AMP FINANCIAL SERVICES LTD

Environmental Management Accounting Case Study

KPMG acknowledges the management and staff at AMP Financial Services Ltd, for support and assistance in this project.

DISCLAIMER

This project was funded by Federal Government (Environment Australia) and the Environment Protection Authority (EPA) of Victoria. The project was also initiated by the Institute of Chartered Accountants in Australia (ICAA).

The information in this study has been provided by AMP Financial Services Ltd. the recipient has responsibility of determining this project suitability in the set purposes relating with the ICAA agreement. In reference to information presentation we do not accept liability to individual(s), based on opinions, accuracy or omissions.

No reproduction of this report contents, hence reproduction of disclaimer too.

EXECUTIVE SUMMARY

The finding of this case study informs on applying Environmental Management Accounting within an organization for benefits in financial and environmental aspects. AMP is the subject for the study. The company identified its liabilities in environmental performance hence implicating on the formulated strategies.

For application of EMA, the focus of the case study was its service division; Services@AMP.

After the assessment, changes were integrated in the system of accounting.

The environmental costs for AMP relate to solid waste such as papers, and liquid waste such as water, as well as electricity. Many costs that were assessed from a single general ledger were separated with other costs emerging for effective consideration.

Changes were implemented in with realization of importance of information gathering from all the building and the cost centers. During the trial the information was recorded to identify potential liabilities and opportunities to develop viable strategies.

AMP has found the information to be of great assistance in formulating and implementing approaches for effective maintenance and monitoring of its environmental impacts, using sustainable EMA

GLOSSSARY

EMA Environmental Management Accounting

Environmental costs are direct costs paid by businesses in providing commodities to their customers, for instance, waste and electricity.

Environmental impacts are changes within an environment, which can be positive or negative emerging from organizations’ practices.

Recycled waste is obtained from any source and sold for recycling.

SOSC refers to the Single Office Services Charge

Waste from the buildings and cost centers in form of solid waste such as papers, files, cartridges and many more, and liquid waste such as water from kitchen, and other parts of respective buildings.

CONTENTS

1. INTRODUCTION.. 5

2. AMP FINANCIAL SERVICES. 6

3. IMPLEMENTING EMA.. 7

4. THE TRIAL AND OUTCOMES. 10

5. LESSON LEARNED.. 12

6. BENEFITS OF EMA.. 13

CONCLUSION.. 14

REFERENCE.. 15

1. INTRODUCTION

About the case study

The case study was directed to assess Environmental Management Accounting for AMP. EMA assists organizations in formulating and implementing decisions in operations and expenditures to enable cost saving strategies, ascertain opportunities to generate more revenue and upgrade environmental concerns with considerations in performance.

Undertaking the case study

The case study was undertaken with the following stages:

5-month period analysis of the top 50 stationery items ordered by Services@AMP cost centres

6-month period analysis of major vendor exercise through analysis of payments so as to identify purchases and also other vendors involved.

Focus of the case study

The study centered on financial services organization with operations in several countries globally. Within the organization the study focused on service provider unit. The division was selected because:

The management realized that most environmental costs occurred in this division.

The organization gained through this division to connect to its consumers, therefore developing clear approaches would enhance more contribution by this division.

Limitation of the case study

Limited resources for trialling, hence limited comparison of results in other areas within the organization

Classification of environmental costs

Costs related to this study are:

Direct costs associated with major expenses, materials, other operating and maintenance costs and many others.

2. AMP FINANCIAL SERVICES

AMP Ltd is an organisation dealing with financial services with operations in different countries globally inclusive of Australia, New Zealand and the United Kingdom. Approximately AMP a total of 14,500 personnel with 5,000 working in Australia in AMP International, Henderson Global Investors and AMP Financial Services businesses.

The sector under scrutiny, Services@AMP division provides a number of shared services to Australia AMP. In addition to human resource and personnel services, facilities management, administration services, procurement and contract management.

In Australia the Services@AMP operates as illustrated:

Seventy divisions and approximately 350 departments in the divisions.
Divisions are located in more than seventy buildings all over Australia.

AMP Participation in the Case Study

AMP participated in this study so as to enhance reduction of it contribution towards the environment. Through this opportunity, AMP has the privilege to making changes within uts operating environment as well as its system of accounting, as highlighted in the case study

AMP identified the need for commitment in examining and implementing practices focused on managing its environmental impacts within the community of its operation. Further, the case study facilitated formulation of an environmental policy for its local and international groups. The environmental policies focused on integrating all its personnel towards maintaining environmental concerns in all activities and decisions related to the business. The progress towards environmental considerations would also apply in AMP offices. Therefore, environmental management accounting for AMP was to initiate its commitment towards its practices against environment aiming at consistency, thereon.

Use EMA incentives

AMP identifies that consideration of environmental performance will facilitate long-term performance in progress for the business. Issues connected to AMP are:

High labour costs from staff time making evaluation of environmental impacts difficult.
Limited control of items used within the companies buildings and offices. This is related to the environmental impacts from these sectors.
Environmental costs that are not determined effectively, hence charged in an aggregate format.
Determine factors contributing to environmental impacts within the organization as well as external factors such as business associates. Additionally, identify factors ton assimilate in organizational practices to influence reduction of these impacts.

Consequently, it was liable for AMP to identify its present practices to understand areas requiring mitigation

3. IMPLEMENTING EMA

Implementation will enable AMP to understand it initial performance against what is stipulated as effective environmental Management accounting approaches. Therefore, before changes were implemented it was vital for AMP to understand it current practices, to derive approaches for the future.

In making changes to accounting procedures the following initiatives to incur costs will involve:

Implementing the identified changes for accounting system
Informing and including the employees in identifying areas of inefficiencies
Locating inefficiencies and collecting information and then,
Information collected used in formulating a consistently managed accounting system.

These changes have to consider the benefits incurred once they are implemented as well as derive comprehensive and viable decisions.

Understanding Environmental Management Accounting

Environmental management accounting refers to the identification, collection and analysis process of information to the environmental costs and performance assisting organizations in decision making. Environmental management accounting also assists organizations to maintain environmental costs through selection of more viable initiatives.

Accounting for environmental impacts in the service business unit

Initially, the environmental realized by AMP were electricity, water, solid waste such as papers, kitchen, and water, as indicate by Services @AMP. To understand the management accounting system, it was important evaluate how the service unit’s costs were conducted.

AMP derived the following approaches for the environmental impacts:

It produced management accounts from PeopleSoft general ledger system and also other varied product systems. They were later submitted for consolidation in corporate office.

The general ledger accounted for all the costs within buildings and cost centers, such that there lacked information on respective areas as well as vendors’ contribution to environmental impacts.

Therefore, in AMP, costs were dealt with on a general point of accounting system; as information on different items was not broken down.

Environmental impacts of Services@AMP activities.

Environmental impacts of Services@ AMP identified in the case study were:

Electricity usage
Water and other varied resources
Solid waste generation in form of general waste, kitchen waste, waste paper and furniture from office and wastewater
Emissions.

Assessing changes for environmental review

For understanding the potential opportunities and strategies to implement, KPMG conducted an environmental review on AMP Services@AMP with assessment used to pin point contributory environmental factors leading to elevated environmental costs. More so, opportunities would be identified to assist AMP in acknowledging revenue generating practices. This required mutual efforts from Amp and KPMG to facilitate a successful evaluation. Additionally, AMP had the mandate of providing required as well as necessary information to facilitate the outcomes of the study.

Implementing Changes in management accounting system

AMP decided to implement changes recognized based from the environmental impacts identified.

The high level analysis indicted that major opportunities for changing the management accounting system deal with improving the availability of information on the costs and quantities associated with AMP’s main environmental impacts. These changes would enable AMP in identifying cost saving opportunities and improve on its environmental impacts, through obtaining information from accounting system. Further, derive approaches in allocating costs to cost centres.

The key changes were:

The staff time
The possibility of trailing options within the project timeframe

The required involvement of building managers, vendors or contractors
The potential for cost savings in selecting options for trial.

*These changes will be further assessed in trial outcomes.

Environmental costs in AMP

In this case study environmental costs were defined as costs that organizations in business had to directly pay, for instance electricity and waste while providing commodities to their consumers. Associated costs were however omitted in reference to waste disposed and also, time allocation for disposed wastes collection. More so, other costs excluded were related to the environment not accounted for by the organization such as degradation of biodiversity

Implementing changes to AMP Management accounting system for environmental impacts

AMP decided to implement changes as follows:

Major vendors in the accounting system for electricity, water, office stationery and papers, newspapers, and paper recycling and shredding are identified. Therefore, indicate paid amounts for these goods and services.

Quantities of goods and services provided are accounted in a new system to enable AMP in monitoring quantities used and waste generated. More so compare between varied buildings and cost centres. Obtained information is further utilized to identify opportunities for cost and areas for environmental savings. Therefore, AMP preferred one supplier who provided monthly reports with the item numbers, clear description, quantities ordered, costs per unit and also, total costs.

Changing how waste collection and disposal costs are charged by charging them separately from the rent. This assists AMP in tracking costs and quantities for used items, thus manage waste costs and/ determine viable opportunities. Further, this will be attained by investigating the waste audit.

Separating environmental costs from the SOSC for effectively charging cost centres according to their initial costs such as electricity usage, use of water and collection of waste as well as electricity used. Alternatively, highlighting costs for respective buildings separately. AMP will integrate this change in accounting for electricity consumptions by adding up information on floor space to electricity costs for respective building. Therefore electricity costs per m2 of office space for different buildings are calculated. Additionally, all suppliers must indicate the total energy used but apply different rates per MWh used.

Vendors are reduced as AMP identified this factor as a contribution to cutting environmental costs and impacts too. This study showed increased number of vendors for electricity, newspapers, and food with contracts determined on individual location or respective building. For instance, provision of paper recycling and shredding services, in October 2001 showed more than 25 vendors with 94 agreements as well as varying rental and collection charges for about 500 bins.

4. THE TRIAL AND OUTCOMES

The trial period facilitated data collected to be used in formulating a new system. Detailed monitoring of inputs and outputs was initiated on respective building and cost centers as well as vendors to enable the management to identify and differentiate costs according to how they are incurred.

Environmental inputs and outputs separately from the rent in the accounting system

Opportunities for changing the management accounting system relate to improving the availability of information on the costs and quantities associated with AMP’s main environmental impacts. This would allow AMP to identify potential opportunities for cost savings and environmental impact improvements. These changes are:

Possibility of trialling options within the project timeframe

This involves accounting system coding information on goods and services associated with environmental impacts, and then supplement the obtained information in cost information. It is significant where costs for items do not directly correlate with quantities used or are different between buildings. This would enable AMP to monitor quantities of resources used and waste and wastewater generated and make comparisons of all buildings, divisions and cost centres. This in turn would enable AMP to ascertain better and effective opportunities for cost and environmental savings.

Required involvement of building managers

Their involvement is to facilitate costs for waste collection and disposal, wastewater. Also, water and electricity are included in the rent paid for buildings. For instance, waste collection included in cleaning contracts managed by the building manager.

Involvement of building managers to assist in tracking costs and quantities of major items, so as to determine each cost and areas that can lead to minimizing environmental cost for instance, recycling of waste.

Conducting waste audits for AMP’s offices for respective building managers roles in identifying waste costs as a separate item from the rent. The information obtained assists in identifying potential cost savings opportunities, with waste reduction and recycling.

Vendors or contractors rationalization

This aims at limiting number of vendors for different goods and services, to the most preferred. It enhances transparency of the accounting system hence obtaining information on costs and quantities used.

Potential for cost savings in selecting options for trial

Implementing cost saving approaches within the each cost centres according to the actual usage of major factors leading to environmental impacts. This approach facilitates cost centres evaluation and close monitoring of environmental impacts to derive improved behavior towards environment sustainable factors.

Comparing varied building as well as different cost centres to assess potential opportunities to reduce environmental impacts. Further facilitate in contracts formulating with its suppliers according to sustainable practices observed.

Breakdown of top 50 ordered items by AMP cost centres.

The breakdown indicated that several items dominated over the stationery purchases. Stationery costs varied, resulting from purchases irregularities for instance staff incentives and other unplanned impulse purchases. Also, paper comprised of a smaller percent of stationery costs for Services@AMP cost centres in comparison to other AMP cost centres due to purchases irregularities. Consequently, costs varied significantly between items. Therefore, through information on to costs is required for determining savings potentials towards the environment.

These items were further categorized as:

Compendium and satchel sets 33 %
Office paper 27%
Staff gifts and incentives 20%
One off items 7%
Folders and files 6%
Stickers 4%
Other items 3%

Opportunities to reduce costs and environmental impacts associated with stationery.

Minimizing costs of stationery can be attained through current accounting and effective management of contract. In AMP it implicated on the additional costs reduction opportunities as well as the environmental impacts through, formulating and implementing standards in use of resources and generation of waste, to facilitate adequate monitoring.

Secondly, including key performance indicators of environment in the monthly management report such as ordered toner cartridges.

Thirdly, determining, communicating and also applying relevant environmental criteria in the compilation of the preferred items list such as recycled stationery items material.

Lastly, utilize vendor’s monthly reports to compare stationery used in different cost centres and locations and determine trends, to identify areas for potential reduction in costs and consumption.

5. LESSON LEARNED

Identifying environmental costs within a given organization

In identifying environmental costs, different costs emerge according to different organizations. Therefore, to identify these costs, it is important to know the important aspects in environmental concerns and once they are identified, derive a results oriented accounting system. Further, this system once formulated, it will facilitate continuous assessment of future environmental impacts with modifications as aspects changes as well as new risks identified.

Benefits of separating of costs for environmental inputs and outputs from rent

Through separation of major costs relating to environmental concerns, there are benefits that can be identified.

First, prices are reduced between 5 percent -50 percent through the process of vendor rationalization. More so, utilizing AMP bulk purchasing power to facilitate reduction of shredding and recycling services hence identify where to alter and reduce the bins or frequent collections leading to cost savings.

Secondly, performance in environmental matters is improved as reduction of vendors actualizes. This facilitates monitoring activities such as energy utility trends, costs and usage of stationeries as well as identifying how to achieve opportunities for reducing environmental costs. Furthermore, vendor rationalization assists in curbing consumption of quality time used in pin pointing environmental costs. In addition, for environmental benefits to be realized, vendor rationalization leads to reducing paper usage as evident in contracts management through formulation, maintenance and renewal.

Thirdly, further vendor rationalization combined with adding an additional field in the accounts payable system describing the type or category of the goods or services provided by the vendor. This should be considered in light of the planned outsourcing of invoices processing for building services. Additionally, consider the environmental policy formulated by supplier especially in new business association.

6. BENEFITS OF EMA

Through identification of environmental costs companies in the service sector with office environments may benefit as follows:

Merging major environmental costs such as electricity inclusion in rent. More so, emphasise on costs transparency would enhance decrease of environmental costs. As a result, quality decisions related to these costs in a business are made.
Identification of alternatives to reduce environmental costs hence increases revenue. For instance, recycling as well as selling waste such as cartridges.
Undertaking these measures guarantees organizational improvement in performance, garner more reputation with consumers and associates and gain advantage over competitors.
Accuracy in budgeting for necessary inventory, enhancing more concern for environment through purchasing friendly products.
Implementation of initiatives to reduce wastage with indication of potential reduction, such as sensors.
Formulating policies to guide the organization towards consistent maintenance of environmental factors.

CONCLUSION

AMP management has confirmed the significance of the study to their business practices. This has been facilitated through better understanding of their environmental performance hence implicated positively in their management accounting. This is realized as flow of information facilitates identification of deficits areas. As a result the management and employees have resulted in making effective decisions with further identification of opportunities with potential for increasing revenues. More so, formulating ideas as more information is obtained and more changes are realized, hence consistent elevate performance.

Finally, it is clear that applying EMA results to formulating techniques corresponding to the practices of the organization. Such that AMP has identified direct costs as major contributor to environmental impacts, hence another organization may have a different scenario. Therefore, incorporating EMA leads to improved performance of the organization in terms of its practices hence gain competitive edge as well as reputation.

REFERENCE

KPMG, 2002, ‘Environmental Management Accounting: A case study of AMP’, Institute of Chartered Accountants in Australia, p. 1-23.