Transcript Slide 1

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Policies and Procedures
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July 10 & 17, 2012
Instructor Celia L. Broadus, CPA
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Class Outline
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• Introduction
• Framework
– What and Why
• Techniques
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– Essentials of policy and procedure writing.
• Application
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– Practice writing policies and procedures
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Introduction
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When policies and procedures are not
documented - or when they are inaccessible,
incomprehensible, or difficult to use - the
consequences for organizations can be very
serious. Both safety and security can be
compromised.”
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Deborah Kenny quote
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Introduction
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Accounting policies and procedures are
essential to the operation of every
organization.
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Introduction
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The way to ensure that we are successful is
with solid policies and procedures that will
allow more financial, operational and
regulatory control over the organization.
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Understanding the Organizational
Structure
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Governance-Board of Directors
Set the tone at the top
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Management
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Executive/Administration
Operations and Program
Directors
Development
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Programs
Staff
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Fundraising
Admin
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Clients/Patrons/Members
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Understanding Organization
Structure
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Focus Area-Accounting
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Understanding the Accounting
Environment
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The Past
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Not too long ago about 20 years small to
mid sized organizations faced challenges
in selecting an accounting system.
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Understanding the Accounting
Environment
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There were three choices
1. Manual system with the encyclopedia
sized journal books.
2. Purchased/leased computerized
accounting system.
3. Build your own!
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Understanding the Accounting
Environment
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The Past
Selected either a commercial or programmed a
custom built system, huge costs to implement,
DOCUMENTATION was paramount!
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Policies and procedures were a by product of the
implementation and installation process.
Understanding the Accounting
Environment
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The Present
Entry level software like QuickBooks, Great
Plains, and Peachtree share a common deficiency.
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The “support” documentation is in depth as to the
user features but short on policy and procedural
advice for appropriate use that was integrated
within the “old way” of doing things.
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Why do we need accounting policies
and procedures?
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Solid policies and procedures are vital for
building strong internal controls, preventing
fraud, protecting business assets,
compliance with government, taxation,
financial institutions and other authoritative
bodies.
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Recent Reports on Occupational
Fraud and Abuse
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• The Association of Certified Fraud
Examiners
• 2008 Report
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– Estimated 7% of revenues was lost as a result
of fraud
– 89% of occupational frauds involve asset
misappropriations. Cash is targeted 83.7% of
the time
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Recent Reports on Occupational
Fraud and Abuse
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• The Association of Certified Fraud
Examiners
• 2006 Report
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– Methods of asset fraud in not for profits
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Unauthorized benefit 29.3%, Skimming 24.5%
Expense reimbursements 28.6%,
Cash larceny 17.7%, Billing 28.6%
Check tampering 24.5%, non cash theft 14.3%,
payroll 12.9%, fraudulent statements and wires 5.4%
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Recent Reports on Occupational
Fraud and Abuse
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• The Association of Certified Fraud
Examiners
• Estimated Impact on the Not for Profit
Industry
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– 959 cases studied 14.3% were Not Profits
– Median loss 109k per incident
– Overall $84 Billion dollars lost to fraud in NPOs
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Why do we need accounting policies
and procedures?
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If you are in a key financial role for your
organization, then your primary job is to
protect and control your organization’s
assets.
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CASE STUDY
REVIEW
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Policy and Procedures
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Writing policies & procedures is about
CLEAR communication, making sure that
people have the information necessary to do
what they’re supposed to.
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Policy and Procedures
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What the organization wants done
Why it wants it done
How to do it.
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Policy and Procedures
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The policies deal with the “what” and
“why”.
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The procedures deal with the “how”.
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Policies
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Policies are guidelines that regulate
organizational action.
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They control the conduct of people and the
activities of systems.
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Policies
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A policy is a type of position statement, it
explains the organization’s stand on a
subject and why there’s a rule about it.
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Policies
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The organization must make a clear,
conscious decisions about its own standards
and principles of operation.
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These decisions become the organization’s
policies.
Policies
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Ambiguity in Policies
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“It is the policy of this organization to be
the leader in the provision of mental health
treatment services by raising our annual
budget by $100 million dollars”.
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Policies
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A policy can be a philosophy, a mission, or
a general objective.
Anything that establishes a guideline for
users is a policy.
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Policies-Missions
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Everything we do is inspired by our enduring
Mission:
• To Refresh the World...in body, mind,
and spirit.
• To Inspire Moments of
Optimism...through our brands and our
actions.
• To Create Value and Make a
Difference...everywhere we engage.
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The Red Cross
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Mission Statement
The American Red Cross, a humanitarian
organization led by volunteers and guided
by its Congressional Charter and the
Fundamental Principles of the International
Red Cross Movement, will provide relief to
victims of disaster and help people prevent,
prepare for, and respond to emergencies.
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United Way
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• MISSION
– To improve lives by mobilizing the caring
power of communities around the world
to advance the common good.
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Policies
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Ambiguity is influenced by three factors
1. Users’ ability to understand and deal with the policy. How
well will they cope?
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2. Managers’ ability to understand the policy and
willingness to enforce it. How much training is needed?
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3. The intensity of the issue and the organization’s
commitment it. How closely does the organization wish
to control the matter?
Policies
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“It is our practice to bill within thirty
days of service” or “Any accident involving
more than $50 in damage will be considered
a serious infraction”.
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These are precise and intended to regulate
the users’ conduct.
Procedures
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A procedure is the normal method of handling
things. It’s the “how to”.
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Supplements the policy guidelines with specifics,
completes the information users need.
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Procedures
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Users need to know what that means.
How do we do that?
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Do we give our patrons/clients whatever they want?
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Is there a dollar limit on action that we can take?
Procedures
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Key Components
• Action oriented.
• Outline steps to be taken.
• Sequence to perform those steps.
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Procedures
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Ambiguity in Procedures
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Unlike policies, procedures are very
specific.
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Procedures
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The Importance of subjectivity
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Determining what and how much ambiguity
is appropriate within a policy or procedure
can be difficult.
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Procedures
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The theory behind objectivity is fairness and
professionalism.
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Subjective judgments are tough to explain and
difficult to enforce.
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Summary Policy and Procedures
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• Important to distinguish the difference between
policy vs. procedures.
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Summary Policy and Procedures
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• Policies regulate and control organizational
actions, whereas procedures are the standard
method of operation.
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Summary Policy and Procedures
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• Policies can be either ambiguous or specific.
Procedures are specific and detailed .
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Quiz
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What are we writing about?
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• Internal Control Over
–
–
–
–
–
Cash Receipts
Cash Disbursements
Payroll
Fixed Assets
Grants, Gifts and Bequest
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Internal Control
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• Internal accounting control is a series of
procedures designed to promote and protect
sound management practices, both general
and financial.
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Internal Control
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• Internal Control is a process set up by the
board of directors and management to
provide assurance that organization goals
will be achieved.
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Internal Control
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• Following internal accounting control
procedures will significantly increase the
likelihood that:
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– Financial information is reliable, so that
managers and the board can depend on accurate
information to make programmatic and other
decisions
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Internal Control
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– Assets and records of the organization are not
stolen, misused, or accidentally destroyed
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– The organization’s policies are followed.
– Government regulations are met.
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Internal Control
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• Gives an organization the ability to measure its
operations against its objectives.
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• Achieving these objectives requires your
organization to clearly state procedures for
handling each area, including a system of checks
and balances in which no financial transaction is
handled by only one person from beginning to
end.
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Internal Control
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• Segregation of duties,
– is central to an effective internal controls
system. Even in a small nonprofit, duties can be
divided up between paid staff and volunteers to
reduce the opportunity for error and
wrongdoing
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Internal Control
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Five major components of Internal Control
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2.
3.
4.
5.
Control Environment
Risk Assessment
Control Activities
Communication/Information Sharing
Monitoring
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Internal Control Objectives
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Internal Accounting Controls
Systems
Cash Receipts
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Objective – ensure that all cash intended for
the organization is received, promptly
deposited, properly recorded, reconciled
and secured adequately.
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Internal Accounting Control Systems
Cash Disbursements
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Objective – to ensure that cash is disbursed
only upon proper authorization of management,
valid business purposes and all disbursements
are properly recorded.
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Internal Accounting Control Systems
Payroll
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Objective – ensure that payroll
disbursements are made only upon proper
authorization to bona fide employees, that
payroll disbursements are properly recorded
and that related legal requirements(tax
deposits) are complied with.
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Internal Accounting Control Systems
Grants, Gifts and Bequests
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Objective – ensure that all grants, gifts and
bequests are received and properly recorded
and that compliance with the terms of any
related restrictions is adequately monitored
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Internal Accounting Control Systems
Fixed Assets
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Objective – to ensure that fixed assets are
acquired and disposal of only upon proper
authorization, adequately safeguarded and
properly recorded.
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What’s Next?
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Technique
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• Essentials for effective policy and
procedure writing requires key elements.
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• We’ll examine the policy needs of the
various accounting functions
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Application
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• Ready set write!
• Policy writing exercise and assignment
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End Class I
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Policies and Procedures
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Class II
July 17, 2012
Instructor Celia L. Broadus, CPA
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Class II Outline
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• Review of Class I
• Fraud Video
• Technique and Application
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– Essentials of writing accounting policies and
procedures
– Writing Activity
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Review of Class I
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• Why we need policies and procedures?
• What are policies and procedures?
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Review of Class I
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Why we need policies and procedures?
Solid policies and procedures are vital for
building strong internal controls, preventing
fraud, protecting business assets,
compliance with government, taxation,
financial institutions and other authoritative
bodies.
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Review of Class I
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What are policies and procedures?
Policies regulate and control organizational actions, whereas
procedures are the standard method of operation.
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Review of Class I
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What are we writing about?
Internal Controls
– Internal accounting controls is a series of procedures
designed to promote and protect sound management
practices, both general and financial.
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– Internal Control is a process set up by the board of
directors and management to provide assurance that
organization goals will be achieved.
Checks and Balances
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• Open and review bank statements —
Make certain that someone independent of
check processing receives unopened bank
statements each month and reviews payees,
amounts, signatures, and endorsements.
• Review bank reconciliations — Have a
supervisor review bank reconciliations on a
monthly basis.
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Checks and Balances
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• Verify wire transfers — Have someone
independent of the request for a wire
transfer verify all wire transfers.
• Provide appropriate system access —
Ensure that the level of system access by an
employee is consistent with the employee's
job function and responsibility.
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Checks and Balances
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• Verify cash logs — Make certain that your
cash receipts log matches the cash receipts
entry in the ledge and the actual bank
deposit.
• Involve a second person in cash receipts
processing — Have a second employee
involved in verifying incoming receipts.
• Make bank deposits daily.
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Checks and Balances
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• Run vendor addresses through an edit
check to see if any match each other and/or
employee addresses.
• Review the vendor list in your accounting
system periodically
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What’s New about the New 990?
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• A new section that asks questions about the
organization’s governance structure,
policies, and disclosure practices
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What’s New about the New 990?
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• As part of the section, an organization is
asked to indicate if it has policies and
procedures addressing such issues as
conflicts of interest and whistleblowers.
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What’s New about the New 990?
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• A board will want to ensure that the
organization has the following policies in
place.
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What’s New about the New 990?
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• Conflicts of Interest Policy
• Document Retention and Destruction Policy
• Whistleblower Policy
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• Chief Executive Compensation Policy
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TECHNIQUE
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Essentials
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Communicating and addressing your
audience.
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– Objective of accounting policies and
procedures is to improve efficiency of the
organization. Establish accounting controls and
to comply with regulations.
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Essentials
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Important rules when writing accounting policies
and procedures
• Clarity and readability
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• Writer must always take into consideration the readers of the
accounting policies and procedures(s).
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Essentials
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Important rules when writing Accounting
Policies and Procedures
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• Explain new or unusual terms, add definitions section to
accounting policies and procedures.
• Avoid jargon, especially with new hires.
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Essentials
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Sexism in writing
• Webster’s New Collegiate Dictionary defines “he” as used in the
generic sense or who the sex of the person is unspecified.
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• Recommended that the generic “he” be replaced with “he” or “she”
and “him” or “her”.
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Essentials
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Important rules cont.
• Avoid unneeded words.
• Avoid complex writing (KIS).
• Use active verbs versus passive phrases.
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• Write the way you speak use words and phrases that you
would normally use in expressing the same thoughts orally.
Essentials
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Sexism in writing
•
Another method is the switch to a plural pronoun with a singular
subject such as “When someone orders their supplies, they will have to
complete ….
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• Often more practical for the writer to use generic nouns or by recasting
sentences to include positions or titles (Comptroller, Finance Director ,
staff accountant, etc.) to eliminate the need for most sexism in writing
of policy and procedures.
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Communication
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• Document the actual procedure describe as
they are actually intended to be performed
rather than in some idealized form
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Communication
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Key Components
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1. Clearly articulate the objectives policy statement)
and the process to be followed procedures)
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2. Who should carry out the action, tasks and/or
duties.
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Communication
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Key Component:
• Clear articulation of the objective and the process to be
followed.
– Clearly state the purpose of the policies.
– The documentation of accounting policies and
procedures should explain the design and purpose of
related procedures to increase employee’s
understanding of and support for controls.
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Communication
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Clear Articulation cont.
– The structure of the policy statement (define) should be
written in a clear understandable style.
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– Subject: a short descriptive title for the accounting area
to be covered in the policy.
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– Background definition of the subject including an
explanation of any technical information essential for
understanding the policy.
Communication
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Clear Articulation cont.
– Effective date that binds the policy.
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– Pronouncements ex. GAAP, FASB, Tax code, etc…
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– Review date, anticipated review for update.
– Construct a user friendly format.
Communication
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• Who should carry out the action.
– Clarify employee’s responsibilities, indicate which
employees are to perform which procedures, especially
who has the authority to authorize transactions and the
responsibility for the safekeeping of the assets and/or
records custodial function)
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Organizing Your Thoughts
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• Outline the material to be covered. This is a fast and
effective way to show a great amount of information in a
concise, efficient manner with a minimum of writing.
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• To achieve well-written and easily understood policy and
procedure statements that flow in a cohesive and logical
form, the writer should first outline their thoughts before
beginning to write a policy.
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Organizing Your Thoughts
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When outlining a accounting policies and procedures statement, the
following areas should be defined:
•
•
•
•
•
What is the objective that the statement is going to accomplish?
What is the organization policy on this matter?
Who is affected?
When is the accounting policies and procedures appropriate?
How is the objective to be accomplished? This should include
outlining major areas in a step by step fashion in a chronological order.
procedures)
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Outline Technique
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• Basic standard rules for effective and
consistent outlining.
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Outline Technique
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Indentation and numbering
Standard outline formatting is as follows:
I.
A.
1.
2.
a.
b.
B.
II.
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There should always be at least two of each type of character, for example, there should not be an I
without an II, an A without a B, etc.
Outline Technique
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The four characters that mark each section level, Roman numerals, capital letters,
Arabic numerals and lower case letters are followed by a period. Line up the periods
vertically for each type of character.
5.
39.
I.
II.
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Aligning the periods, the text is a pleasing, straight vertical line. Indentation should be
uniform, usually two to five spaces for each change in type of line.
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Accounting Procedures
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Format
– There is not exact format but the following
recommendation is acceptable standard in the
Accounting industry.
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Format
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Policy and Procedure
1. Heading
2. Title and Introduction
3. Policy
4. Purpose
5. Scope
6. Responsibilities
7. Definitions
8. Procedures
9. References
10. Records
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Format
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Heading- the simplest accounting policies and
procedures approach is often best.
• Heading information should be kept to the
minimum necessary in accurately describe the
statement, identify revision level, demonstrate
authorization and be easy to produce
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Heading
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1.
2.
3.
4.
5.
Organization’s name
Policy and Procedure # Revision
Effective Date:
Prepared by
Approved by
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Heading
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Use organization’s name personalizes the statement
as belonging to “our” organization.
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Heading
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Policy and Procedure number and Revision
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Policy and Procedure number and revision level-for small
manuals, numbering system not necessary and just the title
can be used for identification. Lengthy manuals a
numbering indexing system should be used.
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A - Accounting, numbered in sequence A1, A2, etc.
Heading
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Policy and Procedure number and Revision cont.
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A revision code should be inserted to identify the current
policies and procedures in place.
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The initial policy should begin with 0. Should be located
under the organization’s name.
Heading
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Effective date
The actual date the policy and procedure will be
implemented. Note the effective date is not the issue date
of the original policy. Formatted as mm/dd/yy, located
directly underneath the policy and procedure number and
revision level.
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Heading
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Page numbering
Numbered in a Page# of # to quickly identify the
order or placement of pages within a statement.
The policy and procedure should be identified on
subsequent pages.
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Heading
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Prepared by: Useful to identify the primary individual or
department that has developed the policy in the event
questions arise. Typed or initialed by the individual.
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Approved by: After proper review and authorized the title
page should be initialed by an authorized individual.
Placed below the prepared by section.
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Title and Introduction
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• Provides the information necessary for the reader
to determine content and the reason for the policy,
which it affects and in what situation's).
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Policy
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• Should clearly indicate the organization’s or
top management’s beliefs or protocol
affecting this area.
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Purpose
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A brief description of the objective of the
policy.
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Scope
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• Describe the areas, functions, individuals or
departments affected by the policy and in
what situation's).
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Responsibilities
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• Describe in generic titles or positions, is
responsible for implementing or
maintaining the procedure or parts of the
procedure.
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Definitions
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• Any terms contained in the policy that may
be new or unusual to the reader.
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Procedures
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• Includes a complete description of the policy and/or procedure, the
methods to be use, form names, cross references to other
policies/procedures.
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2
• Clearly explains to the reader in an orderly fashion exactly how to
accomplish the objective of the procedure.
•
4
For lengthy statements, maybe useful to identify and segregate the
steps or areas by a numbering system.
References
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• List accounting policies and procedures applicable
documents, manuals, laws, procedures,
regulations.
1
4
2
Records
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• Describe minutes, reports, notes forms that are
generated or used when implementing the
procedure.
1
4
2
Attachments
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• Any forms, diagrams, illustrations or other documents
referenced in the body of the statement should be attached
to the policy and procedures.
1
2
• Referenced as exhibits in the policy and procedures using a
sequential system (ex. Exhibit I, Exhibit II, etc.)
4
• Useful to have copies of actual completed forms or
documents as exhibits to illustrate to the reader.
Authorization
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• Once a draft copy of a proposed procedure is
developed it should be reviewed, corrected if
necessary and approved before being released.
The approval process
1. Review for accuracy and consistency
2. Conflict with existing policy
3. Readability
1
4
2
Authorization
0011 0010 1010 1101 0001 0100 1011
• Recommendation is to keep approvals to a
minimum as possible; too many people can
make it a bureaucratic process, slow release
of policies and procedures while adding
minimum value to the final version.
1
4
2
Revisions and Updates
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– The policies and procedures are never complete because they never stop
changing or evolving in order to keep pace with the needs of the
organization or organization’s climate.
1
2
– The policies and procedures should undergo an audit every several years.
– New Policies/Procedure should be issued if an existing statement is to be
modified in any way.
4
The Manual
0011 0010 1010 1101 0001 0100 1011
Format
• Cover Page that identifies the organization
• Table of contents
• Purpose
• Scope
• Accounting Organization
• Processes and Controls
• Referenced Policies and Procedures
1
4
2
APPLICATION
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• Processes and controls
• Writing activity
1
4
2
Processes and Controls
General and Administrative
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Chart of Accounts
Files and Records Mgmt
Travel and Entertainment
Management Reports
Period End Review & Closing
Controlling legal costs
Taxes and Insurance
Property Tax assessment
Confidential information release
Document Control
Referenced Procedures
1
4
2
Processes and Controls
Cash
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Cash drawers and credit cards
Cash receipts and Deposits
Problem checks
Wire transfers
Check signing authority
Check requests
Bank Recon
1
4
2
Processes and Controls
Inventory and Assets
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Inventory Control
Inventory Counts
Fixed Asset Control
Customer property
Fixed Asset Capitalization and depreciation
1
4
2
Processes and Controls
Revenue
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Sales order entry
POS orders
Customer credit approval and terms
Sales order acceptance
Shipment of goods
Invoicing and A/R
Sales tax collections
Progress billing
Account collections
Returns
1
4
2
Processes and Controls
Purchasing
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Vendor selection
General Purchasing
Project Purchasing
A/P and cash disbursements
1
4
2
Quiz
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1
4
2
Assignment
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1
4
2
The End
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• Much success to you and your policy and
procedures!
1
4
2