How to Manage Accounting Business Functions

The accounting function is vital for any size business. Accounting is how you keep track of your monetary resources, money you owe to vendors and money that customers owe you; and they determine profitability and what you owe on taxes. Therefore, the accounting functions in your business should be managed well and the results monitored often.

Instructions

1. Make a list of all the accounting functions your business has or is likely to have in the near future. These will normally include accounts payable, accounts receivable, banking, investing, taxes, inventory management and fixed asset management. All companies have the need to track profitability. If you have investors or have a partnership agreement, there may be the need to track conditions separately for specific investors or partners as well.

2. Draw a process map showing how these functions relate to one another. For example, your accounts-payable and accounts-receivable functions are tied to your cash-management system. When you pay vendors, the outstanding payable balance decreases and your cash balance decreases. The exact reverse relationship is true of accounts receivable; when you receive money from customers, the outstanding receivable balance decreases while your cash balance increases. In both cases, accounting entries must be made reflecting these activities. Creating a process map will help you visualize the flow of information.

3. Determine where the major risks of theft or embezzlement lie. This will be different for each company and industry. Common problem areas include fake vendors set up by employees and customer charges that are written off and pocketed by employees. You may want to enlist the help of an outside accounting firm in this step.

4. Set up effective internal controls to safeguard against loss, paying special attention to the problem areas you noted in the previous step. The controls can be set by policy and procedures, by software functionality or both. A common internal procedure is not allowing an employee who deals with accounts receivable to ever balance the checking account. Another would be to place tight restrictions on the creation of new vendor records, and have a procedure of independently verifying the existence of these newly created vendors.

5. Create proper policy and procedure manuals and make sure the appropriate personnel are trained. Additionally, internal and external audits should be performed regularly. Managers and others responsible for the potential problem areas noted in Step 3 should regularly perform mini-audits when employees are not expecting them.

Tips & Warnings

• Train your managers to ask questions about accounting or financial data they do not understand. Send your top accounting and financial personnel to fraud seminars, or even attend one yourself from time to time. These events can be a real eye opener, because you can get an inside view of how employee theft happens at other companies. Make sure your employees take off at least one full week of vacation each year. Many schemes are perpetuated by employees who had sole access to specific functions.

• Be vigilant about problems that can creep up in your accounting functions. Never assume that everything is perfect. Always try to improve your accounting systems.