What I did in my years as an accountant

by William McGaughey Jr.

I decided to become an accountant while in college. A roommate, Larry Price, who later became a stock broker, was going into accounting. Another influence was Robert S. McNamara, a former President of the Ford Motor Company who became Secretary of Defense in the Kennedy and Johnson administrations. He had an accounting background. I was proud of McNamara’s role in the auto industry - Detroiters were becoming nationally prominent. Politics as we knew it was finished, pundits proclaimed. I believed the theory that a new type of leader, a technocrat who understood organizations and finance, was taking charge of society.

In retrospect, I had a mistaken view of how society worked. I romanticized accounting in supposing that it would give me a superior view of large organizations, their processes and products, and I would naturally rise to the top. Computers were then coming along. I thought if I learned about computers, I would know how to harness this technology to gather information efficiently. I wanted to be close to the operational side of things. I wanted to be a cost accountant rather than the person who prepares financial reports.

So as a person who had a romantic view of Detroit and its industrial heritage, I mistakenly turned my back on finance. No, I did not want to administer the “horse-race” of corporate finance, deciding how profitable a company is so that investors can make their decisions to buy or sell stock. I wanted to do something that would benefit society. Accounting dealt with measurement or assignment of money which is the life blood of any business. I could learn how to relate money to operations or to products so as to see more accurately what was happening financially. That would lead to better management decisions - for instance, the pricing of products - so business would be on a stronger footing.

In hindsight, I was mistaken in most of my youthful decisions. Perhaps my worst mistake was to quit an MBA program at Rutgers so that I could move to Minnesota, become employed at one of that area’s fine companies, and work myself up the ladder by sheer talent and ambition the way it’s done in fairy tales. I also was mistaken in preferring operations rather than the side of finance that deals with the ownership of companies. You make money by buying and selling property more than by running profitable businesses. I came to learn that lesson years later in the rental-property business. I was also mistaken, of course, in glamorizing Robert McNamara, who presided over the debacle in Vietnam.

Ironically, my background in accounting was useful in connection with my interest in the shorter-workweek issue. I learned to pay attention to the sources of information and to understand that sometimes arbitrary decisions can affect totals that are reported. From that perspective, I read government publications that reported statistics on labor - hours, employment, productivity, etc. - and tried to read between the lines to see what was real rather than statistically contrived. I read Monthly Labor Review and Handbook of Labor Statistics and even compiled my own tables. When a union group persuaded Congressman Conyers to introduce a bill amending the Fair Labor Standards Act, I was ready to offer technical support through my writings. Ironically, years later, this interest allowed me to become personally acquainted with former U.S. Senator Eugene McCarthy, Robert McNamara’s political nemesis with respect to the Viet Nam war. McCarthy’s moral judgment proved superior to McNamara’s technocratic vision.

Well, back to my own career in accounting. I spent twenty-four years in that profession. What did I learn? What was the purpose of my jobs? I had five different jobs: (1) budget analyst at the Minnesota Department of Public Welfare (March 1965- April 1966), (2) intern at Alexander Grant & Co, CPAs (June 1972 - October 1972), (3) cost accountant at American Hoist & Derrick Co. (January 1974 - October 1979), (4) controller and office manager at Hudson Products (January 1980 - July 1980), and (5) cost accountant at Metropolitan Transit Commission (October 1980 - May 1996).

In two of my jobs - at the Department of Public Welfare and the Metropolitan Transit Commission, which were both government agencies - I calculated “indirect costs”. The state welfare department administered various welfare programs - it was the time of Johnson’s “Great Society” - and the federal government allowed states to be reimbursed not only for expenditures directly relating to the programs but also certain costs of general administration or overhead that benefitted them. To receive this money, the states needed to have an approved cost-allocation plan which included a method of calculating the indirect costs. That was my principal job as a budget analyst: to calculate the indirect costs so that the state could receive financial reimbursement.

The equipment and methods were more sophisticated when I worked at the Metropolitan Transit Commission (MTC), but my function was basically the same. I administered the cost-allocation plan. I submitted a series of computer runs that would assign overhead costs to the different departments and programs. I also submitted reports to a federal agency in Chicago which approved the method. The overhead costs were in a “9999” function or in departments designated as providing support functions. These costs were reassigned to the direct departments and functions by a three-step allocation process. The 21-digit account numbers where the dollars were originally charged helped the computer decide how to handle and report the costs.

While at the Metropolitan Transit Commission (the public bus system for the Twin Cities), I also produced the cost-center and project reports once the cost allocation was made. Cost centers are departments within the agency such as transportation (the bus operation) or risk management (processing liability claims). Projects are functions performed by the agency - for instance, Metro Mobility, which provides rides for handicapped people. The computer would generate both cost-center and project reports each month (based on dollars assigned to the 21-digit account numbers) and I would deliver the reports to the respective managers. These managers were mainly interested in comparing actual expenses with the budgeted amounts, hopefully coming in under the budget. Otherwise, an explanation might be due upper management.

This was mostly hum-drum accounting work, having minimal effect on operations. It was important, of course, to receive reimbursement for allowable costs from the federal government. It was also interesting to cost-center or project managers to know how they were doing in comparison with the budget. However, my work did not really affect operations so much. After I left my job at the Metropolitan Transit Commission (then Metropolitan Council Transit Operations), I am unclear whether my work was carried on by some other person or whether it was simply eliminated. I was officially let go because of redundancies meant to be eliminated when the MTC was merged with the Metropolitan Council.

Some of my most useful work was done in a cost-accounting capacity with American Hoist & Derrick Co., which built cranes for the construction industry. Cranes are large and complicated products, comprising many parts. In my first job, I had to develop a cost structure for each part. We would get lists of all the smaller parts, including their per-unit costs, and assemble the parts and costs for the larger units. The uppermost level of cost would be the crane itself. These parts and assemblies of parts all had part numbers which could be tracked in inventory. There were codes for receiving and dispersing inventory.

The St. Paul plant of American Hoist and Derrick (where the company headquarters was also located) built some of the larger cranes, except for the truck cranes that were built in Canada. My later work as someone working in the cost-accounting section involved inventory control. Parts were charged into inventory when dispersed to the factory floor from the store room. Costs were taken out of inventory when a crane was finished. I had to go out into the yard to count the finished cranes. I also developed my own paper form to track costs for each crane as the cost of parts were put in or taken out of inventory using storeroom records. To some extent, my original ambition of being able to “see” production in financial terms was being fulfilled in that exercise.

At the Metropolitan Transit Commission, our “product” was bus service put on the street. The individual products were buses delivering service on particular routes at particular times of the day, either on week days or week ends. There was considerable cost variation for bus service under those various conditions because drivers had to be available to handle all assignments and the union contract had certain pay requirements. The challenge, then, was to calculate costs as precisely as possible for each type of service. Service during “peak” hours was higher than for “non-peak” because buses had to be put on the street for short periods of time but drivers needed to be on hand.

I came across a magazine article that showed how costs could be assigned to individual routes; this was my guide for what I wanted to do as the agency’s cost accountant. The key to efficient gathering of information was to relate information available in our financial reporting system to the individual characteristics of the routes. That information was in the so-called “RUCUS” system, used for scheduling purposes. Working with people in the Information Systems department, I learned how to create a Mark IV program that could read the RUCUS system. The high point in my 16-year career at the MTC was when I first got my Mark IV program to work. Then I quickly put together a spread sheet that would differentiate costs by route.

I had basically stolen the time to work on this project from my other work although my immediate supervisor knew what I was doing. However, when the top Finance Department managers found out about it, they instructed me immediately to discontinue work on route-specific costs. Also, the Mark IV software was discontinued. Instead, the agency hired an additional programmer in the Information Systems department to develop a way of retrieving costs from RUCUS. I was put on a committee with several other persons, including consultants from an outside firm, to develop a method of calculating route-specific costs.

Once the method was established, it became part of my job to prepare a Lotus spread sheet that would integrate information about revenue, operating expenses, and numbers of passengers by route. The end product was to calculate the subsidy per passenger - the excess of costs over revenue divided by passengers - which showed the degree to which taxpayers rather than riders were paying for the service. My spread sheet listed the routes from the highest to the lowest subsidies per passenger. When the bus company was facing financial pressures, it proposed to eliminate service on routes requiring the greatest subsidies. Since I was the one compiling this information, I sardonically called myself the “Dr. Kervorkian” of the transit agency.

My accounting jobs were all at a low or medium level of responsibility except for the six months in 1980 when I was controller of Hudson Products in North Hudson, Wisconsin. Then I had responsibility for preparing the monthly financial reports as well as controlling inventory and other functions. It was a relatively stimulating experience for me as an accountant, and I think I handled my responsibility well. Unfortunately, this job lasted only six months. Then orders for the company’s product - giant rolls of clay-coated paper - suddenly stopped. Using a technique I had recently learned, I prepared a break-even analysis which showed that the company would have to cut its fixed costs. In that regard, I was one of several employees who was let go.

There was another employee in the quality-control area who was retained. Eventually, he and several other people bought the company. Months later, he invited me to come back to work at Hudson Products but I was too comfortably situated in a new job by then. This man, however, had a strange tale to tell.

When I was working at Hudson Products, the company was in the process of being sold by its current owners to another man, who brought in his own management team including a consultant. My former colleague told me that this consultant had contacted Hudson Products customers advising them not to place orders for the time being. That was the reason that orders were slow, not lack of demand. When sales plummeted and employees were let go, then the new management could go back to the owners and renegotiate sale of the company on more advantageous terms. I had unwittingly stumbled into a situation of managerial double dealing if what this man had to say was true.

I suspect that many higher-echelon accountants face moral dilemmas. Management hires them to produce or audit financial records. Management has an interest in the results but the accountants are supposed to be independent. The truly significant accounting work is done when companies are bought and sold. Given the preoccupation with quarterly earnings on Wall Street, accountants also have a significant role in deciding whether to charge an expense in the current quarter or to defer it to a future period. Follow the money to its relevant categories - that’s accounting.

As a Minneapolis landlord, I am still faced with the question of whether to charge or capitalize certain maintenance expenses. My decision affects how much tax will be paid in the coming year. Other than preparing my own income-tax returns, I’m mostly out of the accounting business. I seldom look back.

 

See "How I resolved a $129.64 discrepancy".

 

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