Best Practice Financial Processes General Ledger 2 General

Best Practice Financial Processes: General Ledger

2 General Ledger - Best Practice Objectives People Organisation Ø Ø Centralised processing Economies of scale General Ledger Objectives Ø Ø Ø Processes Ø Ø Ø Ø Maintain cost codes Maintain standing data Record & validate financial data Carry out period end ? ? and reporting Prepare cashflow reports Prepare status report and tax report Answer queries Ø Ø To be the primary source of financial information To ensure the integrity of financial management information To apply period end (e. g. monthly) disciplines and routines to produce periodic financial and management accounts To support the preparation of statutory accounts and comply with fiscal reporting requirements (e. g. VAT) Information Systems Ø Ø Ø Controls Ø Ø Procedures manual Calendar timetable Quality of data Monthly routines Measures Ø Ø Ø Pw. C 175 a Control awareness Legal framework awareness Provision of quality information to business Days to produce accounts Manual Journal entries period. (i. e. not system automated) JVs per head Single source Integrated with other ledgers Data accurate and timely

3 General Ledger - Best Practice Features Establish and maintain standing data Establish and apply accounting controls Apply and allocation rules Produce periodic financial reporting and information Produce statutory accounts Process Features ØCommon chart of accounts number of accounts to meet information needs ØRegulated control of new account creation ØPeriodic check of inactive accounts ØMinimal Pw. C 175 a ØAll users of financial systems fully trained in standards and controls ØClearly defined procedures cover reconciliation of control accounts ØStandard journal and authorised input forms are used ØClear month end cut off process ØElectronic approval of journals ØClear authority levels period end and year end routines to accounting ensure accuracy of data information is ØDetailed procedures sourced from GL (no reconciliation to applied to reconciliations, accruals financial accounts and prepayments required) ØPeriod and financial ØLevel of detail is reports produced within driven by business 5 working days of period requirements end ØAllocation rules are ØFlash results within 1 based on agreed day rates or service ØCyclical reconciliation of level agreements balance sheet accounts ØConsistent use of Ø Balance sheet accounts account codes allocated to GL staff across business ØSoft close for non allowing comparison of costs quarter months ØManagement ØRigorous ØRegular liaison with auditors to minimise ad hoc trail and reporting requirements for statutory reports ØCorporation disallowable and allowable tax data controlled through use of chart of accounts ØPeriod end timetable communicated to all relevant staff

4 General Ledger - Best Practice Features Establish and maintain standing data Establish and apply accounting controls Apply and allocation rules Produce periodic financial reporting and information Produce statutory accounts ØAutomatic ØSystem Features allows control prior period eliminates posting duplication of ØVariable journal maintenance input types such as ØLocal variation to standard, reversal, common core chart recurring of accounts Ø System controlled ØComprehensive security and access month end procedures and controls processes ØEfficient copy and ØOn line training and editing facilities help facilities ØExtra segment (s) provided for future expansion of requirements (fundamental change to business) ØIntegrated Pw. C 175 a system ØSystem provides control over combination of accounts and cost centres ØControls applied for use of balance sheet and profit and loss accounts ØReal time allocation to cost centres ØAutomatic reconciliation of management and financial accounts period end reports produced ØComprehensive report writer facilities to provide user defined reports ØOne line reporting of information and drill down ØOn line graphical display or links to EIS system ØScreenbased exception reporting allows prior year postings and automatic balances carried forward ØSystem is sole source of consolidated statutory reporting requirements and holds non financial data ØDrill down facilities provides full audit trail on financial data ØAdditional period used solely for year end accounts ØMulti-currency, multi-country consolidation

5 General Ledger - Measures/Cost Drivers Number of journal entries per FTE General Ledger cost per Business Unit FTE (in £s) £ 157 486, 000 66, 600 3, 200 or less £ 32 £ 574 10 percentile 90 percentile Median 10 percentile Median Days to produce monthly management accounts 3 days 10 percentile 8 days Median 16 days 90 percentile Cost drivers Ø Number of reporting periods Ø Number of manual interfaces Ø Number of accounts and cost centres Ø Complexity of costing and reporting structure Ø Approval process for journals Ø Mechanism to calculate accruals and prepayments Source: Statistics taken from Benchmarking database: 21 January 1997 Pw. C 175 a

6 General Ledger -Trends From Ø Separate GL Ø Ø Analysis via spreadsheets/ manual input Integrated global systems and compliance Ø Multiple source of data across multiple systems Graphics and analysis/drill down tool Ø Single source of data via data warehouse Ø Automatic reconciliation Ø Shared or outsourced services Ø Pw. C 175 a To Ø Manual reconciliation Ø Performed by finance department

7 General Ledger - Critical Success Factors These are a summary of the key business requirements, which must be met to achieve the objectives. Ø Authority Ø General levels clearly defined for journals/accruals Ledger procedures and guidelines documented Ø Staff trained in GL process and have clear roles and responsibilities Ø Period closing and reporting calendar established and communicated to all staff Ø Chart of Accounts and cost centres defined Ø Statutory accounting requirements understood Ø Budget responsibilities communicated to staff Ø Reconciliation procedures in place Pw. C 175 a

8 General Ledger - Level 0 Context Diagram Company / Group / HQ Board and External Agency Billing ls ec e iva ble Accounting Policies ua cr Ac Ac de cou ta nt ils s R m , M e ag an o ep l. R cia n ina F & et g d rts Bu epo R Cash Management ails det CM tc. ) General Ledger nts me Co ils ta Purchasing e ld ol yr Pa Legal Entities Pw. C 175 a ts e Ass a( dat Project details Project Accounting Inv en to ry Ch ec k de tai ls Re c on Budget data Accruals it mm Payroll Fixed Assets ne atio eci pr De Accounts Payable details Statutory, Tax & Regulatory, Management Accounts reports Accounts Payable Cost Centres / Operating Departments rts Consolidation / Management Reports g llin Bi Accounts Receivable t en Inventory cil ia tio n Budgeting & forecasting Audit

9 General Ledger - Level 1 Overview Local GAAP rules, Reporting Financials Management Sign off Tax rules Request procedures, COA structure and rules, GL rules - Notification procedures Business needs Maintain COA codes / reports COA data Prescribed Journal format, System controls, & Timetables. On line GL data validation Reconciliation procedures, On line GL data validation System controls Accounting guidelines, Variance analysis Review data Prepare Statutory & Tax reporting GL 1. 7 GL 1. 1 Audit trail / Optional Basic financial Record and Consolidation data validate of data for Grp financial data reporting GL 1. 4 GL 1. 3 Mgt. Acct. User, DBA, G/L d/base Financial Accountant, Management Accountant G/L System, FD Prior Year Stats. Tax experts User departments Reporting controls Review Manager approval Financial results Carry out period end routines and reporting GL 1. 5 System controls, Timetable, System access rights Procedural review Period changes Personnel changes Maintain standing data Updated data GL 1. 2 Management Accountant System clock and processes Source info. Departments Sub ledger managers Management Accountant G/L System Spreadsheet reports Ledgers System Prepare Forecasting & Cashflow Reporting GL 1. 6 Financial results Reports Management Accountant G/L System, prior year stats. Financials , Query handling procedure Management Accountant, GL system databases Report generators, and query tools, spreadsheets Basic financial data User query Answer queries GL 1. 8 Mgt. Acct. Auditors, G/L system, Ledgers, On lie query and download tools, Auditors, Mgt. reports Pw. C 175 a Responses

10 General Ledger - Notes - Carry out period end routines and reporting Best practice features (Carry Out Period End Routines) Ø Single ledger Ø Single calendar Ø Procedures for interfaces (both internal and external) Ø Eliminate manual entries as much as possible to avoid reconciliation problems Ø Automatic journals for recurring documents (see GL 01) to minimise the manual data input Ø Journals with automatic reversal postings Ø Balance sheet accounts allocated to GL staff (integration with related subledgers) Ø At maximum 5 days for closing Ø Automatic downloads available for efficient external report processing. Best practice features (Reporting) Ø Calendar/report schedule Ø Minimum necessary number of reports to eliminate duplication of information provided Ø Automatic report processing enabled by flexible report writer Ø Regular contact with auditor to minimise ad hoc queries Ø Same data for management and statutory reports Ø Flash report within 1 day, monthly/preliminary year end reports within 5 days. Pw. C 175 a

11 General Ledger - Notes (cont …) Internal Control Requirements Ø All the interface data and underlying documentation has to be approved by responsible senior manager. The process of acc. operations covers part of the internal control processes - the reconciliation of the balances with the other processes. The reconciliation rules to be covered by the Accounting Manual. The uniformity of the process procedures within the company has to be achieved as well. Each balance has to be approved by appropriate senior manager. Ø The report reconciliation with the actual GL data has to be in place. All the reports have to be signed by senior mgt. Key performance indicators Ø Processing time Ø Number of queries Pw. C 175 a

12 General Ledger - Notes - Answer queries Best Practice Features Ø Single contact point for all queries. Although the query processing can be distributed there are obvious inefficiencies in directing enquiries to a number of contact points. Ø Have access to sufficient data to be able to handle the majority of queries on-line. Internal control requirements Ø In order to operate an effective helpdesk, staff will require to have access to most parts of the other subsystems. Ø Wherever possible, this should be on a ‘read only’ basis in order to minimise the potential for fraud taking place. Key Performance Indicators Ø Number of queries received. Ø Average time taken to process queries. Ø Number of outstanding queries at period end. Pw. C 175 a

13 General Ledger - Appendix 1 : IDEF Process Flow The diagram below provides a key to the process diagrams used in this document. Controls (i. e. Ø Procedures Ø Standards Ø Requirements for rework) Input (i. e. Ø Information Ø Material) Process / activity Resources (i. e. Ø People Ø Functions Ø IT systems Ø Machines) Pw. C 175 a Output (i. e. Ø Information Ø Material)