directly accountable to Sweden. To prevent SCA/UcM Hoogezand from a closure, the management decided to change from a factory-in-factory model (in which the three factories had their own goals and reporting methods) to a unitary leadership and introduced TBWS to take advantage of the enormous skills among employees. As described in section 3.2, TBWS can be described as a process in which employees are fully responsible for their machines and the production process at this machine. Furthermore, the employees are responsible for improvements, i.e., maintenance, quality control and safety. The idea is that, by passing responsibility to employees low in the organization, commitment and motivation will be created. In line with this description one of the managers stated that “since the implementation of TBWS, a lot of issues are regulated at lower levels in the organization; the authorities are delegated until the machine”.
the Daily Operating Meeting (within SCA/UcM Hoogezand, called DOM). This Daily Operating Meeting, a meeting between the operators, mechanic operators, machine coach and RST, is part of the earlier described MCRS structure. In the Daily Operating Meeting, the non-financial kpi’s are directly managed by the team, i.e., a short analysis is given and if necessary actions are taken to improve the non-financial kpi’s.
In addition to the non-financial kpi’s, the financial kpi’s are also delegated but to a less low level. As many interviewees stated “the cost control is delegated in a descending order, the unit manager has a budget responsibility and delegated this budget to the machine coaches and members of the RST team, in which a member of the RST team is responsible for the maintenance costs”. Consequently, it can be concluded that SCA/UcM Hoogezand has largely decentralized activities in the area of production as well as in the management of costs, which is also mentioned by Jazayeri & Hopper (1999, pp.1-6).
In line with the WCM mentioned by Lind (2001), SCA/UcM Hoogezand has due to the TBWS structure changed ‘from top-down control to bottom up control’ to a considerable extent. Furthermore, SCA/UcM is characterized by a high degree of decentralization and few organizational levels. SCA/UcM Hoogezand consists of a plant manager, three unit managers, a plant support manager, and the machine coaches and teams. Further, interviewees mentioned that the rewards are generally based on group performance. When SCA/UcM Hoogezand performs in line with the year budget it can receive an ‘all-employee bonus’. Finally, the activities, usually at the machine, are combined to complex tasks which are managed by the teams. However, SCA/UcM Hoogezand is not in line with all the aspects of WCM as one interviewee stated that “the tasks are largely decentralized but we have certain specialized functions in our RST teams and several specialized staff departments”.
4.3Delegated budgetary control and processes within SCA/UcM Hoogezand
As just mentioned budgetary control is really important within SCA/UcM Hoogezand. In this section the characteristics of the budgetary control and processes within SCA/UcM Hoogezand will be outlined as well as the reasons why employees within SCA/UcM Hoogezand can be seen as kind of ‘hybrid controllers’.
SCA/UcM Hoogezand is a manufacturing company and it can be perceived as a responsibility center, more in particularly as a cost center. In line with the earlier mentioned goal of SCA/UcM Hoogezand, every unit is responsible for its costs in comparison to the budget. Within the units, as stated earlier, the budgets are delegated towards lower levels in the organization, more specifically towards one of the members of the Resource Support Team (RST). This is in line with the definition of responsibility cost control mentioned by Lin & Yu (2002, p.460) as well as the trend towards decentralized budgets mentioned by Arwadi & Samuelson (1993, p.102). More interviewees stated “budget control within SCA/UcM Hoogezand consists of comparing the actual costs with the year budget, discussing these results and if necessary making a plan and preparing some actions to decrease the costs. Furthermore, the performance in comparison with the budget is discussed in the Monthly Operating Meeting (MOM), also called UMTR, in which the machine coach discusses the actual costs with the unit manager”. The plans and actions to decrease the costs can be employed at all levels in the organization and are led by the direct line manager.
In addition to the just mentioned budgetary control, employees at all levels in the organization can also employ certain administrative processes which underlie the budgets. In this context, the most common process within SCA/UcM Hoogezand is ordering goods. Several interviewees mention SAP PR in this context. SAP PR is an application in which all employees at all levels in the organization can order goods, which is also called a ‘Purchase Requisition (PR)’. Within this PR, employees have to fill out a cost section and a general ledger account (G/L account). Within SCA/UcM Hoogezand the costs sections (budgets) are mainly used for the internal control of the organization. The G/L accounts are general ledger accounts; these G/L accounts are related to one main cost type and are directly related to (and for that reason directly influence) the income statement. Therefore, the G/L accounts are more important in relation to external control by stakeholders. As mentioned by one of the purchasers within SCA/UcM Hoogezand “everyone in the organization can make a PR, when the PR is sent to the budget holder the budget holder has to release it. After the PR is released we create a Purchase Order (PO) for our external supplier”. Consequently, everyone in the organization has to fill out a cost section as well a G/L account on the commission to order goods and thereby can influence the quality of accounting information in two ways, i.e. by filling out the wrong G/L account and by filling out the wrong cost section.
The budgetary control within SCA/UcM Hoogezand as well as the creation of a PR indicate that employees with little financial background or a professional background completely different from financial management, perform some controlling tasks. So, the employees who are administratively responsible or perform certain administrative tasks within SCA/UcM Hoogezand can be regarded as a kind of ‘hybrid controllers’ for several reasons (as mentioned by Kurunmaki, 2004, p.330; Ter Bogt & Van Helden, 2007, p.121). First, all employees within SCA/UcM Hoogezand can order goods, whereby they can influence their budgets as well as the income statement, i.e. by fill out the cost section and G/L account.
Second, budget holders, instead of the controllers, are owners of their budgets and have to follow-up their budgets within SAP. As one of the employees stated “we have to follow-up our budgets, i.e. look at the costs in comparison with the goods or services ordered and control if the costs are on the right cost section. If necessary we have to take some corrective actions to stay in line with the budget or we have to communicate with the controlling department to reverse some costs which are entered into the wrong cost section”. Moreover, the controllers mention that the budget holders are responsible for their own budgets; the controllers only take a closer look when they see strange trends. Furthermore, they mention that it is not feasible for them to control all the budgets. Apart from the cost sections, the controllers as well as several employees indicate that there is no internal focus on G/L accounts and that a lot of people do not even know what the G/L accounts are.
non-financial kpi’s, however, some departments also focus on some financial kpi’s. As one of the interviewees stated “in our weekly operating meeting we focus on non-financial kpi’s, however, at this moment we also take a closer look at our maintenance budget”. Within the Monthly Operating Meeting the budgets are central, in this meeting one of the employees of the controlling department analyses the budgets together with the main budget holder and machine coach. However, as stated by several employees, it is the responsibility of the budget holders to stay in line with the month budget and the related year budget.
So, all in all, employees within SCA/UcM Hoogezand can be called kind of ‘hybrid controllers’; They have to order goods by themselves by which they can directly influence the cost sections and G/L accounts. Moreover, they continuously have to analyse the costs per machine and unit and if necessary they have to take some corrective actions. Nevertheless, some interviewees indicated that some employees do not have yet sufficient knowledge in the area of costs to relate the operations and tasks to costs and to continuously keep the focus on costs. As one of the employees mentioned “some of the employees are interested in the costs and the linkages with their tasks, the process of PR and their budgets, other people do not see these linkages yet”. In the next section the effects of the budgetary processes within SCA/UcM Hoogezand and the tasks of the ‘hybrid controllers’ on the quality of accounting information will be discussed.
4.4The quality of accounting information within SCA/UcM Hoogezand
As Kaplan et al. (1998) indicate certain elements of processes that relate to accounting, i.e. a PR, can affect the quality of accounting information. As mentioned in the review of literature, budget holders can influence the accounting information both intentionally and unintentionally. In this section the processes related to budgetary control are discussed, as well as the possible errors that can occur within the cost sections and G/L accounts, and the consequences and suggested solutions to prevent these errors.
