It is interesting to note that, in many cases, the internal control system at many companies consists of volumes of instruction-like procedures that document activities. If a company is taking the time and effort to develop a procedure-based financial control system, it’s worth the additional effort it takes to:

• Understand major financial processes;
• Establish key finance polices and goals (including performance goals and accurate financial statements);
• Determine which processes introduce the greatest amount of risk and which are material to our financial goals;
• Prioritize development of the internal control system according to materiality, risk, and other important criteria;
• Incorporate best practices; and
• Foster an environment in which continual improvement is the status quo.

Is there a better indicator of an effective system of controls than clear goals and key performance metrics that are consistently measured and regularly improving? And are you taking advantage of the financial control system to improve process results and your financial performance?

Easily Editable Procedure Templates for Internal Control


CFO Accounting Procedures Series

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Accounting Procedures Manual

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Financial Procedures Manual

Improving Processes in the Production Area and the Office

Discussions of process improvement and quality commonly reference the production area, or shop floor. Is it any less important for your other key office processes (for example, accounting and finance) to function effectively and efficiently? If you’re a service provider rather than a manufacturer, are quality and process improvement less material? (Of course not.)

How well does your company manage financial aspects like working capital, debt and investments, and leasing? These are as vital to a company’s success as efficient product design and production, yet few attempt to understand and improve finance processes to the same degree as, say, the product development process.

In fact, a lack of focus on finance is common, especially among privately-owned SMBs. Research shows that a majority of SMBs do not create capital plans, do not actively manage working capital, nor do they conduct analysis of financial statements.

Do you know if you’re making money on the cash you borrow? How about the assets you deploy, like accounts receivable, inventory, or cash? What about asset acquisitions you make? These are hard questions but they’re the kinds of questions you should be asking before you raise debt or equity capital.

What really represents the bigger threat to the success of your business:

• One of your Receivables staff borrowing 5-10 euros from petty cash when they’re short of cash and they want to go out to lunch on Friday? Or…
• Not having well-thought-out and consistent methods for managing high level finances that — if your financial situation suddenly and significantly worsened — could result in millions’ worth of losses?

The answer should be obvious.

A Financial Control System that Focuses on Improvement and Success

We’re not implying that businesses ought to ignore cash drawer controls. What we are suggesting is that focusing on low risk/low payoff components while neglecting key aspects doesn’t indicate a system of controls that appropriately addresses risk or that has its priorities in order.

Focusing on the mundane or trivial will do little to improve your overall financial performance! Internal control systems should be designed for continual improvement in key aspects of your operations, such as:

• Regularly reviewing and improving the overall capital structure;
• Using a capital plan to minimize the cost of capital while strengthening your debt/equity position;
• Managing working capital so excessive inventories and receivables do not sap your financial resources;
• Ensuring proper calculations and scenarios are explored while making debt & investment or leasing decisions; and
• Maximizing returns while minimizing costs for cash and merchant accounts.

A system of well-defined processes is not only about control or compliance: it is also about consistently striving to do a little better. Control systems that are designed only to achieve compliance are doing the bare minimum, which means they represent missed opportunities — opportunities to gain and keep a competitive edge, for instance.

That ought to be enough reason for any size and type of company to think about using the process approach to ensure continual improvement and an effective system of internal controls.

To help you build an effective system of internal controls for success, consider the Bizmanualz Finance Policies, Procedures, and Forms manual. Download a sample and see for yourself what companies like yours have saved in planning and development alone!

We regularly send out e-mails, to continually keep our name in front of potential (and existing) customers. Some of us even have LinkedIn^TM and Facebook^TM pages (Figures 2, 3) where we invite not just commentary, but participation and engagement.

We have a plan for strategically managing our web presence. In that plan, we:

1. Establish SMART objectives;
2. Develop and implement the various aspects of our web presence (web pages, newsletters, social media, etc.);
3. Monitor, measure, and analyze to see if we’re meeting planned objectives;
4. Make changes to the plan, as needed, and implement them; and
5. Continue to monitor, analyze, change, ad infinitum.

Why does that 5-step plan look familiar? It’s the “Plan-Do-Check-Act” (PDCA) cycle! It’s how companies ensure product quality, continual improvement, and customers who are more than satisfied — they’re actually advocates!

Figure 1

Ask yourself, “Are we doing that?” Do we have a plan, or did we just throw something out there so we could say, “We have a web presence”?

Figure 2

Without a clear, comprehensive plan, your web presence can do you more harm than good. If you’re lucky, prospects and customers contact you about broken links, inconsistencies, and the occasional link to a product you discontinued months or years ago. In reality, most of your target market just “walks away” and never comes back.

Figure 3

The best advice I can give you is to establish a process of developing, implementing, and maintaining your company’s web presence before you build a single page online or send out a single e-mail. To do that, you need to understand:

• What your company stands for (its vision and mission);
• What you want to accomplish in the short and long term (i.e., what objectives you have for your web presence, specifically, and how – and if – those objectives tie into your company’s overall objectives);
• How extensive your web presence could (or should) be; and
• Why it’s important to establish a system of internal controls early and not let your efforts, accidentally or otherwise, go off target.

If you haven’t had a program for managing your web presence up to now — not a problem! There’s no reason to believe that because you’ve been working without one, you can’t implement one at any time. It may seem difficult at first, but the reward is unquestionably well worth the effort.

Take a few steps back and reevaluate your situation from a user’s perspective. If you have a particularly trustworthy customer, one you can count on to give you an unvarnished (but not a brutal) opinion, ask for their input. Find out whether they’re getting what they want from your web page and your social media. Find out if their objectives align with yours, and vice versa.

Refresh – reinvigorate – your web presence a little bit at a time. You don’t need to get everything done in a day or even a month or two. Work on the “low-hanging fruit” first, then move on to areas where your weaknesses aren’t so problematic.

And remember — stick with the plan! Keep reminding yourself — you only get one chance to make a first impression!

* * * * * * *

If you see an inconsistency or error on another company’s web site, do you say anything or do you let it go? Does it make a difference if they’re a vendor/customer of yours or not?

Some of you aren’t buying the “fear, uncertainty, and doubt“ story, though. You’re going about your business logically, methodically, and with a clear sense of direction and purpose. You’re making things happen now and you’ll be in the lead when 2011 rolls around.

For the rest of us, there are many things we could be doing to make great strides forward in the coming year. Among them are implementing or refining the following key procedures:

10. Vendor Evaluation – We’ve all outsourced many of our “non-core” functions, but how many of us are guilty of inattentive behavior with respect to our outsourcers? You get a little complacent and what happens? Deadlines start to slip, or substandard product starts to sneak in. Now is a good time to evaluate your product and service vendors to see if they’re measuring up to your standards.

9. Document Control – Do you know if your employees are following the same guidelines? If you had to ask an employee to take over another’s duties for the day because of an illness, would that first employee know where to go for information? Do they have access to the latest version of the procedure? It’s important that you keep your documentation, however critical it is, under control.  One easy way to do this is using policy management or document compliance management software.

8. Process Monitoring and Measurement – Companies that don’t monitor and measure their performance have no way of knowing for certain if they’re doing better than they were six months or a year ago, or in which direction they’re headed. We can’t improve what we don’t measure.

7. Control of Nonconforming Product – One of the worst things that can happen to your company…worse than finding an error on the production line, worse than finding a nonconformity during inspection…is having a customer find a nonconformity for you. Nothing hurts your company’s reputation worse than a customer finding a poor quality product, getting a late delivery, or finding a billing error in your favor.

6. Identification and Traceability – This is one of the biggest issues in food safety. As important as identifying unsafe product and removing it from the food supply chain is tracing the offending product to its source. ISO 22000 already had a clause addressing traceability when ISO developed a new standard, ISO 22005, to address the issue further. Whether you’re in the food business or another line of work, your customers will benefit from improved traceability of your components.

5. Competence, Awareness, and Training – Very few things improve your company’s performance — and reputation — more than a well-trained, capable work force. Ongoing training not only helps your employees gain self-confidence; it lets them know how important they are to your success.

4. Customer Satisfaction – Some refer to it as “customer loyalty”; others call it “the customer experience”. Whatever label you give it, your company wants to do more than retain customers. You want your customers telling all their contacts how great you are, how if every supplier was as customer-conscious as you, their business would be exceptional.

3. Control of Records – “Those who ignore the past are condemned to repeat it.” (Santayana) Your quality records, your accounting records, your sales records — these are the foundation for your company’s success, now and in the future. Barring the invention of a foolproof “crystal ball” app for your smartphone, knowing where you are in relation to where you’ve been and acting on that knowledge to improve your processes are key to your growth. Without adequate recordkeeping, you are flying blind into the future.

2. Internal Auditing – The best way to ensure the effectiveness of your operations and the viability of your organizations is to have your systems — accounting/finance, operations, IT, quality, etc. — audited. You should have a third party, someone with knowledge, experience, and impartiality, periodically audit your systems. In between, you should self-audit your systems to ensure that they’re in compliance, are effectively implemented and maintained, and that they’re achieving the desired results.

And the most important procedure you can implement to improve your quality and performance in 2011?

1. Corrective and Preventive Action – It’s a two-way tie for number one. Corrective and preventive actions are intertwined, though they’re not interchangeable.

A corrective action is the one you take to ensure that a problem does not happen again. A preventive action is what you do to prevent, or lessen the likelihood of, the problem from happening in the first place. Think of a heart attack: surgery to repair the damaged heart, combined with other measures (improved diet, exercise, etc.), is a corrective action. Regular exercise, a healthy diet, and (when you reach a certain age) regular visits to a cardiologist before you have a heart attack are a preventive action.

And, don’t forget what binds these procedures together — a mission, vision, and strategic plan for your firm. More on that later. For now, what do you think? Are there any procedures you’d add to, or take out of, this list? Would you put them in a different order?

Four Main Accounting Cycles

Accounting transactions in the form of sales invoices, receipts, purchase invoices, checks, and payroll entries are posted to the appropriate journals. Simultaneously — as a form of internal control — these postings are recorded in the general ledger, or “GL”. The GL accumulates all transaction activity, where it is organized by account class.

Various reports, including financial statements, can be prepared from the data collected in the GL.  Corrections or necessary adjustments can be made to the general ledger by creating adjusting journal entries, posted to the general journal.

1. Revenue Cycle

Order Entry. Invoices entered through direct entry, sales orders, or a point-of-sale (POS) system, such as a cash register, are posted to the sales journal.  These entries also accumulate on the accounts receivable ledger, organized by customer.  If the business maintains an inventory, the posting of sales also affects the inventory ledger. Finally, all sales journal activity is also posted to the GL.  A discussion of your revenue cycle should be covered in your revenue procedures.

Cash Receipts / Deposits. Receipts on sales and other bank deposits are posted to the cash receipts journal.  Sales receipt information also accumulates on the accounts receivable ledger, organized by customer.  These postings are also entered on the bank account ledger.  Finally, all cash receipts journal activity is also posted to the GL.

Accounts Receivable. Accounts Receivable is a separate journal that records both sales and cash receipt data by customer.  The data comes from the postings to the cash receipts journal and the sales invoice journal.

2. Purchase Cycle

Purchase Orders / Purchasing. Invoices entered through direct entry, or through purchase orders, are posted to the purchase journal.  These entries also accumulate on the accounts payable ledger, organized by vendor.  If the business maintains an inventory, the posting of purchases also affects the inventory ledger.  Finally, all purchase journal activity is posted to the general ledger.

Cash Disbursements / Checks. Payments on account or for expenses are posted to the cash disbursement journal.  Payment on account information also accumulates on the accounts payable ledger, organized by vendor; these postings are also entered on the bank account ledger.   Finally, all cash disbursement journal activity is posted to the general ledger.

Accounts Payable. Accounts Payable is a separate journal that records both sales and cash receipt data by vendor.  The data comes from the postings to the cash disbursement journal and the purchase journal.

3. Payroll Cycle

Payroll data by employees are entered into the payroll journal.  These postings are also entered in the cash disbursements journal and the payroll ledger.  Finally, all payroll journal activity is also posted to the GL.

4. General Journal Cycle

Corrections or adjustments to the above major transaction cycles can be made through adjusting journal entries, posted directly to the general ledger. These are also compiled in a separate journal, known as the “general journal”.

How Does “Posting” Work?

The specific postings, as outlined in the cycles above, do not necessarily take place as separate steps, especially in computerized environments.  There are only two basic posting methods in computerized accounting systems: real-time and batch posting.

In real-time posting, the source transaction (check, bill, payment, receipt, etc.) is posted to the specific journal and any related subsidiary ledger (e.g., accounts receivable, accounts payable, inventory) and is simultaneously posted to the general ledger.

In batch posting, the journals and subsidiary ledgers are posted, but entries are not yet posted to the general ledger.  Posting these journals to the general ledger is done separately.  Typically, a group of transactions (often a full day’s worth) is entered.  Later, after the journals are reviewed for accuracy, this entire day’s group, or “batch”, is posted to the general ledger.

To understand this posting process better, it would be helpful to follow specific transactions through a sample company.  First, however, we need to define various accounting terms and concepts.

Accounting Terms and Concepts

Double-Entry Accounting

We can thank the 14^th and 15^th century Italian merchants for developing the double-entry system of accounting that we still use today.  It is widely believed that Benedetto Cotrugli (aka, Benedikt Kotruljevic) was the first to document this concept of double-entry accounting (in his accounting policies and procedures, perhaps?).  In 1458, he wrote Delia Mercatura et del Mercante Perfetto (Of Trading and the Perfect Trader), which included a brief chapter describing many of the features of double-entry accounting.

In 1494, Luca Pacioli, from San Sepulcro in medieval Tuscany, published the Summa de Arithmetica‘s 36 short chapters on bookkeeping (entitled De Computis et Scripturis, or “Of Reckonings and Writings”) so the subjects of the Duke of Urbino could learn how to conduct business and provide the trader with a fast, accurate method to determine his assets and liabilities.

For many centuries before this, commercial transactions had been recorded — journalized — on paper, papyrus, or clay tablets.  However, these journals provided only totals of transaction groupings. It was the Italians who first recognized that it is impossible for a business transaction to occur without affecting at least TWO accounts. There can never be only one effect from a transaction — there has to be balance.

An Italian farmer sells wood to a shipbuilder for 400 ducats. To account for this transaction, he would record, “wood sale – 400 ducats”. His “sales” account has increased by 400 ducats. But, what else has happened?  What other account was affected? His “cash” account also increased by 400 ducats.

What if he sells his wood to the shipbuilder on credit and receives no cash? In this case, it’s his “accounts receivable” account that increases by 400 ducats.

There Are Always Two Sides – at Least – to Every Transaction

Later, when the shipbuilder pays his debt to the farmer, the farmer records an increase in his cash account and a decrease in his accounts receivable by 400 ducats each.  You can see that an integral feature of the double-entry method is that transactions must equal. At the time, this new method was heralded as an astounding discovery and was described as “a magic mirror, in which the adept sees both himself and others.”

Today, double-entry bookkeeping is used for recording a transaction in two or more different places, or ledger accounts.  This practice simplifies finding errors since the totals of both ledger accounts should agree.

Debits = Credits

Bookkeeping entries are divided into debits and credits. The debit side is typically the left side of the ledger page and credits are on the right.  The origin of the words “debit” and “credit” come from the simple concept: “who owes you” and “to whom you owe”.

Debits are transactions relating to purchases, expenses, or increases in an organization’s assets. Credits are transactions related to revenues, or an increase in the firm’s equity and liabilities. Recording a transaction requires a debit and a credit entry.  If the entries are correctly recorded, the totals on both sides of the ledger agree.

The double-entry bookkeeping method — listing debits in one column and credits in the other — requires that the debit and credit columns add up to zero. The double-entry bookkeeping method is still the basis for tracking financial affairs, almost six centuries .   The following list illustrates the effect of posting a debit or credit entry on each major account type:

These account types are the general account classifications used in all accounting systems.  They are also used to organize the general ledger, from which financial statements are developed.  Your accounting policies and procedures should take into account the main accounting cycles, accounting methods, and accounting terms to guide the operation of your accounting system.

On one hand, popular accounting programs for small and mid-sized businesses have become more widely used than ever before.  On the other hand, industry consolidation has significantly reduced the accounting program choices to a handful.  These choices are typically inexpensive, easy to implement, and come with little support to develop appropriate accounting policies and procedures to ensure that the data generated by these programs is accurate and complete.  Entry-level software like Quickbooks® and mid-level software like MAS-90 or Great Plains share this common deficiency.  “Support” documentation is long on the explanation of user features and short on accounting policy and procedural advice.

Accounting Systems – The Recent Past

Only twenty years ago, small to medium sized businesses faced daunting choices for selecting an accounting system.  There were only three choices:  Continue to use a full manual system (a comprehensive pegboard “one-write” system, employing many journals anchored to an imposing cloth bound general ledger book that rivaled the size of the largest Webster’s Dictionary); purchase or lease a computerized accounting system; or build your own automated system.

The manual systems were not trivial.  They were produced by major firms, which provided on-site implementation and training.  These systems were well documented with many accounting policies and procedures built into the regimented use of the “one-write” journals and corresponding ledgers.   Internal controls were manual at best.

An alternative decision was to purchase or lease an automated accounting system.  But this required another decision of whether to buy a “ready made” product or build your own.  To make this decision, the company would typically hire a consultant or CPA firm to perform a comprehensive “needs” analysis.  The consultant would eventually select, either a commercially built multi-module accounting program (like Solomon, our Real World), or a programmer to develop the structure from custom code (RPG was a popular language used to create custom accounting programs).

Either one of these alternatives would have to run on a leased or purchased dedicated mini-computer system, (the IBM 36 was the popular mid-size business choice for many years).  Both solutions required tremendous resources in time and money.  Even the “ready made” solutions required plenty of additional programming to fit it into the specific company’s needs.  For a half a year or more, various consultants, programmers and specialists would write code, test and rewrite code.

In either case, documentation was paramount.  Hence Accounting Policies and Procedures, as they applied to the mechanics of the accounting system were well documented as a by-product of the installation and implementation process.  The total costs in the purchase or lease of the hardware and software (ready made or custom built), and in the company’s own human resources, was staggering.

Accounting Software – The Present

Imagine the months of decision making preparation, the months of development, the reams of Accounting Policies and Procedures documentation, and the total costs that easily went from tens of thousands to hundreds of thousands of dollars.  Compare this with current practice: The company owner (or the controller or other designee) walks into a local retailer, picks up a copy of the most successfully marketed accounting software package (i.e., the one occupying prime shelf space), drives back to the office, and loads the program on any available PC.  There you have it – the decision making process, needs analysis, implementation, and installation, all for one low price…or is it?

None of these accounting programs comes with supporting accounting policy and procedure documentations.  Internal controls do not exist and require manual processes and extra paperwork.  Your accounting software does not come with support  to help in your compliance with Sarbanes Oxley.  Of course you can develop your accounting policies and procedures yourself, from scratch.  But, this take a lot of time and expertise.

Accounting Practices – The future

The future begins today, with your purchase of this Bizmanualz™ Accounting Policies, Procedures and Forms.  This manual is needed more now than ever.  Accounting systems are more accessible than ever before.  Unfortunately, they come with no instructions.  The user guide that comes with the accounting software only explains what the menu options do, it doesn’t explain which options result in sound accounting practices.

Accounting software is looking more and more like your own internet browser home page, (no surprise since each manufacturer is competing to be your primary web portal).  New Accounting Software as a Service (SaaS) applications will make this a reality.  But, in the process, the actual functions of accounting are less obvious, and as a result, less understood.

This article series will take a look behind the scenes of the “splash screen”.  Hopefully, by understanding the concepts and consistent accounting rules utilized by all accounting software programs, you will develop more confidence to rely on the information generated by the program, you will have a deeper appreciation of the importance of accounting policies and procedures for internal control, and you will be able to use it more effectively to run your company.

If you qualify as a non-accelerated filer (i.e., your company’s public float is under $75 million), you’ll have to start complying with Section 404(b) of SOX, which requires company management and independent auditors to sign off on, or attest to, the effectiveness of your risk control framework or accounting policies and procedures for internal control.  Are your processes protecting you from the risk of material misstatements (RMM)?

Sarbanes Oxley Compliance Costs Too High?

When it was first enacted, the Sarbanes-Oxley Act (SOX) did not apply to non-accelerated filers because it was believed SOX compliance costs would be too high.  Several delays and extensions have been given to non-accelerated filers because the Office of Economic Analysis (OEA), which advises the SEC, needed to complete a study on SOX compliance costs. The study was completed in September, 2009, and was quickly followed by the announcement (on October 2) of the June 15th compliance deadline.

It didn’t surprise anyone when the OEA study showed that SOX compliance costs increase with company size; the study also confirmed that annual compliance costs decrease over time and that, overall, compliance costs have decreased since 2007.  In other words, while larger companies achieving SOX compliance had higher costs overall, there are fixed SOX compliance costs that impact all organizations, regardless of size, and companies have gotten smarter on how to implement Sarbanes-Oxley.

How Do You Control Sarbanes-Oxley Compliance Costs?

There are three major factors that drive up the cost of complying with SOX: cost of scale; cost of review; and cost of improvement.  The more control you have over all three of these, the lower your costs to implement Sarbanes-Oxley compliance will be.

Sarbanes-Oxley Cost of Scale

Why do larger companies incur higher overall compliance costs?  Because of the sheer size — scale – of their operations!  More operating locations, more employees, and more processes means more time and people needed to review accounting policies, procedures, and internal controls.  There is no easy answer to the question of scale: larger size translates into more risk management, internal controls, and accounting processes.

You can reduce the scope of SOX compliance by addressing the greatest risks first (note that PCAOB Auditing Standard #5 was developed for this purpose).  Don’t try to address all risks at once — this is what drives up compliance costs.  But, which risks do you address first?  Determine a threshold, or cutoff, for risk materiality, then decide which risks are most material to your company.

Remember — this is an ongoing process of improving your SOX compliance, not a one-time SOX compliance event.  Next year, you can (and probably should) lower the threshold and address your “second-tier” risks, and continue to annually adjust your threshold until you are comfortable.  Management decides on the internal controls needed to cover the identified risks.

Also, if you decide wrong and set your risk threshold too low or too high, you’ve identified a material weakness in your risk control framework.  You think you’ve exposed a flaw in your system, but consider that your system is also about continual improvement.  The only flaw is failing to improve: work on improving your internal controls – adjust your risk threshold – and you can demonstrate that you have a SOX-compliant system.

Sarbanes-Oxley Cost of Review

The cost of review represents the Check and Act phases of the Plan-Do-Check-Act (PDCA) process approach.  All companies needing to comply with SOX have to have some form of review process that tests accounting’s internal controls and gives management the confidence to attest to the validity of the company’s financial statements.

Internal audits, management reviews, management and auditor attestation, and board oversight are fixed costs of Sarbanes-Oxley compliance.  Every company has to operationally demonstrate to top management that internal controls are in place and are working.  Larger companies have to spend more, of course, but every company must spend a minimum amount for basic compliance.

As with the cost of scale, you can reduce the scope of SOX compliance by addressing the largest risks first in your audit plan.  You don’t have to audit every accounting process every year.  Start with the accounting processes that have the greatest impact — those that pose the greatest risk of material misstatement if they don’t work.  Review past audit opinions, your compliance plan, and your definition of materiality and adjust your audit plan to deal with the greatest risks.

Management decides on the internal controls and testing needed to ensure that the identified risks are controlled.  If you find that your audit plan hasn’t addressed the right risks, you adjust the plan.  Again, lessons learned — and implemented — show that your system is driving improvement and is, therefore, Sarbanes-Oxley-compliant.

Sarbanes-Oxley Cost of Improvement

The cost of improvement comes under the “Plan” and “Do” phases of the PDCA process.  Sarbanes-Oxley compliance starts with a compliance plan, one that identifies the risks you need to control.  Your compliance plan is the foundation of your risk control framework.  With a sound compliance plan in place, management can make better decisions regarding internal controls, such as implementing accounting policies and procedures that reduce or eliminate the risk of material financial misstatement.

Developing accounting policies and procedures is the “Do” in “Plan-Do-Check-Act”.  Your risk control framework identifies individual risks (e.g., the chance a receivable is not collected on time). Your accounting policies (e.g., collect accounts receivable within 30 days) and procedures (daily A/R aging reports, phone calls, collection letters, etc.) are forms of internal control that demonstrate your compliance with Section 404 of SOX.

Are your accounting policies and procedures for compliance, or control?  Well, control comes before compliance, but many companies have confused the two and wasted a lot of time and money.  You can reduce the scope of SOX compliance by controlling your greatest risks first with your accounting policies and procedures.

You don’t have to write a policy or procedure for every accounting process at once.  Once again, start with the accounting processes that, if they don’t work, pose the greatest risk of material financial misstatement.  Review audit opinions, your compliance plan, and your definition of materiality, then develop and implement the accounting policies and procedures that address your greatest risks first.

Management makes the final determination of which accounting policies and procedures are needed.  If you develop cash policies and procedures that do not (adequately) control the identified risks, you have a material weakness.  Improve your accounting procedures for internal control and you demonstrate Sarbanes-Oxley compliance.

Bizmanualz Accounting Policies and Procedures Reduce Sarbanes-Oxley Compliance Costs

Sample accounting policies and procedures serve as a model, or framework, for your own accounting policies and procedures.  The CFO Accounting Policies and Procedures Manuals set contains 239 procedures you can use to address the ten accounting cycles.

SEC Chief Mary Schapiro recently stated that “there will be no further Commission extensions.  It is important for all public companies – and their auditors – to act with deliberate speed to move toward full Section 404 compliance.”  Although legislation has recently been introduced to permanently exempt non-accelerated filers from Sarbanes-Oxley Section 404(b) compliance, there’s no guarantee that Congress will act or that the public won’t demand better information and you won’t need to comply with 404.  Besides, having an effective system of internal controls makes good business sense.

Using prewritten procedures will save you hundreds — possibly thousands — of hours in researching, writing, and implementing accounting policies, procedures, and internal control for Section 404 compliance.  Save even more time implementing additional internal controls for sales and marketing, security, disaster recovery, and ISO 9001 compliance using the CEO Company Policies and Procedures Manuals.  Download free samples of our procedures and judge for yourself.

Process maps are used for various purposes, including, but not limited to:

• Developing process understanding;
• Process improvement and discussion;
• Documenting a process; and
• Training and communication.

A process map highlights actual and potential problems – bottlenecks, backflows, delays, waste, and process gaps.  Process maps clarify process boundaries, ownership, responsibilities, and effectiveness measures (metrics).  Process maps are used in mergers and acquisitions (M&A), process improvement, and systems design.

What Can’t a Process Map Do?

It can’t do the work for you.  A process map does help you establish a shared understanding of what a process is and how it cuts across – links – business functions. The workers must still do the work.  However, process maps can be used for designing processes, writing procedures, defining and achieving objectives, complying with quality standards like ISO 9001, and building internal control. 

All process maps are not created equal, however.  The table below shows the purpose of each, as well as its positives and negatives:

Most importantly, process mapping is about communicating your process to others, so you can achieve your objectives.

In summary, a process is a structured set of activities that transform inputs into outputs. We believe processes should be measurable with clear performance indicators. Processes are strategic assets of an organization that if managed well deliver a competitive advantage. And processes assist us in defining responsibilities, internal controls, and work standards for compliance, consistency, and performance.

Process Flows or Activities

A “process map” visually describes the flow of activities of a process. A process flow can be defined as the sequence and interactions of related process steps, activities or tasks that make up an individual process, from beginning to end. A process map is read from left to right or from top to bottom. We prefer to minimize “backflow” or arrows that go from right to left or bottom to top because it can greatly confuse the reader (more on this later).

It helps if a process map identifies a Supplier providing Inputs to a Process, which produces Outputs for a Customer. We call this basic format a SIPOC (Supplier, Input, Process, Output, Customer) diagram (Figure 1). There are many variations of this SIPOC theme but it does provide a useful framework for understanding the critical elements, sources, and outputs of a process.

Standard symbols are used within a process map to describe key process elements. These symbols come from the Unified Modeling Language or UML, which is an international standard for drawing process maps. There are many symbols that can be used. Figure 2 provides some common UML symbols.

Better Understanding of a Process

Process maps are used to develop a better understanding of a process, to generate ideas for process improvement or stimulate discussion, build stronger communication, and — of course — to document a process. Often times a process map will highlight problems and identify bottlenecks, duplication, delays, or gaps. Process maps can help to clarify process boundaries, process ownership, process responsibilities, and effectiveness measures or process metrics. Process maps can be very effective at increasing process understanding during training.

Process maps are not limited to a single department or function. For example, the ISO 9000 Quality Management Systems standard requires some type of process map of the organization’s quality processes. Mapping should be the first step in designing a process or in documenting a procedure. Why? Because, to improve a process you must understand it and most of us understand a graphical picture better than a written procedure.

Process maps come in many different forms but they all tend to use a SIPOC format and a standard UML for symbols. The most common process map types include: High-Level Process Map, Process Flow Chart, Document Map, Cross Functional or Swim Lanes Process Map, Value Stream Map, Work Flow Diagram, and a Rendered Process Map. Over the next several weeks, we will take a closer look at each of these maps and see how they are used within an organization.

Read Part I (Types of Process Maps)….

St. Louis, MO – June 18, 2009 – Bizmanualz, Inc., a business publications, training, and consulting company based in St. Louis, MO, today announced the release of the updated ISO 9001 Policies and Procedures Manual. The company has greatly improved its product by modeling its policies and procedures on the Deming (“Plan-Do-Check-Act”) Cycle.

“The updated manual reflects our lean philosophy in multiple ways,” said Christopher Anderson, Managing Director of Bizmanualz. “For example, rather than borrow the text of the standard verbatim in the quality manual, we stripped it to the bare essentials. Putting in a lot of verbiage not required by the standard can make your Quality Manual less user-friendly, less useful, and less likely to be improved.”

The updated ISO 9001 Policies, Procedures & Forms Manual conforms to the ISO 9001:2008 standard, which was updated for the first time in eight years and released in November, 2008. ISO 9001 requirements for procedures and records are clearly identified throughout the updated manual. Recently ISO 9001 certified by using lean principles, the company has used a similar approach in the update process.

“We carried procedures over (from the old to the new ISO 9001 QMS manual) that most organizations consider critical,” said Steve Flick, Bizmanualz Product Director. “Similarly, we removed procedures that customers didn’t consider a high priority, or had little-to-nothing to do with 9001 requirements, or didn’t amount to more than simple work instructions.”

Twenty-three QMS procedures are included in the updated ISO 9001 manual. A forms list at the end of each procedure points out if the filled out form is a “required record” and which ISO 9001 clause requires that record. Bizmanualz redesigned its ISO 9001 QMS manual to help companies easily establish an effective quality management system, as well as to simplify the certification journey for organizations wishing to comply with ISO 9001:2008.

Bizmanualz also offers manuals for Accounting, Finance, Computers & Networks, Sales & Marketing, Human Resources, ISO 22000, Disaster Recovery, and Security. All of Bizmanualz® Policies & Procedures manuals are available via instant download or in hard copy form, with easily editable MS-Word documents included on CD.

Each manual provides prewritten policies, procedures, and forms that enable executives to create and maintain internal controls and implement best practices for all departments in their business.

Bizmanualz® ISO 9001 QMS Policies, Procedures, and Forms: How to Quickly Create an ISO 9001 Quality Management System with easily editable Policies, Procedures, and Forms. (400 pp/trade binder/$495.00) is a Knowledge Management title from Bizmanualz, Inc. It is available through the company’s website, www.bizmanualz.com, or by calling the publisher at 800-466-9953 (outside the USA, call 314-863-5079), faxing your request to 314-863-6571, or by e-mailing sales@bizmanualz.com.

Static versus Dynamic Systems

When I was studying engineering in college we had to take many different classes in control.  The simplest ones to talk about are the mechanical versions of static systems and dynamic systems.  Static systems are those that don’t change over time like a bridge or a flag pole.  You had to figure the forces on these systems and calculate the stress, tension, torque, etc.  I found statics pretty straightforward.

Next came dynamic systems, which are static systems that can (as a result of other forces) change over time like a suspension bridge that sways in the wind.  Things got tricky, fast.  We had to use fancy calculus like differential equations to solve the problem.  Why (you might ask)?

The thing about static systems is that you have no feedback.  So the static equation is drawn with the forces in balance and feedback set to zero.  With no feedback the problem is easy or relatively easy using basic calculus.  In contrast, dynamic systems have feedback.  The wind pushes on the bridge and the bridge pushes back (basic physics: a force is met with an equal but opposite force).  This “pushing back” starts the feedback, but feedback can also produce feedback loops, which means the bridge begins to oscillate as it rocks back and forth in the wind.

You see the wind is not a constant force, its velocity changes over time.  So this is a complex situation that becomes difficult to solve.  If we fail to produce the right answer, the bridge could fall apart in the wind (it has happened).  Positive feedback loops amplify the signal and can cause such destruction (i.e. a vicious cycle) whereas negative feedback loops reduce the signal and result in… control.

So when you design your procedures, are you designing in positive feedback loops that amplify your output and lead to the destruction of your process or are you designing in negative feedback loops that result in the control you are looking for?

Static versus Dynamic Control

Funny, we have to take into account the dynamic nature of a bridge before we built it but do you take into account the dynamics of a business process when you capture it in your knowledge management system?

Business policies and procedures are not static.  They involve people that provide feedback; they involve customers, suppliers, and management that all provide feedback. So how do you integrate this natural feedback into your procedure?  Start by planning for it.  Plan for both positive and negative feedback but most importantly harvest the negative feedback.

Planning for feedback means data, scoreboards, process reviews, process audits, management reviews, customer and supplier surveys, discussions, interviews, comments, and most of all collaboration.  We need to design collaboration into business procedures to allow for the natural feedback process to occur.  Just like building a bridge requires us to understand the forces at work BEFORE we build the bridge, so it is with building business policies and procedures.

Compliance and Control

Can you really have compliance without control?  You can check the box that a business procedures exists but a procedure requirement is not about existence it is about deployment and usage.  There is a reason for every requirement.  The standards we talk about (ISO 9000, Sarbanes Oxley, GMPs) are all about reducing risks or reducing risks using negative feedback right?  The next time you have to write business procedures think about how you can introduce negative feedback to obtain the control that the standards are really asking for.