Organisational Context of Management Accounting Essay

Organisational Context of Management Accounting - Essay Example This paper illustrates that the governance framework of Ivy League University is decentralized where the various departments are separately administered and consolidated centrally for the purpose of financial reporting and regulatory requirements. The university receives research grant funds for which it has a fiduciary responsibility. The revenues from grants and contracts constitute 30% of the total operating budget of the University. The consolidated grant activity is reported other university funds because improper management of grant funds increases the risk position of Ivy. The grant activities are strictly assessed by the legal counsel and the internal as well as external auditor. The University’s Central leadership works towards decreasing inconsistencies in grant activities. Ivy has made an effort in business process redesign and system modernization within three functional areas i.e. financial management, administration of grants and contracts, and HR and payroll. Th erefore, in order to create an integrated administrative system, Ivy had introduced ERP that was expected to decrease audit risk and increase fiduciary control. These efforts were driven by the fact that Ivy is a highly leveraged and highest graded financial institution in US and the bond-holders have trusted it with their money. However, the introduction of ERP has also brought along problems of adjustments to a more centralised management accounting system where it was more decentralised previously and followed the legacy commitment accounting. Issues in Management Control & Accountability Major issues that were related to the management control and accountability of Ivy League University are: High Audit Risk: As Ivy was involved with decentralized governance framework in which every department was administered separately in its grant funds and its uses. There was a gap between funds actually used and those reported. The inconsistencies in spending process were quite high. Despite this disadvantage, the commitment accounting was an essential part of the management accounting system at Ivy, removing which from the ERP system presented institutional risk. Management Control: In Ivy, FSS (Faculty and Support Staff) were responsible for the actual expenditure of Principal Investigators (PIs) and the decided budget. The funds that were asked by PIs for project activities are known as commitments (commitment accounting). The negotiation between PIs and administrators to allocate the funds was a result of many subjective factors such as individual temperaments, departmental norms, available time, professional relationships, nature and stage of research. Therefore, the management control over the variations in research expenditure was very low. The ERP financial management was introduced without the feature of commitment accounting which posed problems of faculty’s control over their finances. The problem was that the new management accounting system focussed more on providing information to the Central leadership than the faculty, as expressed by the academic manager. Accountability: The University is responsible for the grants it gets every year for research work. The grant providers have a right to know that their funds are utilized in an efficient manner. The problem of accountability has been associated with the variances in