Historically, compliance has been the focus of most knowledge management systems.  Documenting business processes with policies and procedures is required by many standards such as for ISO 9000 Quality Management Systems, Sarbanes Oxley Accounting and Finance, or Good Manufacturing Practices (GMP) for the Food and Drug Administration (FDA).  But if we look closer at the intent of these standards then we see that we should be more concerned with control, to improve quality or reduce the risk of failure.

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Small and medium-sized businesses rely on a steady, consistent stream of incoming cash – customers paying for goods and services with cash, checks, and credit cards. Many retail and service businesses have multiple people conducting cash transactions throughout the day. Creating a cash policy and cash procedure for important cash handling processes like cash drawer management, end of day closing, or cash in deposits, can be vital to protecting the life blood of your business.

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Question of the month: How can Accounting Policies and Procedures help your organization?

The Accounting Department is an area where policies and procedures are usually a requirement, because they are considered part of the internal controls noted in Sarbanes-Oxley. The real question is: What approach are you taking to developing accounting policies and procedures?

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Everywhere in your organization people are carrying out business processes to make things happen. It doesn’t matter if the processes are well defined, poorly documented or if the staff is trained. If things are getting done – it is because people are executing business processes.

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What is the difference between a well-conceived and well-written accounting policy and a poorly conceived and poorly written accounting policy?  Of course, the needs of every organization are different, and the most important element of an accounting policy is that it helps the organization. Last week we mentioned the importance of gathering accounting policies into the accounting manual.  Now let’s review some important points to consider when crafting policies.

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The question “What should be in your accounting manual?” should first be answered by another question: “Why do you need an accounting manual?” Whether you are looking to purchase a pre-written accounting manual or create your own accounting manual from scratch, these are two important questions to answer.

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Question of the month: Do you understand the meaning of the term “internal controls?”

The internal controls requirement in Sarbanes-Oxley Section 404 has created the most uncertainty and distress in businesses. Frequently those of us involved in office processes are not accustomed to having our work planned and verified to the degree that is common on most factory floors.

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When you hear the phrase “internal control system required by Sarbanes-Oxley (SOX) Section 404,” do you automatically think of policies and procedures?  Simply having accounting policies and procedures does not indicate an internal control system.  Well-written accounting procedures that document well-defined accounting processes, however, are an important component of the internal control system you are building. 

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Using risk management techniques is an important component in creating the internal control required for compliance with Sarbanes-Oxley (SOX) Section 404.  Risk management includes all the activities associated with identifying and reducing risk, as well as coping with negative events should they occur.  Identifying risks and creating systems and safeguards to ameliorate them is one way to create a basic internal control system.

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It has been more than five years since most provisions of the Sarbanes-Oxley Act of 2002 took effect (in mid- 2003). Many publicly traded companies, however, still seem to struggle with developing a confident understanding of compliance.

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