Mark Earley, Executive Vice President and CFO, of the Tecma Group of company advises how manufacturers’ accountants, and their staffs, should approach a move or set up of a manufacturing plant to Mexico.
Hello, my name is Mark Earley. I am the chief financial officer of the Tecma Group of Companies here in Ciudad Juarez, Mexico. One of the questions that I am most often asked is “what are the most important things to consider from an accounting perspective when establishing a manufacturing plant in Mexico?”
What I tell those who ask the question is that when a manufacturing plant is established in Mexico, a lot of focus is typically put on operations. There is a tendency to neglect the administrative and support functions, however. One of the things that I see is the neglect of internal controls. It is very important that the internal controls that you’ve set up at the corporate level and your plants in the U.S. and elsewhere are taken and established at your manufacturing plant in Mexico. Part of this item is not only to transfer internal controls, but to change some of them. Where are the hand off points between corporate and your companies Mexico manufacturing facility?
One of the major failures that I have seen from a control standpoint is what we have when we establish what we call “kingdoms.” This occurs when you segregate the duties within the manufacturing plant in Mexico, but all of those functions and duties report up to the plant manager. What you have done, in essence, is to have established the plant manager as “king.” All of the individuals below him are making decisions, but the “king” is that single point at which everything is overseen.
It is very important that as you move internal controls to Mexico that you keep the functional controls through Corporate. This means that human resources at the manufacturing plant in Mexico reports to human resources at headquarters, and that accounting does likewise and reports to accounting. Those individuals should be responsible, and appropriate hand offs should occur between the plant and corporate and corporate and the Mexican production facility.
So, again, don’t only focus on operations, but focus on administrative controls, as well. Make sure that when you establish your manufacturing plant in Mexico that controls exist.