CFO best practices: lessons from the trenches

Richard Galanti was two weeks shy of his 28th birthday when he left New York City to join a startup retailer named Costco in the state of Washington. He had gotten to know the company while working with them on a Series A financing round as a young investment banker with Donaldson, Lufkin & Jenrette. 

It was 1984, a time when it was not an altogether typical career move for a Stanford MBA with a degree in finance from University of Pennsylvania’s Wharton School to walk away from Wall Street. But he took a chance when the company that was just then opening its first three locations in the Pacific Northwest told him their original CFO was leaving and asked if he’d like to come work for them.

Galanti, now 67, told CFO Dive in an exclusive interview this week that he figured he’d likely be there four years and then return to live “happily ever after” in his hometown of Atlanta. Instead, he is preparing to step down next week after nearly four decades at the finance helm of what turned out to be a retail juggernaut. Costco operates well over 800 warehouses and reported that net income for the 53-week fiscal year ended Sept. 3 rose to $6.29 billion from $5.84 billion in the prior year’s 52-week period. 

Morningstar analyst Noah Rohr, noting that Galanti is known as the company’s “voice” to Wall Street due to the many earnings calls he has presided over, credited him with providing good insight into how the business is performing and added that the company typically doesn’t have one-time adjustments in its earnings that would “blur earnings quality” even if it has long avoided giving investors forward looking guidance. “Galanti and the rest of Costco’s executive team have long focused most of their energy on meticulously running the business — providing an enjoyable shopping experience and offering low prices to its consumers — while trusting that financial results would inevitably follow,” Rohr wrote in an emailed response.

In the wide ranging talk looking back at his career and the company’s business strategy, Galanti repeatedly stressed how fortunate he was to have gotten to play the role he did in the company whose story and “folklore” he appears to cherish. “Whenever I speak to students they say, ‘How did you get where you got?,’” Galanti said. “I say, ‘a lot of hard work, which creates more chances and good luck.’” 

Editor’s note: The following interview has been edited for clarity and brevity. 

CFO Dive: You reportedly got your first taste of the business at your family’s grocery stores. What was that like?  

Richard Galanti: It was more of a grocery store than the big supermarkets we have today. Today, the big ones are 50-60,000 square feet, these were 18 or 20,000. Anyway, I grew up in them, my dad and his three brothers had four stores, two grocery stores and two other retail stores. I along with some of my cousins grew up working in the business, you know, bagging groceries when we were kids, stocking shelves and mopping floors. When I got a little older I got to cut meat. Then of course our summers in college tended to be my dad and my uncle’s mini vacations from the standpoint that we kind of managed the store. But there were four stores and fifteen cousins so I never thought I’d be in retail. 

CFO Dive: You were one of the youngest executives when you started at Costco. Was that hard? 

Richard Galanti: I think having grown up in a grocery store helped. I used to joke that Jim [Sinegal], our founder, liked me not necessarily because of my Wall Street experience or MBA but [because] I grew up in a grocery store and had actually stocked the shelves and cut the meat and mopped the floors. Also, if you think about the first ten or 12 merchants and operators that started Costco starting with the two founders, they were all in their early to mid 40s and most of them came from San Diego, from a company called FedMart. So it wasn’t a startup of a bunch of smart 22 year olds. It was a startup but with people that had been in retail and in big discount and box retail for 20 plus years. Notwithstanding the fact that there were challenges early on in IT and challenges with getting the bills paid, operationally we knew how to run the company. 

CFO Dive: I’m sure you’ve had offers to go elsewhere. Why did you stay so long in the CFO role, which some view as the number two or “wingman” position?

Richard Galanti: Years ago our founder, my boss for the first 28 years, said if I ever wanted to be considered for a role other than the CFO I’d have to go work in operations. Frankly I enjoyed my job, and in a way while there is travel involved in my job, I wasn’t traveling three weeks a month like many people in merchandising and operations have to do. I guess I was a little spoiled in that regard as well. But certainly I had no problem with being number two or three or four in a company that is such a wonderful company with great people. 

CFO Dive:  Did your family play a role in that, not wanting to be on the road all the time?

Richard Galanti: Well, my dad worked six days a week in the store and came home after dinner two or three nights a week so he worked hard but he was in town. I don’t know, maybe that’s part of it. But again, you look back, you say nothing could have been planned. When I think about it, the two founders of Costco went to New York to interview three or four boutique Wall Street firms, fortunately for me they picked DLJ, fortunately for me, I was available to work on it.

CFO Dive: People talk these days in the CFO world about classic CFOs versus strategic CFOs with the classic typically being a CPA. Where do you feel like you fit in there? (Note: Galanti is not a CPA) 

Richard Galanti: I hate to use the word strategic. It sounds a little fancier than I am. I’d probably lean a little more toward classic. Certainly I’m part of the team. Ultimately the merchants and the operators come up with many of the ideas. But nobody has a monopoly on that and over time we all work together. I think the role of the CFO starts with the basics of, [you] learn the traditional functions under the CFO at a sizeable company, the entire accounting function, both all the financial statement preparation plus all the information tools that are used by the people in the company. You’re providing timely, accurate and useful information to the buyers, to the warehouse managers, to the people that run our manufacturing businesses.

CFO Dive: What was the hardest time being CFO for you?

Richard Galanti: I think COVID was up there for a lot of reasons. It impacted everybody personally. It impacted your employees in different ways and it impacted our operations of course. With all the challenges of supply chain and shortages of of containers and shipping and not knowing where the merchandise was and not knowing what impact it would have on our business. In March or April of 2020 we, like many companies, as strong as a balance sheet as we had and still have, we went out and borrowed an additional $4 billion not knowing what that spring, summer or fall would bring.

CFO Dive: It’s been said you’re good at pointing out patterns. Is that one of your strengths?

Richard Galanti: Usually from an investor relations public company standpoint it’s the CEO who is the one on the phone and the CFO is providing more of the financial stuff and the CEO is talking about direction or whatever else. Here, from Jim to Craig [Jelinek] and now Ron [Vachris] generally speaking they’ve said, ‘you go do that, I’m running the company.’ I’ve done it with consistency, transparency and straightforwardness and not over-promising. I’ve always tried to not just regurgitate the numbers but give them trends. While we don’t provide any forward looking statements, we won’t do that, we try to respond to the likely questions we’re going to get.

CFO Dive: You said you would hold the soda and hot dog combo at its $1.50 price potentially “forever” to emphasize value. Given that you’ve said you don’t like to over-promise, can you stick with that?

Richard Galanti: Look, that’s certainly our goal. We went out years ago and built a hot dog plant that makes two items, the big hot dog that we sell one at a time and then 12-packs or 10-packs of a smaller size for families. That’s a plant that makes 300 million hot dogs a year and we did that to take a few cents of the cost out by doing it ourselves in such huge efficient volumes and to try to keep that price lower. It’s become part of our folklore, both of those items you mentioned [the hot dog combo and the $4.99 rotisserie chicken]. In terms of changing prices those will be two things that would be last on the list and I don’t see it happening in the near-term.

CFO Dive: How involved are you in pushing efforts [such as keeping health care benefits costs down for employees]?

Richard Galanti: We’re all involved in pushing it because we understand the goals of the company and this operating framework we’ve talked about from the beginning here. I think part of my job is, I’ve been a good communicator, particularly when Wall Street says, ‘why don’t you charge more for that item.’ Because that’s not how we do things, we try to figure out other ways to do things. It gets back to that discipline. Now, one can only be so noble. If you’re not rewarding the shareholder, none of this matters because you’re not going to be around to manage the company. 

Tax compliance is a familiar challenge to CFOs — but in a world where technology is advancing rapidly, digital risks are growing and new reporting requirements are cropping up, meeting that challenge is steadily becoming more complicated.

Today’s tax regimes are becoming both “more real time and more advanced,” said Ray Grove, head of product, corporate tax and trade for Thomson Reuters. Grove joined the Toronto, Ontario-based Thomson Reuters, a news and information service provider, in 2020 from Big Four firm Ernst & Young, according to his LinkedIn profile.

Historically, tax was done “periodically” and by looking in the rearview mirror. That’s changed with the advent of solutions like e-invoicing, which made the collection of needed information easier, Grove said in an interview.

“What we're paying a lot of attention to is the shift that's happening from a look back tax system to really a look forward tax system,” Grove said in an interview.

Expectations outstrip readiness

Regulators and tax authorities today are weighing multiple new requirements in a number of fast-changing areas, including new environmental, social and governance guidelines, cybersecurity and changes in corporate tax requirements.

Today’s CFOs — who with CEOs bear much of the weight of an organization’s regulatory requirements — are faced with the challenge of both complying with these new rules and marshaling the information needed to do so in a quick, efficient manner.

Here, advancing technology represents something of a double-edged sword for companies; while automation can help aggregate information much more quickly, technology is now in a place where tax regimes “have a new expectation on organizations” to be able to collect and to send a growing amount of information, Grove said.

This puts more pressure on finance and tax leaders to consolidate more information, faster, to stay compliant, and in many cases, the readiness of the governments is “ahead of the readiness of the organizations to be able to comply,” Grove said. “And that's more often than not where you see delays and implementation of new requirements is because the organizations just frankly aren't ready.”

The very first step CFOs need to take to address this is assessing how their business approaches tax compliance, Grove said. Considering whether to outsource certain processes, what tools they have in place and most crucially, the people needed to ensure compliance is essential. Finance chiefs need to hunt for talent in this area that not only have a wealth of tax knowledge, but are skilled with data analytics and the tools needed to prepare them; the “tax professional of tomorrow is…somebody who's a technologist as much as they are a taxologist,” he said.

Clearing the ‘data swamp’

Talent is only piece of the tax puzzle: another wrinkle is that much of the information now needed to comply is data that is not necessarily viewed as tax information, Grove said.

Consider the information required for companies to comply with directives such as the Organisation for Economic Co-operation and Development’s Pillar 2, for example. While not enacted in the U.S., Pillar 2 establishes a global minimum effective tax rate for cross-border profits, and U.S. companies with operations in countries where it has been enacted will be subject to its requirements, according to a summary by PricewaterhouseCoopers.

For some organizations, “maybe 40% of their data is in their ERP systems to be able to comply” with Pillar 2, for example, Grove said. “So now they're having to go into different systems, different applications, meet different needs.”  

That means breaking apart existing data siloes; wading through vast “data lakes” or “data swamps,” as Grove terms them, of both structured and unstructured data to find the necessary information.

“For most organizations, their data lake is a bunch of files, a collection of data assets that had been touched along the way to get there, to where you have really just filthy data that's sitting there that isn't something you can rely on,” he said.

Companies and their finance leaders need to ensure they are adjusting their workflows alongside their technologies to be able to access the data they need and keep pace with the changing tax environment, Grove advised. While upgrading one’s ERP system is a goal that many CFOs are closely tracking, “if you think about it, going from an old ERP system to a new ERP system, that doesn't necessarily change the way that you work,” he said. “It just changes a lot of where your systems and data is located.”

“There's truth in data, but without truth in process, you can't have truth in data,” he said. “And a lot of organizations have very broken processes.”

Sponsored content

By PrimeRevenue

In 2024, the sentiment of most finance executives lies somewhere between cautious and cautiously optimistic. Interest rates and inflation remain high, but the worst fears of a global recession seem to be behind us. A recent EY survey of Fortune 250 CFOs shows that 86% are approaching the current environment neutrally with a focus on strategic right-sizing decisions on labor and investments in 2024.

As a CFO, neutral can be synonymous with vulnerable. Finance executives are typically well-trained to respond when the market is definitively bearish or bullish. Workforce reductions and cost-cutting are obvious tactics amid market contraction. In times of growth, investments in human capital and infrastructure are standard plays in the playbook. But neutral? Neutral requires extra strategy, patience, discipline, and flexibility.

It's time to shift mindset and focus

There are a long list of levers CFOs work to ensure the financial health of their organizations. In times of uncertainty – even when the scales are tilting towards a better economic climate – knowing which levers to pull becomes more difficult. Over the last few years, things like cost-cutting and raising prices were necessary as companies recalibrated their financial operations for disruption. But over-reliance on these tactics is dangerous.

Becoming too lean can hinder the business’s ability to keep up with demand. Raising prices beyond only what’s necessary can sacrifice advantage to competitors that are operating more efficiently or have a thicker financial cushion.

To navigate true uncertainty, financial leaders must shift their approach from reactive to proactive. Which levers create a direct, positive impact while also allowing for maximum flexibility and scalability? How and where can we overcome the risks of uncertainty and foster growth more effectively?

For many organizations, the answer can be found in the financial supply chain. It’s estimated there are trillions of dollars in working capital trapped in global supply chains. This includes funds tied up in accounts receivables and accounts payables which could otherwise be used for investment in operations, paying down debt, strategic M&A activity, and so on.

How CFOs can foster a more resilient supply chain

One thing CFOs can do as the market corrects is to use supply chain finance to unlock working capital. These programs enable buyers to optimize supplier payment terms and balance cash flow. The impact can be immediate and powerful. Successful programs with global reach typically unlock hundreds of millions of dollars that can be used to fund strategic business initiatives at a far lower cost and much more efficiently than commercial lending.

Supply chain finance also gives CFOs a direct line to improving supplier health, which is a lever that has historically been out of reach. It allows suppliers to get paid early so they can improve cash flow and invest in their own strategic growth initiatives.

Helping suppliers protect and improve financial health is paramount right now, and the data bears this out. To better understand how suppliers expect their businesses to perform in 2024, suppliers trading on the PrimeRevenue platform were recently surveyed on their biggest business challenges. Nearly half (43%) cited cash flow as their biggest challenge in the first half of 2024, even as over 80% reported being extremely or moderately confident business demand will remain strong.

Despite suppliers’ optimism that business demand will remain steady, their financial health remains exposed to numerous factors that have the potential to negatively impact not only their fiscal performance – but the financial security of the buyers they serve. Higher interest rates and a tighter commercial lending climate have disproportionately affected suppliers. Nearshoring initiatives are bringing new cost pressures as suppliers ramp up operations to meet new customer demands. Sustainability, particularly in Europe, is also driving costs higher. The same goes for AI as companies invest and adapt. Access to affordable liquidity is critical to making sure supplier health is strong as companies navigate these dynamics and ensure the supply chain is optimized for resilience.

Fortifying financial health through supply chain resiliency

While CFO sentiment may be leaning in a positive direction, the undercurrent of vulnerability remains strong. In addition to interest rates and inflation, geopolitical tensions threaten to tip the scales. At present, there is significant conflict in the Middle East, a war in Ukraine, rising tensions between the U.S. and China, and attacks in the Red Sea. Escalation in any of these areas can directly affect global supply chains. These forces underscore the financial fragility of many global supply chains, and why they merit more attention from finance.

As we navigate the rest of 2024, CFOs need to focus on tactics that improve supply chain resilience and fortify supplier health – no matter the trajectory of the economic climate. For many, supply chain finance will be just the strategic lever they’re looking for.

The buzz around artificial intelligence has only intensified in recent months, leaving business leaders with the unenviable task of separating the technology’s potential from its reality,

While determining AI’s true applications is a must, the larger question CFOs and accounting leaders need to ask themselves is, “do you truly understand how AI is going to affect the people you hire…as well as those that are going to serve your customers?” said Susie Duong, senior director of research and thought leadership at the Institute of Management Accountants.

A CPA, Duong joined IMA two years ago. Her previous roles include a three-year stint at professional education firm Becker, and she has also served as a visiting assistant professor of accounting at University of Michigan’s Ross School of Business and an assistant professor of accounting for the NUS Business School at the National University of Singapore, according to her LinkedIn profile.

Making AI welcome

While they don’t occupy the top seat when it comes to driving generative AI strategies at their companies — a study by Gartner found CFOs were fourth on that list, behind chief technology officers, chief information officers and CEOs — finance chiefs are nonetheless intimately involved in the decision process when it comes to how and where to incorporate such technologies.

CFOs are also displeased with how digital investments across their organizations are performing, Gartner’s study found. Implementing AI is pricey, Duong pointed out; if businesses are choosing to incorporate it, “at the same time, you have to give up something else that you could have done,” she said. “This is the opportunity cost.”

To make that cost worth it, finance leaders need to ensure they’ve developed a forward-looking AI strategy that provides a return on investment or strategic benefits for the business. CFOs face challenges in four major areas when it comes to bringing AI into the finance and accounting space, according to a recent study by IMA authored by Duong: understanding the technology itself, ethics and governance, operational issues and lastly, the human element.

To take full advantage, finance leaders will need to foster seamless collaboration between the technology and their employees the IMA study found. While AI won’t replace humans, it will “tremendously impact the future of work for professionals in accounting and finance,” the report argues, and CFOs need to be fully prepared for that future. That means educating both themselves and their employees on the technology itself.

“Working with AI is more like working with a new colleague,” Duong said. “To build the trust, to some extent, you have to understand the algorithm behind it.”

That might be challenging for finance and accounting professionals, who are not typically trained on the technical side, she said. It’s important when bringing AI into the business for CFOs to “pay more attention to your people, at all levels,” she said.

“Tell them exactly why you're doing what you're doing, and why this is beneficial to them, not just to the organization,” Duong advised when it comes to educating one’s employees about the company’s use of AI. “And also provide plenty opportunities for upskilling, or re-skilling your employees.”

Bringing one’s workers into the AI conversation is critical not only because it can help smooth the technology’s way into the company, but also because workers remain wary over the potential threat AI represents to their jobs, Duong said.

In the short time since ChatGPT was launched by OpenAI in November 2022, AI job loss has already abounded, with 37% of business leaders claiming the technology replaced workers in 2023, according to a recent CNBC report. Large tech companies like Google, meanwhile, have laid off hundreds of staff members as they continue to invest further in AI, stoking replacement fears.

Leaders should “invite your employees into this whole process, especially the function that is going to be affected,” Duong said. That way, they feel as though their opinion is valued, which can help alleviate some of their fear of replacement as well as make it more likely for them to use the AI technologies that are incorporated, she said.

Prepping for the new accounting age

Finance chiefs also can’t rest on their laurels when it comes to AI education: such a thing has to be done continuously to ensure the company and its talent are keeping pace with the rapid evolution of this and other emerging technologies, Duong said.

It’s also important for CFOs to take a forward-looking approach when it comes to how AI and employees will interact with each other as the technology becomes more commonplace in the finance and accounting sector.  

Finance chiefs are already dealing with a shortage of talent in the accounting world, and while they hunt for skilled talent — or new tech to fill the gap — those that are aspiring to enter the accounting world have different expectations than the old guard, Duong said.

Today’s college students are already learning how to use AI as part of their work, Duong said — and when those students graduate and enter the accounting profession, “their perception of accounting and finance will be completely different,” she said. Finance chiefs need to consider such changing perspectives in an AI-driven world, she said.

Technology tops the list of areas where CFOs are planning to increase their budgets in 2024, thanks largely to the frenzied demand for artificial intelligence tools, according to a recent Gartner survey.

Of 302 finance leaders surveyed, 82% said they were looking to boost their tech-related investments this year compared with the prior one, with 90% of respondents projecting higher AI budgets, and none planning a reduction, according to the research, which was detailed in a report for Gartner clients and highlighted in a press release.

“On one hand, you’re seeing economic pressures that are placing some uncertainty on budgets overall, but you also have some upside pressure for organizations to spend more on technology — specifically for generative AI and cybersecurity,” Alexander Bant, chief of research in Gartner’s finance practice, said in an interview.

Technology overtook compensation as the highest priority for increased spending, with 71% of CFOs planning to spend more in the latter category this year, according to the report, which was shared with CFO Dive.

The annual study attempts to gauge how CFOs are adjusting their coming year’s budget allocations, which are often developed in preliminary form by as early as August or September, according to Bant.

“This is kind of a gut check on how those budgets are materializing in light of CFOs gaining better visibility into the coming year’s performance,” he said.

The latest survey, conducted in December, shows a jump from a year earlier in the number of CFOs willing to increase their tech budgets by 10% or more. Half of finance chiefs polled said they were planning such an increase in the coming year compared with 43% a year ago, the report said.

CFOs and other C-suite leaders are particularly focused on recent advancements related to generative AI, which refers to technology that can generate high-quality text, images, and other content based on the data it’s trained on. Gartner found that 81% of CFOs expect to increase spending in this area.

The findings come amid recent improvements in the economy. Throughout much of 2023, inflation and higher interest rates drove organizations to focus more on near-term profitability and cash flow, according to Bant. “Now, we’re seeing kind of a return to the next phase of the business cycle, where it will be more about balanced growth,” he said. “CFOs know that they need to make strategic technology investments in order to set themselves up for profitable growth going forward.”

In December, confidence among CFOs and other financial executives across North America rebounded as the economy avoided a downturn, according to the Association of Chartered Certified Accountants, as previously reported by CFO Dive.

Still, the economic outlook remains uncertain, which could ultimately complicate CFOs’ plans for increased tech spending, Bant said. Other potential hurdles include geopolitical challenges and regulatory risks, he said.

CFOs and finance department recruiters have faced a workforce problem for years now, labor experts say: a shrinking pool of U.S. accounting professionals needed to close the books every quarter, complete audits, and make sure the company’s financials comply with GAAP and other regulations. 

The hits that have chipped away at accounting labor health are myriad and the statistics stark. While the number of practicing accountants and auditors in the U.S. spiked in 2019, across the past decade since 2013 the total declined by about 10% to 1.62 million last year, with roughly 190,000 jobs disappearing from the work rolls, according to the Bureau of Labor Statistics. Meanwhile, the total number of test takers who passed the CPA Exam fell to 18,847 in 2022 from 19,544 the year earlier, and the lowest level since 2007, according to the latest numbers available from the Association of International Certified Professional Accountants. 

Studies and those analyzing the trend point to a variety of likely culprits: the onerous 150 hours of course credit — equivalent to a fifth year of college — students typically need to become a CPA, generally lower starting salaries compared to other areas of finance, and the demanding hours and rising regulations that lead some practicing accountants to look for the exits once they’re in the field. At the same time, the launch of the generative AI tool ChatGPT in late 2022 led to a new wave of questions about the industry’s future.

Tom Hood, executive vice president of business engagement and growth at the AICPA, is in the optimistic camp of those who believe the pipeline decline is poised to turn around, noting that he has seen other cycles when disruptive shocks such as Microsoft’s Excel in the 1980s damped interest and sparked doomsday talk around the possible “end of accounting.”  

“We’ve had ebbs and flows, we’ve had these shortages before and every time that’s happened we as a profession have rallied together,” said Hood, a CPA, adding that AI will automate certain tasks in accounting but will not replace accountants. “We’ve moved this needle before and I think we’re already starting to see it move now.” 

In 2024 professional associations and lawmakers are working on numerous initiatives as well as legislation to close the cracks that have leaked talent from the field. In the meantime, companies have found ways to get the staff needed to get their finance work done. CFO Dive talked to experts about some notable tactics that are likely to shape the accounting workforce this year. 

States, CPAs and the 150-hour credit question  Currently state regulatory bodies that set the rules require those who want to to become a Certified Public Accountant to have 150 credit hours of education in accounting or related subjects to become a licensed CPA. But amid the growing shortage, there has been a controversial push by states to create another pathway to licensure which include cutting the college credit hour requirement back to 120 hours.

For example, this year Minnesota lawmakers are expected to consider new legislation introduced in the state’s Senate and House in 2023 that would allow candidates to earn a CPA certificate with only 120 hours of college credit, along with passing the CPA exam and some additional work experience or professional education. This alternative would be in addition to the current system that requires 150 hours and one year of work experience, plus passing the CPA exam.

Geno Fragnito, director of government relations for the Minnesota Society of CPAs that supports the change, notes that the current national shift to the 150 rule gained steam in the 1980s after Florida made the change amid a surplus of accountants due to many wanting to move to the state. Florida started the ball rolling by increasing the credit hour requirement to 150 hours in 1983, according to a Journal of Accountancy report.

But in recent years, the MNCPA’s members have consistently pinpointed the credit requirement as one of the main contributors to the drop in CPAs.

“I don’t think there was a meeting that either our CEO or I attended where it was not brought up organically. It was never on our agenda to discuss but it always came up,” Fragnito said. Looking ahead, Fragnito said that other states that are seeking to tweak the credit hour formula include South Carolina and Washington state. 

A “volatile year” for CPA exam takers Two exam-related changes are impacting accounting candidates this year in very different ways. “It’s an exciting time but I think 2024 will be a very volatile year,” Mike Decker, vice president of the CPA Examination & Pipeline Extension for AICPA, said in a recent interview. One of the changes is student-friendly: it’s designed to ease deadline pressures and address pandemic-related delays that might have affected some test takers. In a move announced last spring, the National Association of State Boards of Accountancy extended the window that a candidate has to complete the exam once they pass the first section from 18 months to 30 months. The move grew out of the AICPA’s effort to address the accounting shortage, known as its pipeline acceleration plan. 

Meanwhile, this month marked the launch of a revamped CPA Exam called the CPA Evolution. The test has both new content and structure and a greater focus on technology in an effort to combat research that found that accounting firms were hiring fewer accountants in favor of non-accountants with tech backgrounds, according to a Nov. 7 report by Michael Potenza of Becker. “It's not that CPA Evolution is meant to be harder than the previous version of the exam, it's simply meant to better prepare you for the skills and competencies needed in modern accounting,” Potenza, a CPA, wrote. 

Raises and remote work Tactics that CFOs themselves are using to meet their staff needs include sweetened offers and going offshore or considering remote workers to gain talent. With most small and medium-size CPA firms unable to find enough qualified U.S. accountants, this summer a study found that over half of firms planned to hike starting salaries by 14%, CFO Dive previously reported. Lisa Simpson, vice president of firm services at AICPA, is hearing about similar approaches taken by firm leaders she’s spoken with. In the past few years, she said, firm leaders indicated they were providing several high percentage salary increases for new hires and existing employees. Last year firms gave raises at rates above inflation as well as continuing bonuses, and business leaders said they expect to continue raises into 2024.

Meanwhile, many firms are outsourcing U.S. accounting work to professionals in India, the Philippines, and Eastern European countries like Poland, according to Matt Wood, head of global FAO Services at Austin, Texas-based Personiv, a global outsourcing provider which serves those needs. While outsourcing to other companies was previously the domain of larger firms, the pandemic has led to more companies being comfortable with remote accounting staff, he said.

The shift to hiring accounting staff outside the U.S. “has been happening for a while now, but it really accelerated in 2020. The accounting talent pool was already shrinking, and businesses were feeling the impact of that pre-pandemic. Then, all of these other pieces fell into place; teams were working remotely and protecting cashflow took priority,” Wood said in an emailed response to questions from CFO Dive.

The launch of instant payment service FedNow last Thursday could have major implications for CFOs and how they will manage cash flow, accounts payable and accounts receivable functions in the future.

The service, which offers businesses the ability to transact near-immediate payments that flow 24 hours a day, seven days a week, will transform companies’ cash flow, allowing faster paychecks and easier expense reconciliation. FedNow payments are also irrevocable, unlike automated clearing house (ACH) transactions, which can be reversed.

To be sure, most treasurers and CFOs won’t be using FedNow immediately. Banks aren’t obligated to be part of it, and it’s unclear if or when a critical mass of them will adopt it. At launch, more than 50 banks, service providers and other entities are certified to use FedNow. In addition, the ACH network, the electronic payment network used by all banks and credit unions in the U.S., isn’t going away anytime soon. The private real-time payments network, or RTP, rolled out in 2017 by a consortium of large banks, currently reaches 65% of U.S. demand deposit accounts.

The advantages of FedNow for companies, however, are widely acknowledged: instant payments could facilitate better cash management and quicker payments to suppliers and vendors. There are planning considerations, with CFOs needing to address how it might affect liquidity and relationships with vendors, analysts say. FedNow also makes payments possible on evenings and weekends, which could change the way businesses are run.

FedNow “comes to us like a blessing and a curse,” said Eric Segal, a managing director at CFO Consulting Partners. “Finance departments are going to be getting information in their bank statements quicker…payments are going to clear pretty much immediately and if that happens, I need to be aware of that in managing my cash.”

Here are six ways CFOs and analysts say FedNow could affect businesses and their operations:

1. The disappearing ‘float’

The concept of “float,” defined as the amount of time between the initiation of payment and clearing — which can take as long as a couple of days with ACH — is a lever some CFOs rely on to manage cash, said David True, a partner at payments consultancy PayGility Advisors. With faster payments, however, that cushion goes away.

“If it costs me a lot more to borrow money, or call or the other side, if holding money earns me more with a higher interest rate, then I want to hold on to as much cash as I can for as long as I can before I pay somebody,” said True. 

CFOs, as a result, may need to adjust models and account for quicker outflows of cash.

“They’re going to have to take those models and adjust them to essentially say, ‘If this percentage of my customers move over to faster payments, then the amount of [available] dollars I have is going to decrease,’” he said. “This is something that they should have been thinking about and if they haven't, they should start immediately thinking about.”

Within companies, CFOs need to review processes to figure out how faster payments around the clock will affect operations, said Segal. 

“It’s good old fashioned process mapping,” he said. “It's just a matter of understanding the implications of the change in the way payments flow, and how that impacts your processes.”

2. New business expectations.

FedNow’s ability to enable payments all the time might raise customer and business expectations. For example, if accounts receivable departments require payments on a Friday, “if [payment] comes over the weekend, will it give someone a grace period?” said Kate Scolnick, CFO of medical device company Owlet. It could also affect mergers and acquisitions, since transactions can continue during off hours, she added.

Since the availability of FedNow may result in vendors dictating faster payment terms, companies also need to ensure it’s compatible with their technology systems that facilitate automated bill payments. 

“It would not affect us materially, as long as we were able to set it up with our existing systems and … into our enterprise resource planning systems and into our workflows,” said Michael Tannenbaum, CFO and COO of payments firm Brex. 

3. Faster payments mean heightened scrutiny.

Faster payments come with a need for more rigorous risk assessment of every actor that touches a payment transaction, including the banks involved, explained Peter Lorimer, CFO of New York-based financial technology firm Betterment. 

“We’re doing a little bit more diligence on them, just in the spirit of the fact that money can move a lot faster in the system,” he said. 

FedNow adoption could also mean shoring up fraud prevention approaches.

“When the velocity of money increases dramatically, opportunities for fraud are obviously higher,” he said. “You're still relying on your same kind of fraud risk management playbooks, but it just kind of stresses the importance of building out that institutional muscle.”

4. More efficient brand-supplier alignment for direct-to-consumer retail CFOs.

Fortune & Frame, a New York-based online jewelry retailer, said real-time payments enabled by FedNow could allow for quicker production and delivery to consumers.

“We're often dealing with tight deadlines between production and delivery to customers. The payment delay and reconciliation process with factories can add anywhere from three to five business days to their shipment time, which can translate to significant delays, said Kieran Powell, the company’s CFO. “With a factory in Rhode Island, they’re not going to start production until they’ve received the funds and reconciled it, which can take a couple of days.”

Real-time payments could also allow the company to take advantage of lower commodity prices, including the spot prices of gold and silver, he added.

5. Easier expense reconciliation.

Business expense reconciliation will get easier with FedNow, because the information included with each transaction will be more comprehensive, and it will happen faster, said True.

“It will decrease the administrative work necessary to manage your payments, both on the sending and receiving side, that's a very, very good thing that's coming about,” he said. 

Faster payments will give brands more visibility into their expenses for a given month, and cut down on time and effort required for the monthly reconciliation process, according to Powell.

6. CFOs will need to lean on their banks for support.

FedNow is hardly a top discussion topic among finance chiefs right now, Tannenbaum said.

“There's not a ton of people chatting about it yet,” he said. “I don't think there's been a lot of clear guidance about how it actually is going to work, and I haven't seen the banks pushing it.”

As a result, it will be on CFOs to seek guidance from their banks to understand the implications. 

Jim Colassano, senior vice president of product development and strategy at The Clearing House, a banking association and payments company that is owned by the largest U.S. commercial banks, suggested CFOs should consult with their financial institutions, especially since the transaction limit is currently capped at $500,000. (RTP, the real-time payments network that was rolled out in 2017 by The Clearing House, has a $1 million transaction limit.)

“This transaction limit means businesses using FedNow cannot implement certain use cases that may require transactions larger than $500,000, such as payroll funding, corporate payments to suppliers, or some real estate transactions,” he said.

Digital transformation initiatives are helping CFOs gain efficiency and lower costs, but failing to address governance, risk and controls while implementing new enterprise resource planning systems is a “common pitfall” that trips up companies, according to a recent report by Deloitte co-authored by Isa Farhat, partner in Deloitte & Touche LLP’s audit & assurance practice, and Courtney Connors, accounting and reporting advisory senior manager for the accounting firm.

Transformations nowadays are much more “multi-dimensional,” covering operations, financial reporting and other such areas as opposed to focusing just on one area of the business.

These efforts encompass more than just the need to implement a new ERP system, and moreover, these types of “prevailing winds around transformation necessitate the need for (a) compliance focused mindset,” Farhat said in an interview.

Putting compliance at the forefront

The need to focus on compliance is not new: most large-scale transformation initiatives occur because companies are looking to either lower costs or boost profitability, Farhat said — meaning “I relieve myself of the monotony and the mundane or...I have a higher clients focus, and I'm reducing risks,” Farhat said.

However, there is “more of a compliance focus as a strategic enabler of business value in these much more complex and what I would call three-or four-dimensional type of transformations than there’s ever been before,” he said.

In part because of changing compliance needs, CFOs are “squarely in the decision-making process” when it comes to transformation efforts, supplanting in some cases the IT team, Farhat said. Certain compliance requirements, especially for public companies like those required under the Sarbanes-Oxley Act, have made CFOs into “very predominant stakeholders in these large scale transformation efforts,” Farhat said.

“A lot of the transformations that I'm seeing, that I'm dealing with right now, are transformations in functional areas like finance [of] which the CFO is the leader,” he said.

CFOs today are facing a changing regulatory environment. New environmental, social and  governance (ESG) standards regarding factors like carbon emissions are being proposed, for example, while new disclosure requirements surrounding cyberattacks mandated by the Securities and Exchange Commission took effect Tuesday. Layering on all of these new changes only makes compliance design “more critical and complex,” Farhat said.

That complexity is one of the reasons why GRC issues may be lagging behind, however, the Deloitte report postulates, as the systems required by companies to run those key business practices compliantly grow more complicated and require a growing volume of data.

Getting a grip on data

Looking through one’s transformation efforts with a compliance lens can also help CFOs to approach such implementations more efficiently: another challenge faced by companies when implementing an ERP system is a tendency to “lift and shift” legacy processes over to the new system, according to the Deloitte report, which can cause a lack of connectivity with the finance and accounting departments.

Companies may be keeping these legacy processes because they have worked in the past, which may not always be the case with new systems. Considering one’s operating model and how it might need to change is a key first step to centering GRC into one’s ERP implementation, therefore.

“And so approaching the processes, not just lifting and shifting my legacy processes, but my redesign processes…through the lens of compliance in the design elevates the overall governance and implementation framework, and makes it a very controls conscious transformation,” Farhat said.

Another necessity for successful transformation is to put in place systems that can handle a growing amount of data smoothly and most importantly, compliantly. For these systems to have the ability to function in the way they need to in today’s environment, their implementation “begets a much more deep compliance design than we had seen in the past,” Farhat said.

“The need to be able to use that data as a strategic asset is becoming much more on the forefront of CFOs minds these days,” he said. “And therefore, the way that they intend to use that has to be underpinned by compliance.”

With that in mind, “we're seeing that CFOs are much more compliance-focused in their mindsets, which help their organizations effectively mitigate those control risks and business transformations and ERP implementations,” he said.