Page 270 - Accounting Best Practices

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13–4 Create a Policy and Procedure Manual
13–4 CREATE A POLICY AND 259
PROCEDURE MANUAL
As is noted several times in this chapter, an unorganized accounting department
is inefficient, suffers from a high transaction error rate, and does not complete its
work products on time. While other best practices noted in this chapter, such as
general training, cross-training, and calendars of events, will contribute to a more
structured environment, one of the very best ways to create a disciplined account-
ing group is to create and maintain a policies and procedures manual.
This manual should list the main policies under which the accounting depart-
ment operates, such as those listed in Exhibit 13.2. These are the key issues that
confront each functional area and are usually limited to just a few pages. Any-
thing longer probably indicates an excessive degree of control or some confusion
in the difference between a policy and a procedure.
A good example of a policy is one that sets a boundary for an activity. The
first policy noted in Exhibit 13.2 states that an accounts payable clerk is allowed
to process any supplier invoice within 5 percent of the amount listed on the origi-
nal purchase order. By doing so, this policy clearly defines what the clerk is
allowed to do. A procedure, on the other hand, defines the precise activities that
take place within the boundaries the policies create. An example of a procedure is
shown in Exhibit 13.3, where there is a definitive listing of the exact steps one
must follow in order to create and issue the annual budget. A procedure is usually
sufficient to use as a guideline for an employee who needs to understand how a
process works. When combined with a proper level of training, the policies and
procedures manual is an effective way not only to increase control over the
accounting department, but also to enhance its efficiency.
Though there are few excuses for not having such a manual, there are some
pitfalls to consider when constructing it, as well as for maintaining and enforcing
it. They are as follows:

• Not enough detail. A procedure that does not cover activity steps in a suffi-
cient degree of detail is not of much use to someone who is using it for the
first time; it is important to list specific forms used, computer screens
accessed, and fields on those screens in which information is entered, as well
as the other positions that either supply information for the procedure or to
which it sends information. It may also be helpful to include a flowchart,
which is more understandable than text for some people.
• Not reinforced. A procedures manual does not do much good if it is imme-
diately parked on a remote shelf in the accounting department. Instead, it
should be made an integral part of all training programs and included in
periodic discussions regarding the updating and improvement of key
processes. Only through constant attention will the manual be used to the
fullest extent.