In our previous blog, we explained what is an accounting procedure and why it's important for your business - Why are Accounting Procedures Needed for Your Business? (Part I)
Now where do I start when writing accounting procedures?
A company can have several dozen to several hundred procedures, the key is to have to procedures produced in a similar manner and issued in the same format in order to reduce the any confusion among employees.
The following steps show the sequence of events needed to construct a new procedure.
- Determine need- The most important question is whether the procedure is needed at all. There are many situations where a new procedure is not necessary or cost-effective. You might consider getting approval from the controller or CFO before spending the time on a new procedure.
- Define boundaries- Determine where the procedure documentation is to start and stop, it is possible only a portion of the process need the procedure.
- Conduct Interviews- Schedule and complete interviews with the people who are involved in the procedure process.
- Create a draft- Create a first draft of the procedure, using your agreed upon company format, along with sample forms (if any) and a flowchart.
- Review by users- Have all of the interviewees review the procedure for accuracy. If someone wants to make a document change, ask the other interviewees if the proposed change is accurate for the existing process.
- Reiterate- Issue a new version of the procedure that incorporates the changes, have them review the document again.
- Approve- After the reviews have all been done, then a department manager impacted by the procedure should approve the finished procedure.
- Distribute- A procedure is useless if it is not distributed to the people who need it most, and in a timely manner. Develop a list of positions to which procedures should be distributed to and update it frequently for changes.
What does a sample procedure format look like?
The following bullet points can be used in any sequence in the procedure, however they frequently are in the following order in a procedure.
- Procedure header block- Block of information at the beginning of each procedure that identifies it. It may include a Title, Identification number, Version number and a release date.
- Procedure summary- A brief description of the procedure and why it is used.
- Procedure steps- Description of the actions to be taken to complete each procedure step.
- Responsible party- The persons responsible for completing each indicated step.
- Control issues- Control issues that an employee should be aware of in regards to the procedure.
- Cross references- Similar procedures (if any) listed with any unique identification numbers assigned to them.
- Forms- Any forms used in a procedure.
- Reports- Any reports used in a procedure.
- Flowchart- Flowcharts are extremely useful for giving a visual representation of how a procedure is supposed to operate.
Once procedures are in place how do I enforce them?
A company can develop hundreds of procedures, but they are completely useless if employees do not follow them. It is difficult to enforce the use of procedures in environments where procedures are updated in a half hazard manner. The following are some examples of positive and negative reinforcement methods in dealing with employees regarding established procedures.
Positive enforcement:
- Link to systems development staff- Build a working relationship between the procedures development staff and those employees tasked with making alterations to the company’s systems. In doing so procedural revisions are issued at the same time system changes are made.
- Link to auditors- If the internal or external auditors review the company systems and find control problems, the procedures development staff should be aware of those issues so that they are develop procedural remedies.
- Issue timely updates- Create a system that issues procedural updates on a regular basis.
- Conduct training- Provide training as needed regarding procedural changes, especially where an entirely new procedure is being installed.
Negative reinforcement:
- Report on procedural failures- These issues should be documented and issued to the management team. The CEO should enforce the remedy of each failure, with follow up actions to ensure that improvements were implemented.
- Request internal audits- Request that the internal audit staff engage in an ongoing series of review to determine the extent to which employees are following procedures. If no internal audit staff, consider hiring a systems consultant for this work on an ongoing basis. The result of these reviews should be a report that is sent to the management team, pointing out areas of noncompliance with procedures.
- Create audit committee- The audit committee comprised of board members, can pressure the CEO to enforce greater compliance with the company’s official set of procedures.
- Integrate into employee evaluations- Convince the CEO and HR manager to include procedural compliance in the reviews of employees. Serious non-compliance could be grounds for dismissal from the company.
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