Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles 1 S 2 3 4 S 5 5 1 Material purchase 2 Materials consumed for production 3 Total amount of production 4 Turnover 5 Non-product output (waste and emissions) S Stocks Figure 21. Differences between material purchase and use for production It is essential that quantity units are defined or recalculated into the mass unit (kg) in the material flow balance. Recording units of materials used (such as five boxes of paint) only makes sense if production planning has a computer program in place that correlates processed units to the resulting products. Actual monitoring and recalculation of estimated consumption ratios provides helpful saving potentials. A weight balance in kilograms of materials consumed and processed and the resulting production output and non-product output including losses on stock is desired. It has proved helpful to determine the relevant kilogram data at the same time that a material stock number is assigned to a specific material within the storage system. In this manner, all relevant data such as price, quantity, conversion factors and material numbers are recorded when the supplier invoice is recorded. The material flow balance can be checked for consistency by comparing it, to the extent possible, to material supply from stock-keeping, sales information and production lists. For auxiliary and raw materials, packaging materials and final products, this can be done by adjusting the existent computer software; once this is accomplished, relatively little work is involved. The procedure becomes more complicated, however, when the majority of operational materials affecting the environment, like chemicals, paints and lacquers, cleaning materials, workshop needs, etc., that affect emissions and proper disposal, cannot be extracted through material numbers. In this case, the amounts used cannot be traced back. In many enterprises there are a large number of such materials without material numbers that vanish in stock and in overhead and whose values and volumes cannot be traced. Distributing direct costs and general overhead: Many companies include only raw materials and some packaging materials in direct costs, but not auxiliary and operational materials, other packaging materials and the cost of disposal. Therefore, checking for -54-
Environmental Management Accounting Procedures and Principles consistency provides significant potential for account arrangement and classification criteria optimization between material numbers and the classification of accounts and costs. In the interest of efficient use of information (and to eliminate the need to go back to original invoices for information, as some companies have to do) the departments involved should agree on a record organization system. Purchasing and material management will thus become more important in developing an inventory system for materials that potentially affect the environment and corresponding record-keeping obligations. Existing production planning systems can deal with thousands of materials. Amounts are recorded as soon as materials are ordered or stored, and again when they are taken out of storage and moved into the production process. The company’s production planning system should be checked on a regular basis for consistency between actual data on materials purchased and production output. This procedure is shown in figure 21. It is often the case that scrap percentages, which have been rough estimates, need to be adjusted. Automated cutting and dosage plants frequently have much better amortization times than expected since losses were often higher then estimated. In the first year of material flow analysis, it is sufficient to trace and account for about 70 per cent of all materials (mainly raw materials and packaging and, if possible, auxiliary materials also) in the material flow balance. Likely immediate results are: • Adjustment of the percentages used to calculate scrap resulting from raw materials and products; • Improved monitoring of materials and products in stock; • Installation of computer-aided design and cutting machinery; • Automated dosage equipment for operating materials; and • A marked improvement and consistency in information systems and records based on them. All this should significantly increase profits. In the following years, consistency can be improved to include all material input as well as office material monitoring within the material storage system and internal ordering instructions. Be aware that such changes interfere with individuals’ spheres of influence. This may provoke resistance to a system that prohibits departments from placing external orders but directs all orders to the central corporate warehouse. The production planning system is sometimes used for standard production units only, not for custom-designed products. Eventually, these should also be integrated into the material monitoring system. Sometimes waste is not monitored on a regular basis. Once companies realize the monetary value of waste and the resulting saving potential, they will install waste monitoring systems not only for the whole company, but at cost centres, so that amounts and costs of waste can be attributed to the polluting production lines. -55-
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