Shared Service Center

A shared service center is a place within a company where all the tasks related to accounting are carried out. For example: if you have 10 subsidiaries, one service center handles all of their payrolls, customer billings, accounts payable, and so on. This blog will be covering the advantages and downhill of shared service centers.

Advantages

Control issues — The control issues under this are much better. By centralizing accounting, you can impose a really solid set of controls in one place. An audit team is constantly there to recommend changes which are pretty inexpensive because there’s only one accounting system to review. It will turn out to be pretty expensive to have an accounts department for every subsidiary as you will have to make sure that the controls were adequate. Moreover, it is difficult for anyone to engage in fraud in a shared service center because the controls are so efficient and good.

Management Reporting System — Because of the shared service center, the management reporting system is better as all the data can be accessed and stored in one single place. Also, the dashboard system helps maintain better control over the business.

Staff Quality — Another advantage is that the quality of the accounting staff should be higher. It is because the company is saving money by aggregating the accounting operations in one place, so they can spend more money on compensating the accounting staff.

Software Licenses — Instead of paying for multiple software licenses for multiple subsidiaries, why not pay for just one? That one software package might be high-end because it has to handle a lot of transactions and a lot of users, but still is cost

effective.

Inter-company Transactions — Subsidiaries might be buying from each other, so their inter-company transactions have to be backed out of the financial statements. With the help of the shared service center, the software can detect when it is happening and back these transactions out of the financial statements. When subsidiaries are allegedly located in different countries, the software can net out buying and selling between subsidiaries, so there’s less need to incur foreign exchange fees for payments between the subsidiaries.

Cash Management — The shared service center can monitor cash balances at all of the subsidiaries and do the best job of investing it or moving it around to cover any shortfalls within the company.

Closing the books — It’s easier to close the books and issue financial statements. You don’t have to wait around for each subsidiary to close its books, which usually delays the company closing for a long time. Instead, the corporate controller has complete control over the entire accounting process and so can probably release finance in just a few days.

The downside of Shared Service Centers

The main issue is the way the organization is structured and designed. Let’s say that the corporate parent acquired all of these subsidiaries through acquisitions. This means there’s an independent team running each subsidiary, and they like to maintain control over their operations. And that means they don’t want to lose their in-house accounting and finance functions.

So in this way the corporate management team decides whether it’s worthwhile to annoy the subsidiary managers by taking away these functions. Maybe accounts payable and treasury are centralized, and everything else stays local. This outcome is nowhere near as economical, because you still have accountants in every subsidiary, and have to manage them and monitor control systems, and there’s a greater risk of fraud. So the way in which a company was originally brought together plays a large role in whether a shared service center will ever be created.

Each subsidiary has its own way of doing things and having installed shared service center means that same policies and procedures are supposed to be followed throughout the company and that can annoy people.

The management capabilities of the corporate accounting and finance group is another such issue. These people have to be top notch, because they will be operating and advanced accounting system that requires resources and information from every subsidiaries to be processed perfectly every time.Another case is that the shared service center has to operate 24x7, with staff on hand all the time to handle the needs of each subsidiary. It’s quite difficult to hire good accountants who are willing to work second or third shift, so the usual solution is to operate a separate shared service center for a set of time zones. So maybe there’s one center for Asia, another for Europe, another for the Americas, and another for the Pacific.

So in conclusion, shared service center can be a very good idea but it depends on the circumstances and from company to company.