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Financial Management
Challenges and Solutions

Presented by: Mohamad Al-Shami ,
CPA (Certified Public Accountant, New Mexico, USA)
MCTS (Microsoft Certified Technology Specialist, AX GP,NAV)

Contents

Outline the key Financial Management challenges, especially
in Saudi Arabia .

Describe the leadership role that the Financial Management
must play in supporting the decision-makers through this
challenging time.

Key Messages

An effective Financial Management function is forward
looking, acting as the business’s “head lights”:
anticipating issues and seeking effective resolutions.

Financial Management function must balance a
professional understanding with practical skills in
advanced management accounting, risk management,
process and structure cost control, chargeability and
revenue management.

Section 1:

“Financial Management”
Why is it Challenging?

Why Financial Management is
important?

Stability and transparency
Ensures compliance against stated standards (Local &
International & Corporate )
Enables efficient and effective use of resources
Defines roles and responsibilities
Enables performance measurement against agreed
expectations
Fulfills legal obligations and mandate

Why is Financial Management
Challenging?

Credible Information: ability to produce timely, reliable, usable and
accurate financial and risk information to decision-makers and DZIT.

Communication: providing clear and accessible financial information
to project managers , local and regional directors

Capacity: revitalizing financial capacity by attracting, retaining and
developing financial talent while complying with local requirements

Key Principles in the Financial Management
function

Credibility – a trusted business advisor, providing accurate,
timely and reliable financial information and advice;
Competence – combine business knowledge with financial
expertise to optimize value added;
Commitment – a shared commitment to corporate goals within
a responsible financial framework
Communication – open communication across related entities,
with external professional organizations and counterparts in
other region.

Key Challenges & Solutions

Legal Entity Framework & Capital Structure
Registration (CR , Labor Office , Zakat & Tax Department , GOSI , Medical Insurance)
Local Company (100% Saudi)-ZAKAT
Foreign Investor (100% Non-Saudi) –TAX – SAGIA
Equity & Debts
Mixed ( Saudi And Non-Saudi)-ZAKAT & TAX - SAGIA
Working Capital Management
Current Assets – Receivable ( Government Sector will pay but with delay and more
restrictions ,Zakat …) , Private sector may not pay but has less liquidity days (30 to 60 Days)
Current Liabilities - Payable ( Standard terms 30 Days)
Implement pay-when-paid terms and extend Payment terms with vendors , bank financing
Bank Relationship
Local banks (Guarantor has to be Saudi)
International Banks (Guarantor has to be the parent company) with limitation for new
companies
International Banks that dealing with corporate will have more flexibility


HR & Payroll Administration
Corporate policy Versus Saudi Labor Law
Timesheet and Payroll process with cut-off schedules
Working Hours
Post Employment Benefits
Modifying & Approving HR policy from the Ministry of labor

Resource Challenges (Saudization)
Impact on getting Visas for global mobilization
Impact on transferring sponsorship for local mobilization
Organizational complexity, and issues with getting the right people are most likely to pose
risks to finance’s effectiveness ( Accountants almost 100%)
Training commitments
Local mobilization (Saudi – Non-Saudi) with interdisciplinary background combines analytical
skills with financial
Business Visit Visa (With WHT 5%)


Bank Facilities & Financing
Margins & Rates & Leverage Ratio
Local guarantor
Project Financing (Private Versus Government clients)
Signatories restrictions and on-line access

Cash management
Payment by cash to employees with business visit visa (WHT)
Local purchases
Issue corporate credit card , and transfer payroll via banks

Tax Management
Zakat 2.5% for Saudi Partner
Tax 20% for foreign investors
Withholding Tax 5% , 15% , 20%
Non-Deductible cost ( Provisions , Headquarter allocated cost with 100%,…)


Fiscal Period
Calendar year Versus fiscal year (Audit , Tax Department)
Closing & reporting cycle (monthly, weekly, quarterly, yearly)
Define the Fiscal year as head quarter in the article of association

Corporate Governance
The Board , Executive committee
Financial Policies & procedures
Dividend Policy
Delegation of authority DOA
HR & Payroll Policy

Regulatory Compliance
Corporate policies
SOCPA
ZAKAT & TAX


Geographic impact
Resources availability
Business Relation
Salaries Jeddah & Riyadh & Eastern region
Tax & Zakat Department

Administration Department
Providing employment benefits ( Accommodation , Transportation ,
Communication ,Government relation…)
Cash payment to employees might result with higher cost but less inefficient works
Outsourcing most of the government relation function


Internal Control
Build an Effective Financial Management Organization Structure With Clear
Accountability
Employee Rotation

Audit ( Internal , External , Corporate)
Big four versus local auditors (Zakat ,Tax ,Fees)
Corporate (Internal & External Auditors)

Technology Challenges
Financial Management Systems Are Not Capable of Providing Accurate Data
Lack of expertise in IT supporting the technology.
Corporate systems and regional IT support (MPLS)


Timely Financial Reporting & Analysis
DZIT (Government Clients).
Local Management & Regional office
Increased complexity of transactions , Internal and external reporting
requirements (Corporate ,SOCPA, IFRS).
Use standard reports & performance metrics & dashboards
Follow corporate fiscal year


Direct Cost & Overhead
Overhead Allocation Challenges (hours ,revenue ,space , employee count,…)
Standard Costing reconciliation (payroll versus costing)
Proposal Costs

Billing & Revenue Recognition
Fixed Price (Lump Sum) , Cost Plus (unit rate & pass through cost)
Billing Process & WIP
Collection process
Provision for doubtful debts
Contract terms & conditions ( proper legal advice)

Proposed Reporting Structure

Reportable Parameters

Currency
Segment Op OH Non-Op OH
Ownership
Account
Time
Revenue S
Project Direct Costs Scenario
A
Gross Margin Version
Project Delivery & Support U
Contribution Margin D Segment
Operational Support
EBIT I
Project
Interest & Tax

Entity
Enterprise Value ENTERPRISE VALUE

Section 2:

“Think globally, act locally”

Financial Management Roles

Financial Manager must exercise Financial
Leadership
To be successful in this role, in supporting financial decision-making, we
must:
establish a robust Financial Management framework;
emphasize value for money and Gross Profit / EBIT accountability;
ensure appropriate controls are in place and functioning;
apply financial risk management principles; and
ensure transparency in financial reporting through online / Web
access.
However, the Financial Management function’s “value” is fully realized
by supporting decision-makers with financial analyses that identifies:
links between costs and performance;
opportunities to reduce direct and indirect costs; and
opportunities to increase delivery efficiency in meeting clients
expectations.

Financial Management

Controls Analysis Trusted Advisor

Operator Steward Strategist Catalyst

Financial Management: Results Planning: Decision Support: Leader:
 Focused on the prudent use  Ensuring effective  Focused on performance  Support decision-makers and
of resources by standardizing, budgeting, forecasting and management and supporting identify opportunities for
consolidating and automating planning systems in place. effective decisions projects delivery
processes.
 Asset/Cash Management.  Ensure value-for-money  Finance integrated with policy
 Procedural policies. and operational considerations
 Establish policy framework  Policies that strengthen
 Establishing financial data performance by promoting  Enterprise risk management
 Risk management and
integrity, timeliness and positive behaviors.
effective controls
accuracy
 Robust Cost/Benefit analysis

Required Elements

Management Decision Support Accounting and Financial Reporting
Financial evaluation expertise Accounting policy application and
Business risk management expertise control expertise
Financial performance management Budget control expertise
expertise
Costing and pricing expertise
Financial reporting expertise
Financial information analysis and
integrity assurance expertise

Business Planning and Budgeting Risk Management, Accountability and
Risk-based Fiscal planning expertise Control
Operating and cash-flow budgeting Project risk management and control
expertise expertise
In-year fiscal management expertise Asset and Liability risk management and
control expertise

Financial Competencies needed
Competencies
Business Knowledge

Effective Costing, Planning & Evaluation

Risk Management

Standards Compliance (Local ,Corporate , Value-
International) Valued-added Strategic
Advice Focus
for-
Effective Communication Money

Performance Management

Forecasting, Planning and Budgeting

Accounting/ Financial Knowledge

Key Requirements for Success

Informed Decisions: Further integration of risk and performance management into the fabric of
financial decision-making.
Effective Governance: establishing clear roles and accountabilities, linked to decision-making
structure and supported by a robust policy framework.
Financial Leadership: to set priorities, support capacity improvements and provide a strategic
financial “voice” at the decision-making table.
Financial transformation: continue to migrate the financial function away from a transaction-rules
focus to an “advisory” decision support and oversight role.
Business “ownership” of Finance: progressively, delegate Financial Management to project
managers, while maintaining accountability and oversight.
Measuring Progress: establish clear performance measures, evaluate progress toward achieving
the desired goals and taking remedial action when necessary.
Communications: open and transparent communications to allow knowledge of risks, challenges
and solutions to flow throughout the organization(s).
Financial Capacity: attract, retain and develop financial capacity that is aligned to future needs.

If we’re not aligned , we’re sunk…

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Financial Management Challenges

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