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Management Control Systems

Notes The controller does make some decisions – primarily those with implementation of policies
decided by the line management. For example, a member of the controller organization decides
on the propriety of expenses incurred by the salesman either on the cost of meals or why it was
necessary to fly first class rather than economy class.

Figure 3.4: Alternative Controller Relationship

Corporate Controller Corporate Controller

Business unit Business unit
Manager Manager

Business unit controller Business unit controller
Controllers play an important role in the preparation of strategic plan and budgets. They are
also called to scrutinize performance reports to ensure accuracy and to call line managers attention
to items requiring further inquiry. The difference is that their divisions can be overruled by the
line managers to whom the subordinate manager is responsible.
Reporting relationship of the business unit controller: Business unit controllers have divided
loyalty. On one hand they are responsible to the corporate controller for the overall operation
of the control system. On the other hand, they also owe allegiance to the managers of their
respective business units for whom they provide staff assistance. Two possible types of
relationships are shown in Figure 3.4.
In some companies, the business unit controller reports to the business unit manager and has
“a dotted line” relationship with the corporate controller. Here the business unit general manager
is the controller’s immediate boss and he has ultimate authority in hiring, training, compensation,
promotion and even termination within that business unit. These decisions are rarely made,
without input from the corporate controller.
In other companies, business unit controller report directly to the corporate controller –
as indicated by a sold line on the organization chart.
There are problems with each of these reporting relationships. If the business unit controller
works primarily for the business unit manager, there is a possibility that he may not provide
completely objective reports on business unit budget and business unit performances to senior
management. On the other hand, if the business unit controller works primarily for the corporate
controller the business unit manager may treat him as “a spy from the front office” rather than
as a trusted aide.
Regardless of the reporting relationship it is expected that the controller will give objective
reports and should not participate in sending misleading information or in the concealment of
unfavourable information. The overall ethical responsibility inherent in the position does not
support such unethical practices.

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