Section H
Accounting
To an actuary, accountancy is exciting!
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1 Looking after the Finances
1.1
Get the right people; see Section D, Mobilization, paragraphs 1.1 to 1.5. This will be one of the smallest groups, possibly only one or two people. With the right person, you can leave them to get on with their job, and they will give you the right information when you ask for it.
1.2
Ensure that the accounting procedures are thorough and conform to the contract and/or letter of ‘intent/instruction’ so that there are no delays in invoicing the owner or in making payments that are due. If you start work on a letter of intent, you do so at your own risk. With an instruction, you can get paid!
1.3
Ensure that any advance funding is invoiced without delay. Since this is the first payment on the project, it may not be a good example of how long it takes for payment.
1.3.1
Issue a normal invoice as soon as possible to discover how long it takes to be paid. Adjust the date for issuing invoices accordingly. For example, if payment is due at the end of each month, you do not issue the invoice then. The invoice should be issued on say, the twentieth of the month (assuming it takes the client ten days to approve and make payment). Performing a net present value (NPV) calculation (see Part V, Section G Financial Appraisal) demonstrates that the project can contribute additional margin to the bottom line. The invoice issue date can always be amended later as the payment process becomes more efficient.
1.4
Review and check each invoice to the owner. Monitor the cash flow, and keep the project in the black. If the project needs to borrow funds, the project will get charged the interest.
1.5
Organize the setting up of banking, foreign currency, loan, or other financial arrangements as required.
1.6
Ensure that the accounts department is aware of all agreements with the owner and third parties.
1.7
Monitor the payment terms of purchase orders for feeding into the cash‐flow forecast.
1.8
Assure the protection of the owner's financial assets and cash‐flow needs. Do not let them call up funds earlier than necessary.
1.9
Try to ensure that the use of soft and/or local currencies is limited to reimbursement of local costs.
1.10
Try to arrange for hard currency commitments to be invoiced and paid for in the same currency. If you spend pounds sterling, get reimbursed in pounds sterling.
1.11
If you have foreign currency loans, fix a project exchange rate and do exchange rate fluctuations as a separate report. Make sure you allocate your purchases correctly. Do not buy, say, insulation from India from a hard currency loan when you have an Indian Rupee loan!
1.12
Check whether you need to buy forward any currency. Talk to the treasury or other department responsible for these matters.
1.13
Verify that any excess cash is invested. Unfortunately, the treasury department is likely to keep any interest rather than crediting the project.
1.14
Review and approve payments, advances, fee retention, currencies, letters of credit, and so on.
1.14.1
Make sure that payments have adequate supporting documentation and that there is evidence that the work was performed. This is particularly important for progress payments.
1.14.2
Have someone who is good at dotting ‘i’s and crossing ‘t’s check the letters of credit – a Belbin Completer Finisher (Part V, Section R Team Roles). Think carefully when selecting ‘partial shipments not allowed.’
2 Bonds
Any bonds issued for the project are likely to have been set up in the tendering stages before the contract is signed. See Part V, Section P Surety Bonds.
2.1
Remember that bonds have a life of their own. They exist separately from the contract under the laws of the client's country, regardless of what is said in the contract. They have different life spans in different countries. They can be cashed by anyone, and they cost money every month that they are not returned to the bank that issued them. Recover them. Treat them seriously.