We all have national stereotypes even in the world of business. The ideal boardroom is sometimes said to have an Italian creative director, a German head of engineering, a French planner, a Belgian or Dutch CEO and a British Finance Director.

In this perspective I will share findings which challenge the way that we see ourselves. PRGX is the leading player in a niche market of recovery audit. For over 30 years we have mined our clients’ data and done what internal and external auditors used to have time to do – we verify the appropriateness of payments controls by examining in detail all transactions which our software indicate as potentially erroneous. As a company we bring in every year around $1 billion in recoveries to our clients. The majority of these come from contract compliance in our retail clients, but across all clients, we pick up four key accounting errors – duplicate payments, credit notes omitted, VAT and currency errors – which form the basis of this perspective. 

We have never published statistics about the comparative efficiencies of Finance Departments across Europe, but we decided that this would be an interesting forum to launch the debate. This article is a point of view backed up by hard data.

So down to the facts. Our evidence from the operational audits of hundreds of companies in the EU shows us that there are three times as many uncorrected accounting errors in the Accounts Payable function in UK companies compared to French or German. The picture gets more anti-stereotypical when we say that the country where we have found the least number of errors is Italy.

So why does the UK top the accounting error league in the payments function?

First some historical background. UK accounting grew up to meet the needs of profit maximisation driven by shareholders, Continental European (“CE”) accounting was destined for profit minimisation, the accounts being mainly destined for the taxman. In the latter regime, people are more cautious always looking to verify every accounting entry so that it can be justified as tax deductible. Here is possibly the starting point of why attention to transactional accuracy is stronger in CE.

In the UK there are more accountants than in CE - over 100,000 Chartered Accountants (ICAEW) compared to 10,000 “Experts Comptables”, the equivalent qualification in France. The reputation of British Finance Directors in some way rests on the sheer numbers in the various accounting bodies and a certain prestige that has always attached to these functions.  This has not always been the case in CE where accounting was seen as a more lowly job. In the UK, the profession has a diversity of people who have used the qualification as a sort of business degree to launch their career. The challenge is when such a person ends up in transactions processing in an Accounts Payable role and lacks the experience or training which can help him to fulfill the specifics of the function.

Despite popular images of Italian disorganisation, Spanish “mañana” or French “bordel”, the CE cultures are, therefore, typically more obsessed with cash controls than the UK. Have you ever walked into a bar in Italy and remarked how you pay the lady at the till, and then order the cup of coffee from the waiter behind the bar? The Accounts Payable function is like that in Italy – very suspicious, full of controls and, as evidenced below, seriously overstaffed.

And this cultural difference is accentuated by the trend in the UK to restructure by removing “non-essential” accounting jobs. When a forced ranking of jobs in a Finance department is done, the humble supplier reconciliation or payments clerk does not fare very well compared to his colleagues in Accounts Receivable, Payroll or Management Accounting. CE companies live with much stricter labour laws and do not so easily downsize.

This all translates into a statistical picture which you can see here from a study we did for one of our clients. Look at the difference – 29,556 invoices per FTE in the UK, compared to 8,500 in France and 2,667 in Italy. These are not unusual - in another Italian company we visited recently there were 55 FTE’s for 300,000 invoices (=5,450 invoices per FTE).

Ratios of AP employees to invoices

In conclusion, in CE there are more people working in AP departments with greater length of service, and with employee stability comes greater internal control.

But there is a cost related to this which the more profit-focused British culture is not prepared to pay.  We sum this up with the following graph.

British Finance Directors do not want to go beyond where the red line meets the blue. This is the underlying reason for restructuring decisions in the last ten years, mostly related to the implementation of more effective ERP systems and electronic transmission and processing of invoices. People in the UK tend to be more laid back and pragmatic about using a 3rd party to recover errors. They want to know if they have made a mistake and are happy to get the cash back. Certain CE cultures are more defensive and do not like to admit errors. This makes the work of recovery more difficult and less remunerative.

The good news for British Finance Directors is that we have tracked the occurrence of accounting errors in the payments cycle over the last 10 years, and the trend is definitely one of improvement as new systems are put in place, and companies become more aware of the risk areas in the process, and how to deal with them.  So we conclude that they are indeed fulfilling their governance and control requirements, and in heaven there will certainly be British Finance Directors, who may be a little surprised to see their Continental European colleagues there as well! For PRGX this means a constant re-invention of our areas of research – we are starting, for example, to apply our techniques to the Public Sector in Europe, where we feel sure that the taxpayer will benefit from our intervention.

But, I reserve the last word for the Scandinavians and Northern part of Europe who tend to put their hands up immediately if they receive a duplicate payment. This is not the case in general in the UK or in the rest of Europe. No Sarbox, processing or external audit can replace good old-fashioned honesty!