Organization Chart

An organization chart, or org chart, is a diagram that shows how an organization is structured. Boxes represent positions or departments, and lines show who reports to whom. A typical company chart starts with the board of directors and the chief executive officer at the top, followed by senior executives and then the departments and teams beneath them.

Although an org chart is often thought of as a human resources document, it is also important in accounting and finance. It shows where decision-making authority lies, how responsibility for costs and revenues is assigned, and whether duties are divided in a way that prevents errors and fraud. Auditors routinely request it at the start of an engagement, and managerial accountants use it to design budgets and performance reports around each manager's area of responsibility.

• Functional structure: employees are grouped by function, such as production, sales, finance and human resources, each under its own head. It suits smaller companies with a single main product line.
• Divisional structure: the company is divided into divisions by product, customer group or geography, each with its own functional teams. It supports decentralization and is common in large, diversified groups.
• Matrix structure: staff report both to a functional manager and to a product or project manager. It encourages coordination but can blur accountability.
• Flat structure: few management layers and wide spans of control, often found in start-ups and professional firms.

In a mid-sized company, the chief financial officer (CFO) typically reports to the CEO and oversees two main areas. The controller heads the accounting department, including general ledger, accounts payable, accounts receivable, payroll and financial reporting. The treasurer manages cash, banking, borrowing and investments. Larger companies add teams for tax, financial planning and analysis, and investor relations, and an internal audit function that usually reports to the board's audit committee rather than to the CFO, so that it can review management independently.

An org chart helps show whether incompatible duties are kept apart. For example, the person who approves supplier invoices should not also be able to set up new suppliers and release payments, and the person who handles customer receipts should not also post them to customer accounts. If the chart shows one person covering all of these, an auditor will look for compensating controls or plan more detailed testing.

Responsibility accounting builds reports around the chart. Each box becomes a responsibility center: a cost center when the manager controls only costs, such as a maintenance department; a profit center when the manager controls both revenue and costs, such as a regional store chain; and an investment center when the manager also controls capital spending, such as a division. A plant manager responsible for a $12,000,000 production budget is then judged on the costs under his control, not on head office charges he cannot influence.

The number of people reporting to one manager is the span of control. A company with 600 employees and an average span of 8 needs roughly 75 front-line managers, about 9 managers above them and one or two layers more; widening the average span to 12 would reduce the number of managers and layers, cutting overhead but giving each manager less time per employee.

Org charts show formal relationships only. They do not capture informal influence, cross-team working or how decisions are actually made, and they quickly go out of date after reorganizations. Accountants therefore treat them as a starting point, confirmed by interviews, written policies, delegation-of-authority schedules and observation of how work is really done.