“Merriam-Webster's Dictionary” defines accounting as “a system that provides quantitative information about finances.” Accounting departments are often responsible for many different tasks, ranging from high-level management decisions to the purchasing of stamps at the post office. It's easy for folks in this department to lose focus of their basic mission. As a certified public accountant (CPA) for more than 20 years, I have worked with many accounting departments. Drawing on this experience, I can offer a few tips that will help your accounting department operate more efficiently.
Make sure your accounting department produces financial information for managers as quickly as possible. To make informed decisions about the company's direction, management needs timely financial information. Some accounting departments can prepare financial statements within one day of month-end, but others take months to prepare statements. A well-tuned accounting department should be able to produce accurate monthly financial statements within 10 business days. An additional week or two may be needed at year-end.
Include analysis and commentary on the financial information. The accounting department should always review financial reports for accuracy before submitting them to management. Users of your company's financial information can lose confidence very quickly if they see frequent errors. Because management makes decisions based on this information, analysis and commentary are always welcome.
Be sure your accounting department only produces the most relevant financial reports. Accounting departments should not overload management with numbers and paper and should summarize information wherever possible. Managers don't need to waste time sorting through the numbers. Accountants should ask the users of financial reports what information they need and what information isn't essential. Everyone involved should keep an open mind. For instance, in some reports, information on the number of units sold may be more useful than the dollar amount of units sold. Ratios and results compared to industry averages can also be insightful.
Don't overlook the importance of budgets. Most accounting software packages allow for the input of budgets and can generate report comparisons. Budgeting can be especially useful in maintaining control over operating expenses.
Cross-train employees in your accounting department. Well-tuned accounting departments cross-train employees to prevent a crisis if someone is sick or resigns. Cross-trained departments also operate more efficiently because associates see the big picture and learn how each task fits into the department's overall process.
Have a system in place to prevent fraud. All companies need internal controls in place to safeguard their assets and to prevent fraud. The most susceptible area for fraud is cash on-hand or in company bank accounts. Other areas at risk are inventories and fixed assets, depending on their marketability and value. A good internal control system will either prevent fraud from occurring in the first place or expose it within a short period of time. The control possibilities are too numerous to mention here, but an easy way for business owners to monitor company bank accounts is to receive unopened bank statements at home and spend time reviewing canceled checks and other documentation that could reveal problems.
Document all accounting procedures. A well-tuned accounting department documents its procedures in a manual. Documenting procedures helps train new employees and provides a good reference point when evaluating system changes. This manual should be updated on a regular basis and should provide the reasoning behind all of the department's procedures.
Companies interested in tuning up their accounting departments should set realistic goals. A cost-benefit analysis of any changes should also be considered. Using consultants during this process can be helpful. Everyone involved should keep in mind the purpose and the mission of the accounting department during this process. To keep your accounting department running smoothly, you and your management team should keep these tips in mind.
Jim Gentry, a certified public account for more than 20 years, is a principal with the CPA firm Conner Ash P.C., St. Louis. He can be reached at firstname.lastname@example.org.