Business Analytics

How do business analytics apply to the CFO’s finance and accounting function? It is increasingly apparent that corporate accounting is evolving from its traditional role of collecting and validating data and subsequently reporting information to a more value-adding role of providing and supporting analysis for decision making. To be clear, the message here is not about accountants simply getting better with traditional financial analysis methods like cost-volume-profit (CPV) breakeven graphs and expense-to-sales ratios. The message here is about how accountants can use “deep analytics” to discover relationships to discern knowledge not previously made visible – to provide information to line managers for better decisions.

Accountants’ progress with analytics has been notable. With the recent explosion of available digital data, accountants are certainly getting better at measuring and reporting more. But are the measures and reports the most relevant ones? Do they answer critical questions to drive growth and profits? The upside potential to applying analytics with the accountants’ financial planning and analysis (FP&A) role is substantial.

As the CFO’s scope of responsibility broadens with more oversight and as CFOs become that “strategic advisor” so often written about, they now have the opportunity to become catalysts for introducing innovation and change. This can include leading transformational projects that increase efficiencies, lower costs, increase revenues, and better execute strategies. Accountants traditionally have been reactive to historical information. Business analytics enables them to help their organization be more proactive.

The trend clearly is toward increased use of business analytics and enterprise performance improvement (EPM) methods within the finance function. An example described in this IIA Research Brief is a shift beyond just reporting profitability by product and service line toward providing a more encompassing view of channel and customer profitability reporting using activity-based costing (ABC) principles. With this type of reporting business analytics can take decisions to a higher level by providing insights as to what factors differentiate higher from lower profit levels from a supplier’s customers other than just the customer’s sales volume with the supplier. Learn More

Tweet about this on TwitterShare on FacebookShare on LinkedIn

Measuring and Managing Customer Profitability

The only value a company will ever create for its shareholders and owners is the value that comes from its customers – current ones and new ones acquired in the future. To remain competitive, companies must determine how to keep customers longer, grow them into bigger customers, make them more profitable, serve them more efficiently, and target acquiring more profitable customers.

But there is a problem with pursing these ideals. Customers increasingly view suppliers’ products and standard service lines as commodities. This means that suppliers must shift their actions toward differentiating their services, offers, discounts, and deals to different types of existing customers to retain and grow them. Further, they should concentrate their marketing and sales efforts on acquiring new customers who have traits comparable to those of their relatively more profitable customers.

Some customers purchase a mix of mainly high-margin products. However, after adding the non-product related costs to serve for those customers apart from the products and service lines they purchase, these customers may be unprofitable to a company. This is because they demanded extra services that caused greater expenses than low demanding customers. How does one properly measure customer and supplier profitability? How does one deselect or “fire” a customer?

As companies shift from a product-centric focus to a customer-centric focus, a myth that almost all current customers are profitable needs to be replaced with the truth. As just noted, some high-demanding customers may indeed be unprofitable! Unfortunately, many companies’ managerial accounting systems aren’t able to report customer profitability information to support analysis for how to rationalize which types of customers to retain, grow, or win back and which types of new customers to acquire.

With this shift in attention from products to customers, managers are increasingly seeking granular nonproduct-associated costs to serve customer-related information as well as information about intangibles, such as customer loyalty and social media messaging about their company and its competitors. Today in many companies there’s a wide gap between the CFO’s function and the marketing and sales function. That gap needs to be closed!

Tweet about this on TwitterShare on FacebookShare on LinkedIn

Simplifying the Reporting Process

For many small business owners, the issuance of financial statements is nothing more than a necessity to satisfy the bank or other third party user. Although the small business client may be willing to pay higher fees to accountants for effective tax planning or management consulting, most owners are unwilling to pay for a high-priced compilation or review engagement that is perceived as a commodity rather than a value-added service.

An accountant may wish to consider existing reporting options that offer practitioners a means to reduce the time spent on completing an engagement. Here is a list that may be useful depending on the client’s needs and circumstances:

1. Compile OCBOA financial statements (e.g., cash or income tax basis)
2. Compile GAAP financial statements with no footnotes and statement of cash flows
3. Issue management-use financial statements in accordance with SSARS No. 19:

  • Compiled financial statements without a compilation report
  • Financial statements are not distributed to parties other than management (e.g., not issued to the bank)

4. Issue a compilation report with only selected footnotes:
SSARS No. 19 permits an accountant to report on financial statements under which a select few disclosures are included provided the notes are labeled:

“Selected Information-Substantially All Disclosures Required by Accounting
Principles Generally Accepted In the United States Are Not Included.”

5. Use a compilation report at interim periods that list the departures from GAAP.
Example: Assume that an accountant prepares monthly financial statements for a client, and these statements consistently have certain GAAP departures such as missing accruals, allowance for bad debts, etc. The accountant may prepare a standard compilation that makes reference to the GAAP departures and can use this report, without modification, from month to month.

At year-end, the accountant may adjust the departures to GAAP and issue a standard compilation or review report.

6. Compile only one financial statement (e.g., balance sheet), and not the full set of financial statements

7. Apply options that are excluded from SSARS No. 19 for which a compilation or review report is not required:

  • Provide selected monthly information requested by the client such as account balances (e.g., cash or accounts receivable) or operating information (e.g., number of meals served for the month)
  • Provide a client or other third party users with a copy of the client;s tax return.An accountant is not required to report on a tax return.

8. Issue financial statements with one or more GAAP departures.

This list was an excerpt pulled from Steven Fustolo’s course 2013 Practice Issues: Compilation & Review Update.

Tweet about this on TwitterShare on FacebookShare on LinkedIn

The Ultimate Lean Budget

If you are willing to modify the reporting system, decision making, and organizational structure of a business, it is entirely possible to not only operate without a budget, but to thrive while doing so. Thus, the ultimate lean budget is to have no budget at all.

Operating without a Budget
In order to have a properly functioning organization that operates without a budget, it is necessary to make alterations in four areas. They are:

  •  Forecast. The forecast is a rolling forecast that is updated at frequent intervals, and especially when there is a significant event that changes the competitive environment of the business. The forecast is simply the expected outcome of the business in the near term, and is intended to be an early warning indicator of both threats and opportunities. It is completely detached from any compensation plans.
  • Capital budgeting. Requests for funds to buy fixed assets are accepted at all times of the year. Funding allocations are based on expected results and the needs of the requesting business unit. There is no formal once-a-year capital budgeting review.
  • Goal setting. Employees jointly set targets that are relative to the performance of other business units within the company, and against other benchmark organizations. If there is a bonus plan, it is based on these relative results.
  • Compensation. Bonuses and other compensation are based on the ability of the company as a whole to improve its performance relative to its competition or some other relevant performance baseline.

A key point is that the forecast and capital budget are not related to targets. By separating these processes from any corporate targets, there is no incentive for employees to fudge their forecasts or fixed asset funding applications in order to earn bonuses.

From the management perspective, it is critical that senior managers step away from the traditional budget based command-and-control system and replace it with a great deal of local autonomy. This means that local managers can make their own decisions as long as they stay within general guidelines imposed by senior management. The focus of the organization changes from short-term budgets to medium-term to long-term financial results. There is no emphasis on budget variances, since there is no budget.

Also, senior management must trust its employees to spend money wisely. The expectation is that an employee is more likely to question the need for any expenditure, instead of automatically spending all funds granted under a budget allocation.

From a more general perspective, if a company abandons budgeting, how does it maintain any sort of direction? The answer depends upon the structure of the business and the environment within which it operates. Here are several examples of how to maintain a sense of direction:

  • Margin focus. If a business has a relatively consistent market share, but its product mix fluctuates over time, it may be easier to focus the attention of managers on the margins generated by the business, rather than on how they achieve those margins. This eliminates the structural rigidity of a budget, instead allowing managers to obtain revenues and incur expenses as they see fit, as long as they earn the net profit margin mandated by senior management.
  • Key value drivers. If senior management believes that the company will succeed if it closely adheres to specific value drivers, then it should have the company focus its attention on those specific items, and not hold managers to overly-precise revenue or profit goals. For example, the key to success in an industry may be an overwhelming amount of customer support; if so, focus the entire company on maximizing that one competitive advantage.
  • Few products and very competitive environment. If a business relies upon only a small number of products and is under constant competitive pressure, then decisions to change direction must be made quickly, and the organization must be capable of reorienting its direction in short order. This calls for a centralized management environment where a small team uses the latest information
    to reach decisions and rapidly drive change through the organization. In this case, a budget is not only unnecessary, but would interfere with making rapid changes. Thus, keeping employees focused on the operational direction given by senior management is vastly more important than meeting revenue or expense targets; taken to an extreme, employees may never even see the financial results of their areas of responsibility, because the focus is on operations, not financial results.

This article is an extract from Steven Bragg’s Lean Accounting Guidebook.

Tweet about this on TwitterShare on FacebookShare on LinkedIn

Lean Accounting: Steps to Producing Financial Statements

The accounting department is responsible for many activities, but its best-known products are the financial statements. The financials contain time-critical information, so it is of considerable importance to issue them as soon as possible after the end of an accounting period. A controller who is intent on achieving a lean accounting department might cut back on departmental funding to such an extent that it takes longer than normal to issue financial statements. This would be a mistake, for the information in the financial statements is of great value, and the utility of that information degrades the longer its issuance is delayed. Consequently, our definition of “lean” must change when dealing with financial statements. Instead of using minimal resources, a lean accounting department must focus on lean timing – that is, issuing financial statements as rapidly as possible.

Most controllers have arrived at a reasonable set of processing steps that eventually yield an accurate set of financial statements. The exact steps required will vary by type of business, but the basic process flow is:

  •  Invoicing. As soon as the accounting period has been completed, obtain all remaining shipping documentation from the shipping department and issue invoices to customers. If the company bills for services, then contact employees to enter their billable hours into the timekeeping system, and wait for them to do so before issuing invoices. In the latter case, this may require a delay of several days before invoices can be issued.
  •  Cost of goods sold. Either conduct a physical count at month-end (under the periodic inventory system) or derive ending inventory from a month-end inventory report (under the perpetual inventory system). In either case, compare the resulting cost of goods sold to revenue for reasonableness, and investigate the ending inventory information if the gross margin varies significantly from historical results.
  •  Bank reconciliation. Upon receipt of the period-end bank statement, conduct a bank reconciliation and book any differences to the company’s accounts.
  •  Accrue payables. If suppliers have not submitted invoices after a few days have passed, accrue expenses for the amounts estimated to be on those invoices, and set them to automatically reverse in the following period.
  •  Calculate depreciation. Once the accounts payable portion of the closing process has been completed, update the fixed asset records with any fixed assets that were purchased (or disposed of) during the period, and calculate and record depreciation.
  •  Accrue payroll. Wait for hours worked to be recorded by all employees through the end of the reporting period. If there were any unpaid hours as of the end of the period, accrue an expense for these hours, and set the entry to automatically reverse in the following period.
  • Update reserves. After sales, accounts receivable, and inventory have been finalized, review all related reserve accounts (such as for sales returns, doubtful accounts, and obsolete inventory) to see if they require adjustments.
  • Reconcile accounts. A prudent controller will at least examine the contents of the larger balance sheet accounts, to ensure that nothing should have been charged to revenue or expense in the period. This may call for the comparison of detailed reports to the accounts, such as the reports for accounts receivable, accounts payable, and fixed assets.
  •  Review financials. Print the financial statements and review them for errors. At a minimum, there are likely to have been entries that were made into the wrong accounts, which will require adjusting entries. Several iterations of this step may be necessary.
  • Accrue taxes. If the financial statements appear to be correct, accrue income taxes if there are taxable earnings.
  •  Create disclosures. If the financial statements are to be distributed outside of the company, add any disclosures mandated by accounting standards. If the company is publicly held, then also calculate earnings per share and add this information to the financials.
  •  Distribute financials. Issue the financial statements to the distribution list. In many organizations, different reports may be issued to each person on the list. For example, the company president receives the entire financial statement package, while the sales manager receives just the income statement and a detailed report on the expenses incurred by the sales department – and so on.
  •  Close the period. Most accounting software packages require that an accounting period be formally closed in the accounting records and the next period opened. Doing so ensures that the transactions related to the next period will not be inadvertently recorded in the wrong period.

This excerpt was pulled from Steven Bragg’s course The Lean Accounting Guidebook.

Tweet about this on TwitterShare on FacebookShare on LinkedIn

Interpretation of Financial Statements

When reviewing the financial statements of a business, what interpretation can be extracted from these statements? This article covers several types of financial statement analysis, mostly related to the ratio comparison of different line items in the statements. By comparing these results, and especially over multiple reporting periods, you can arrive at a reasonable estimation of the financial results and condition of a business.

There are two key techniques for analyzing financial statements. The first is the use of horizontal and vertical analysis. Horizontal analysis is the comparison of financial information over a series of reporting periods, while vertical analysis is the proportional analysis of a financial statement, where each line item on a statement is listed as a percentage of another item. Typically, this means that every line item on an income statement is stated as a percentage of gross sales, while every line item on a balance sheet is stated as a percentage of total assets. Thus, horizontal analysis is the review of the results of multiple time periods, while vertical analysis is the review of the proportion of accounts to each other within a single period. Later sections describe horizontal and vertical analysis more fully.

Another heavily-used technique is ratio analysis. Ratios are used to calculate the relative size of one number in relation to another. After you calculate a ratio, you can then compare it to the same ratio calculated for a prior period, or that is based on an industry average, to see if the target company is performing in accordance with expectations. In a typical financial statement analysis, most ratios will be within expectations, leaving a small number of outlier ratios that require additional detailed analysis.

There are several general categories of ratios, each designed to examine a different aspect of a company’s performance. These categories are:

Liquidity ratios. This is the most fundamentally important set of ratios, because they measure the ability of a company to remain in business. Samples of ratios in this category are:

  • Cash coverage ratio. Shows the amount of cash available to pay interest.
  • Current ratio. Measures the amount of liquidity available to pay for current liabilities.
  • Quick ratio. The same as the current ratio, but does not include inventory.
  • Liquidity index. Measures the amount of time required to convert assets into cash.

Activity ratios. These ratios are a strong indicator of the quality of management, since they reveal how well management is utilizing company resources. Samples of ratios in this category are:

  • Accounts payable turnover ratio. Measures the speed with which a company pays its suppliers.
  • Accounts receivable turnover ratio. Measures a company’s ability to collect accounts receivable.
  • Inventory turnover ratio. Measures the amount of inventory needed to support a given level of sales.
  • Fixed asset turnover ratio. Measures a company’s ability to generate sales from a certain base of fixed assets.
  • Sales to working capital ratio. Shows the amount of working capital required to support a given amount of sales.

Leverage ratios. These ratios reveal the extent to which a company is relying upon debt to fund its operations, and its ability to pay back the debt. Samples of ratios in the category are:

  • Debt to equity ratio. Shows the extent to which management is willing to fund operations with debt, rather than equity.
  •  Fixed charge coverage. Shows the ability of a company to pay for its fixed costs.

Profitability ratios. These ratios measure how well a company performs in generating a profit. Samples of ratios in this category are:

  •  Breakeven point. Reveals the sales level at which a company breaks even.
  •  Gross profit ratio. Shows revenues minus the cost of goods sold, as a proportion of sales.
  •  Net profit ratio. Calculates the amount of profit after taxes and all expenses have been deducted from net sales.
  •  Return on net assets. Shows company profits as a percentage of fixed assets and working capital.

This article is an excerpt from Steven Bragg’s new guidebook Financial Analysis: A Business Decision Guide.

Tweet about this on TwitterShare on FacebookShare on LinkedIn

The Cash Forecasting Procedure

It is impossible to manage cash effectively without an accurate cash forecast. The forecast is designed to give the treasurer insights into the state of cash inflows and outflows over the next few weeks and months. It is critical to have a consistently-applied process for generating a cash forecast, similar to the one shown below.

1. Prepare forecast template. Create a copy of the last cash forecast, and prepare it with the following information:

  • Extend the forecast to cover the new forecast period
  • Delete from the forecast any dates that are now in the past
  • Label the spreadsheet with the forecasting date
  • Clear all numbers from the forecast line items

Tip: If you are calculating the cash forecast on an electronic spreadsheet, copy the most recent version of the forecast onto a new tab, and label the tab with the date of the forecast. This allows you to keep a historical record of all prior cash forecasts.

2. Populate the template. Enter the following information into the cash forecast template for each designated time bucket:

  • Current cash balance
  • The best estimate of cash receipts from open accounts receivable
  • The projected cash disbursements for payroll and payroll tax payments
  • The projected cash disbursements for accounts payable
  • The projected timing of expenditures for capital projects
  • The projected timing of dividend payments
  • If the cash forecast extends beyond the period covered by the current group of accounts receivable,estimate the cash receipts from new sales that will arrive during the cash forecast period. The timing of these receipts will likely be based on the company’s experience with the timing of cash receipts from the customers to whom sales are expected to be made.
  • If the cash forecast extends beyond the period covered by the current group of accounts payable, estimate the cash disbursements related to the cost of goods sold and normal selling and administrative expenses during the relevant cash forecast periods. Another use of cash that may be included in the cash forecast is that portion of an expected acquisition paid for with cash.

Tip: Compile a checklist of all the sources of information for the cash forecast and use it every time a new forecast version is compiled, to ensure that every issue impacting cash is included.

3. Review and revise the forecast. Print an initial copy of the forecast and review it for reasonableness. If any cash inflows or outflows appear to be unusual, confirm them with the person who compiled the information. It may be necessary to avoid funding shortfalls by shifting planned expenditures further into the future, which usually requires a discussion with the controller. This review and revision process can require several iterations.

Tip: A good way to detect flaws in a forecast is to compare the cash flow results for each forecast period to the results predicted for the same periods in the preceding cash forecast, and to investigate any large differences.

4. Adjust for funding changes. If the cash forecast indicates that the company can invest funds or must borrow to meet expenditure requirements, discuss these issues with the treasurer. Incorporate into the forecast any cash withdrawals for new investments or the reduction of loans. Also make note of any loan drawdowns needed to fund forecasted cash requirements.
Control issues: Consider having the treasurer formally approve the final version of the cash forecast, since the treasurer will likely be held accountable if the forecast turns out to be flawed.

Tip: It may be useful to note on the forecast the projected remaining borrowing base against which the company can draw down funds from its line of credit. This is useful for planning when to obtain additional debt.

5. Distribute the forecast. Send copies of the forecast to all parties on the distribution list, such as the controller and chief financial officer.
Control issues: If the cash forecast is distributed by e-mail, consider issuing it as a locked spreadsheet or a PDF document, so the recipients do not make changes to the information. Also, lock down the spreadsheet model so that it is not inadvertently modified within the treasury department.

This article is an excerpt from Steven Bragg’s course Corporate Cash Management: A Treasurer’s Guide.

Tweet about this on TwitterShare on FacebookShare on LinkedIn

Fixed Assets: The Asset Recognition Procedure

There are a number of possible transactions that can potentially be generated over the useful life of a fixed asset, ranging from the initial budgeting for it to its eventual disposal. Given the significant cost of fixed assets, you should adhere to a carefully-defined set of procedures for these transactions, so that you only acquire those assets really needed, account for them correctly, and eliminate them only when it makes economic sense to do so. Without these procedures, you will have a heightened risk of investing in assets that you do not need, or of accounting for them incorrectly.

One of the areas in which a procedure can be quite useful is for the initial recognition of a fixed asset in the accounting system. The procedure is outlined below:

1. Determine base unit. Determine the base unit for the asset. This determination is based upon a number of factors, such as whether the useful lives of various components of the asset are significantly different, at which level you prefer to physically track the asset, and the cost-effectiveness of tracking assets at various levels of detail. Reviewing the base units used for other assets may assist in this determination. Responsible party: Fixed asset accountant
Tip: It is more efficient to aggregate expenditures into a smaller number of base units, where possible. Otherwise, the larger number of assets to be tracked requires too much accounting staff time.

2. Compile cost. Compile the total cost of the base unit. This is any cost incurred to acquire the base unit and bring it to the condition and location intended for its use. These activities may include the construction of the base unit and related administrative and technical activities. Responsible party: Fixed asset accountant
Control issues: This step involves having a system in place for ensuring that purchases are coded to the correct fixed assets. This may involve a summary sheet given to the accounts payable staff, detailing which fixed assets are currently active, and which expenditures should be coded to them.

3. Match to capitalization limit. Determine whether the total cost of the base unit exceeds the corporate capitalization limit. If it does not, then charge the expenditure to expense. Otherwise, continue to the next step. Responsible party: Fixed asset accountant
Tip: This step can also be handled within the accounts payable department, where the clerks can assign expenditures to expense accounts, rather than to fixed asset accounts, if the amounts are clearly below the capitalization limit. Under this approach, the fixed asset accountant can be consulted if expenditures are very close to the limit.

4. Assign to asset class. Assign the base unit to the most appropriate asset class for which there is a general ledger category (such as furniture and fixtures, office equipment, or vehicles). Responsible party: Fixed asset accountant
Tip: Again, this step can also be handled within the accounts payable department. The fixed asset accountant may be consulted regarding items where the asset class is unclear.

5. Create journal entry. Create a journal entry that debits the asset account for the appropriate asset class and credits the expenditure account in which the cost of the base unit had originally been stored. If there is a general ledger accountant, this person will record the entry in the accounting system. Responsible party: Fixed asset accountant and general ledger accountant
Control issues: Be sure to include supporting documentation in a fixed assets binder or journal entry binder, so that the outside auditors can review the information as part of their annual audit.

This article was an excerpt from Steven Bragg’s course Fixed Asset Accounting

Tweet about this on TwitterShare on FacebookShare on LinkedIn

The New Controller Checklist

Anyone who has been hired into the controller position for the first time may feel overwhelmed, since the job description involves an enormous range of responsibilities. Where to begin? The answer is simpler than you may think. Always focus on the ability of the business to survive. Thus, if there is not enough cash on hand to pay the short-term obligations of the business, all other controller responsibilities are insignificant, because the company will no longer be in business. Thus, you should address the following issues first, and in the order presented:

1. Create a short-term cash forecast.
Develop a simple cash forecasting model on an electronic spreadsheet that tells you the expected cash balance at the end of each week for the next month. The initial results may not be that accurate, so compare actual to forecasted results, and adjust the forecast model to increase its accuracy over time.

2. Understand receivables.
Review the accounts receivable aging report with the collections staff, to understand which customers pay on time (or not), and which receivables are likely to be delayed or uncollectible. Also, review all non-trade receivables to determine which ones are collectible, and when they are likely to be collected. Adjust the cash forecast based on this information.

3. Understand payables.
Review the accounts payable aging report with the accounts payable staff, to learn about the payment terms associated with each supplier, the relations with each one, and which supplier invoices are likely to arrive during the cash forecasting period. Adjust the cash forecast based on this information. Refer to the Accounts Payable Management chapter for more information.

4. Understand debt payments. Review the schedule of debt payments. These payments are sometimes taken out of the company’s bank account automatically by the bank (if it is the lender), so you can reliably estimate in the cash forecast when these cash deductions will occur.

5. Reconcile accounts. If no bank account reconciliations have been completed recently, do so now. This adjusts the company’s recorded cash balance for any bank fees and other adjustments imposed by the bank. Adjust the cash forecast based on the revised current cash balance.

The preceding steps allow you to generate a preliminary cash forecast almost immediately, and one that should rapidly increase in accuracy. Over the longer term, you might also consider reviewing any supplier contracts to see if there will be scheduled payments that should be included in the cash forecast. Also, talk to other departments to determine when they may want to purchase fixed assets, so that you can build these expenditures into the budget. Irrespective of these improvements, please note that the cash forecast will never be entirely accurate, even over a period of just a month, because cash inflows are subject to the whims of customers.

This excerpt was pulled from CPE Link’s instructor Steven Bragg’s course The New Controller Guidebook.

Tweet about this on TwitterShare on FacebookShare on LinkedIn

Why Your Organization Needs a Current Policy and Procedures Manual

By CPE Link instructor Mary S. Schaeffer

The accounts payable policy and procedures manual is more than a static document with little value. Truth be told many organizations either don’t have one or have one that hasn’t been updated in years. This is a real shame. For if the right approach is taken towards the accounts payable policy and procedures manual, it can have many uses and can help ensure best practices are used throughout the accounts payable organization.

Many problems that arise from the accounts payable process occur because there is a lack of uniformity among processors in the way they handle invoices. If the exact same process is not used by every single processor, duplicate payments and other errors are likely to creep in. The only way to ensure that the same processes are used across the board is to have them written down with detailed instructions on how each task is to be accomplished.

This is the primary goal of the accounts payable policy and procedures manual. For it to be a true guide, it must be reviewed and updated on a very regular basis. Otherwise, it will quickly be come out of date and not serve the goal it is intended. What’s more, a detailed manual can serve as a reference guide to your processors. So, when they come across an issue that does not come up every day, they won’t have to guess on the right way to handle the problem. They can simply pull out the policy and procedures manual and verify.

A good policy and procedures manual can also serve as a training guide for new employees. Each one should be given a copy when they are hired and the manual should be referenced throughout the training process.

A few managers think it is a good idea to keep the manual short. This is a terrible idea because without a detailed manual, errors will creep in. You just can’t have too much detail in the manual. Sometimes a manager will think, “oh, we don’t have to put that in. Everyone knows the right way to do the task at hand.” Unfortunately not everyone thinks the same way and this is a sure fire way to guarantee that errors will creep in.

When it comes to accounts payable policies and procedures, there is no room for creativity. This is one time when everyone has to perform tasks exactly like their colleagues. Should someone come up with a better way, they should bring their suggestion to the supervisor. If the approach is better, everyone can start using the new approach and there will be no concern for variances. Unfortunately, sometimes what looks like a good process improvement for the accounts payable department, is something that is not good for another unit within the organization. Thus, it is imperative that the employee share the new idea with the manager who can evaluate the idea and if it is workable, adjust procedures for everyone as well as updating the department’s policy and procedures manual.

This article is an excerpt from Mary S. Schaeffer’s An Effective Accounts Payable Policy & Procedures Manual.

Tweet about this on TwitterShare on FacebookShare on LinkedIn