Spring 2009 issue of Horizons

GENERAL TOPICS

Integrating Process Improvements and Internal Controls Process improvement is a concept that has been around for a long time, but it has taken on greater importance as our clients work through current economic conditions. There are many benefits associated with process improvement efforts. The most recognizable benefits are cost reduction and profit increase achieved by eliminating waste within a process. An often overlooked benefit is increased operational and administrative capacity, which allows a company to grow revenue with a minimal increase in costs. Other benefits could include increased customer satisfaction, improved supplier relationships and higher employee satisfaction and retention. At the same time your company is implementing process improvements, the internal control structure should be evaluated. Many companies lack the experience to effectively evaluate internal controls and often take a “more is better” approach. This approach usually results in a control structure littered with duplicative manual transactional controls that create over-processing waste. It is vital to evaluate your current internal control structure and look for opportunities to eliminate duplicative controls and transform manual transactional controls into automated and monitoring controls. By Rick Feldt, CPA, and Kristin Parshay

Automated Controls Automated controls are procedures completed within your information technology system. They are the most efficient form of internal controls, as the procedures are completed without significant employee intervention, are consistently applied and, in most cases, have minimal error rates. Two common automated controls are: • Accounts Payable Three-Way Match and Payment – In most systems, a vendor invoice can be matched to a purchase order and receiving documentation. In an average company, more than 80 percent of vendor invoices could be processed and paid without involvement from an accounts payable clerk. In an automated three-way match process, only those vendor invoices not in agreement with the purchase order and receiving documentation are handled by an employee. • Payroll Processing – Systems that capture employee time punches, process payroll and prepare signed payroll checks are common. The periodic processing of payroll should be completed without manual intervention by a payroll clerk. Companies that spend significant time processing weekly payroll would probably achieve a good ROI by implementing an automated payroll system. Both of these examples are common for many of our clients. Accounting personnel routinely complete work that can easily be performed by their system. Process improvement efforts streamline and automate these processes and simultaneously improve the internal control environment. Monitoring Controls A monitoring control identifies financial and operational errors and exceptions in established processes. A monitoring control can be automated or manual, but it is more efficient when automated. It is important that a monitoring control be performed by someone without direct responsibility for the procedure being monitored.

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u spring 2009 issue