Best Practices for Creating and Maintaining Accounting Policies and Procedures
Establishing and maintaining good accounting policies and procedures for your organization is an investment of time and attention. There is no “one size fits all” and creating an accounting policies and procedures manual should be tailored depending on the size of the organization, complexity, staffing and business model.
Why are policies and procedures important for nonprofit organizations?
One of the fundamental requirements of a sound and strong financial management system is for organizations to document their policies and procedures used in establishing and maintaining internal controls, accounting and reporting. An organization must document all of the policies and procedures it follows for meeting the applicable accounting and regulatory standards, requirements of the organization, as well as any governance policies the organization has chosen to adopt.
The organization’s policies and procedures should help ensure that the institutional memory of how and why things were done in the past is not lost and serve as an important model to capture how things are done currently. The document is an important tool for clarifying roles, responsibilities and ensuring accurate financial data is used for decision making. The document should be a useful training tool for new and existing employees, educating them and providing guidelines to support daily operations and processes.
Keep in mind:
- A policy can be defined as the principles or rules that are used to determine decisions and actions.
- A procedure is the course of action that must be followed to implement a policy consistently.
Policies and procedures should be reviewed on a regular basis to determine if they should be changed or improved, but it is not expected that they will change frequently. In addition, some organizations find it most effective to create separate policy and procedure documents for different lines of business, even if the different areas or divisions are included in the definition of the organization. The organization should attempt to make their policies and procedures as clear and unambiguous as possible so that they can be easily understood. The organization’s policies and procedures can be outlined in separate documents or combined into one consolidated manual. Further, policies and procedures can be documented in either hardcopy or electronic format. Many organizations also chose to create detailed step-by-step “desktop procedures” (separate from formal policies and procedures) to help employees consistently complete ongoing tasks.
The following basic elements should be addressed in any organization’s policies and procedures manual, although the order and details will vary.
- Overview of the organization
- Objective of the manual
- Organizational chart
- General policies
- Internal controls
- Accounting procedures for all components of the financial statements
- Financial statement close process-monthly and annual
- Accounting policies embedded within each section such as
- Signatories for bank accounts
- Investment restrictions
- Allowance and write off of accounts receivable
- Depreciation years and methodology for fixed assets
- Record retention of documents
- Tax filings
- Budget process
- Job descriptions
- Exhibits of key forms
The accounting policies and procedures manual will serve as a basic framework and will ensure:
- consistent policies and procedures across your Organization
- compliance with accounting standards
- assets are safeguarded
- financial statements are produced that are accurate and reliable
- job descriptions and responsibilities are well documented
- that finances are managed with responsible stewardship
- proper communication for new personnel and existing employees
- effective internal controls over accounting and financial reporting
- promote operational efficiency and governance
Sound and practical policies and procedures are the foundation of accurate accounting and reporting of financial information. Creating policies and procedures may require working with several departments such as accounting, development, human resources, compliance, legal, and management, among others. In addition, it is important to keep in mind that organizations must have the ability to implement a policy that they decide to document. The organization needs to assess the resources available to them (time, systems, personnel, etc.) when determining what policies and procedures are practical for their organization.