All entities, regardless of size, face a tremendous challenge overseeing operations in distant locations.  Each additional location increases the complexity of an operation from a financial reporting and control perspective and from many other perspectives as well, including treasury, tax and human resource.  If your entity has international operations the complexities can grow exponentially as a parent company also has to consider cultural nuances, local practices, legal requirements and language.

In a recent posting, I was responsible for an entity with 50 offices which were located in 17 different countries in Asia including countries that are less familiar even to worldly travelers like Pakistan, Indonesia and Bangledesh.  During my tour, I faced many challenges including Avian Flu, SARS, Terrorism, natural disasters including a Tsunami that killed over 125,000 persons and 2 invasions by the United States in foreign countries.

When monitoring multiple operations, nothing replaces good old-fashioned basic management techniques and tight financial controls.  Some of the controls that I think are most important when overseeing international operations include:

Treasury/cash management – I was of the philosophy that every penny of excess funds should be swept out of local operations to regional or worldwide centers.  This can be accomplished by having entities pay their intercompany invoices and by declaring dividends to their parent.  Many countries levy a withholding tax on dividend payment which is not insignificant.  However, this practice minimizes foreign currency exposure and optimizes working capital efficiency.

 In my experience, entities with the absolute minimum amount of working capital generate more value from their capital expenditures and control headcount numbers much better.

Authorizing cash disbursements (checks and wire transfers) - all outgoing payments should require 2 signers.  For checks this usually means 2 of the senior officers of the operations.  However, you can put limits on check authorities and require a certain indivual be a signer on disbursements of certain value - perhaps a regional CFO or treasurer.  Also, many banks have electronic banking software that allows the approvers of a wire to be in distant locations to maximize control over cash disbursments.

Corporate governance – The Board of all entities should be controlled by representatives of headquarter management – that is, management of the local entity should represent a minority on the board.  However, this alone does not necessary provide ultimate protection as the corporate resolutions that a director must sign in China or Thailand are in local language.

A reliable local attorney that is beholden to the center rather than the entity itself is invaluable and can provide a reliable check and balance in relations to corporate governance.

Banking – Having one preferred vendor in this space can greatly increase efficiency in this area.  It enables regional management to face off against his banking counterpart and monitor banking activity across a wide spectrum of the region.

Advisors – Having quality advisors is especially important for overseas operations.  I don’t know how I would have been able to set up a Korean operation for my a recent employer without a western educated, English speaking Korea lawyer from one of Seoul’s top firms.   This firm helped me navigate the difficult path of setting up a subsidiary of an American entity while dealing with the legal, cultural, language and operational nuances of Korea.

Financial review – An extensive, recurring analytical review of foreign operations should be conducted at least every month.  This review can take the form of a business review meeting or an audit but should be conducted by an individual or individuals that are familiar with the operations and that have significant financial expertise.  Periodically, the review should be exhaustive and should be on a “drill down” basis so that the reviewer can go from statutory accounting results to management results.  The reviewer should prepare a report to management noting any exceptions that were noted.

The reviewer should obtain confidence that account balances are fairly stated in much the same ways that an auditor would.  In my recent experience, auditors are conducting significant compliance related work without much in the way of substantive testing.  I don't think this results in the greatest value - nothing replaces vouching receivables, testing the completeness of liabilities and auditing the bank reconciliations.

In my postings as a senior executive, I can’t tell you how many times people in the capacity of reviewer or auditor would carry out a very specific review or would not thoroughly plan their audit which would significantly reduce the effectiveness of the review.  I thought that the cost of such work (some of which included thousands of dollars of travel costs) was totally wasted.

Make sure that opportunities like the ones noted above are taken advantage of in your company.  If you need the sound advice of a senior financial executive to help you oversea your extended organization, don’t hesitate to call B2B CFO® .

The inclusion of a B2B CFO® partner onto your senior team can give you the financial expertise and strategic insight that you need to maximize the performance of your operation.   Our partners who have over 2500 years of cumulative experience are part of the largest US firm providing services on a part-time basis to closely-held companies with annual revenues of as much as US$75 million.