The Environment

Accounting is something that every business must do regardless of size or complexity.  It
has traditionally been an endeavor which has received little attention because, although it is a core necessity, it just isn’t as exciting as other business endeavors.  

But things have changed and, if you ask any business owner, not for the better.   Businesses everywhere are feeling the pinch when it comes to attaining a strong accounting and governance capability.  It’s easy to see why when you think about it:  the Sarbanes-Oxley Act of 2002 drastically increased the demand for accountants at precisely the same time the supply declined as many State Boards of Public Accountancy increased the requirements to sit for and pass the Uniform CPA Examination.  According to the publication Issues in Accounting Education (August, 2002), the number of accounting graduates “has declined sharply following the near universal adoption of the 150-hour requirement for licensing and as a condition for membership in the American Institute of Certified Public Accountants (AICPA)”.   

The reason that it is more difficult to become an accountant these days is because the accounting world is more complex.  The accounting literature is not only more voluminous, it addresses complex issues that were unheard of back then.  Economics 101 would tell you that the cost for accountants would skyrocket in such a situation.  And they have.

Now, gas prices have made things worse.   Many professionals, having moved to the suburbs in the last twenty years, are having to pay very large portions of their incomes as gasoline bills simply to commute back and forth to work.  In 2000, figuring in the cost of gasoline for commuting was just not done.   Now it is a major criterion since many commuters pay $500 to $1,000 a month for one worker to commute.  If a two-wage earner family is subject to those pressures, the cost of getting back and forth to work exceeds the food bill and the healthcare bill.  In many circumstances it is, or will be,  the single largest expenditure in the family budget.

Description of Our Firm

Newton Collaborations mission is to bring world-class accounting and corporate governance to small and medium-sized businesses at an affordable price by bringing technical knowledge to these companies utilizing collaborative technologies over the internet.  We are a virtual accounting company.

How We Operate

We consider there to be two general levels of accountants:  staff and oversight.  Staff members are those with a recent accounting degree or perhaps years of bookkeeping experience and who have a good work ethic, but are not CPAs, and are not trained in the more complex arts of accounting.   Those arts require years of experience and training and include things like designing an accounting system, implementing a proper system of internal controls, imposing proper corporate governance over the functioning entity, monitoring the accounting functions and preparing quality reports for publication with the Securities and Exchange Commission.

The type of tasks are performed by people with the requisite experience and training and they are generally CPAs or others with a high-level of skill and training.  It is helpful to think of this arrangement as between those who process the transactions according to the rules and procedures (the staff), and those who establish, maintain, oversee and evaluate the rules and procedures (the oversight staff). 

This split between the staff and the oversight personnel is nothing new.  It is the way things have been done for centuries.   We don’t change what they do, only the way the do it.

Staff Personnel and Transaction Processing

Transactions such as accounts payable, sales invoicing, payroll, capital stock ledgers and any other customized transaction processing model are accomplished by staff members.  Staff members also electronically file the appropriate documentation for subsequent review or audit, and generally follow the directions of the overseers.  However, depending on the client’s needs and budget, we can place the staff at their site (and be a full-time seconded employee there) or the staff member can reside at our office.

The Virtual Controller and other Oversight Personnel

Many small and medium-sized organizations (and, to be honest, big ones too) maintain a very poor accounting and corporate governance infrastructure.  The main reasons for this are:

• Lack of oversight of the overseer -  Most non-accounting managers do not understand accounting detail and prefer to let whatever happens in the accounting department stay in the accounting department – until something disastrous happens.
• Lack of the light of day – personnel inside organizations are not typically outward looking.  In their professional lives, they do not often get the opportunity to see a well run organization and a poorly run one, and evaluate what makes a good one.  So they just keep doing what they are doing.
• High turnover – most companies just let the existing Controller figure out what to do and how to do it.  If that person leaves the employ of the company, the predecessor often does not follow the existing methodology, but makes up his or her own, leading to a lack of consistency and understanding.

Our oversight personnel (the “Virtual Controllers”) are required to document in detail each task, how it is to be done, and who is to do it by what deadline.  They perform the function of the Corporate Controller from  their homes, creating a Virtual Accounting Department.  They monitor the operations of the business remotely every single day using a variety of methods.  They close the books, perform complex calculations necessary in today’s reporting world, and produce SEC-quality financial reports.  But arguably the most valuable service they provide is that they detect problems right when then happen.  Then we can allocate resources to evaluate and correct it before it gets out of hand.

The oversight personnel become the effective supervisor of the staffer with a direct reporting relationship and training of the staff is of paramount importance.

Collaborative Systems We Offer

The staffers, oversight and client personnel may all access our systems via remote connections.  We maintain three core systems which allow the company and client to work together efficiently and to produce high quality at a low price:

• Workflow Management Systems (WMS) – this core system defines all of our clients’ tasks and maintains an integrated database of which tasks are to be performed so that we can have multiple levels of review to ensure that everything gets done on time.  Everyone interacts with this system to document the work performed so that up-to-the-minute statuses of projects and activities can be maintained and monitored.  In this way, we maintain a “virtual accounting ballet” enabling a few number of people to accomplish much more than they could without this organizational tool.
• Accounting ERP systems (ERP) – this is the accounting application that we store on our servers.  Our staffers input daily activities into the accounting system such as vendor invoices, checks, sales invoices, payroll and deposit slips.  We offer Tier III systems and, for clients who require more beefy processing, Tier II systems. 
• Document Management Systems (DMS) – paper documents are stored as images on the servers.  Therefore, any transaction and any document can be viewed by anyone, anywhere, with access.

Collaborative Partnerships

Companies require a wide range of services, not just Controllership.  Certain of these activities we can do, and certain others we cannot, usually because of regulatory restrictions.

• Auditing – we are not allowed to audit the companies for which we perform services because we are not independent from our clients, as defined in the AICPA Code of Ethics.   We therefore have established a relationship with an audit firm in Houston, Texas:  McElravy, Kinchen and Associates to audit those firms which choose to do so.  McElracy, Kinchen and Associates have agreed to be users of our collaborative systems and to audit these firms using our on-line systems, further reducing client accounting costs. 
• Legal – we are not lawyers so we cannot provide legal services.  However, we have partnered with several firms, particularly those with SEC experience, to use our collaborative services to gain easy access to client documents, thus reducing legal fees.