For most small to mid-sized businesses, the focus is generally on increasing revenues and profitability and managing the functions that are directly related to those objectives. Unfortunately, this growth can put great strain on the accounting function, and it is often during this time when issues with the accounting department become more noticeable and impactful. This may include chronically late or inaccurate financial reports, vendor/supplier payment and delivery issues, large and aged work-in-process (WIP) or accounts receivable, underutilized accounting systems, and ineffective or even nonexistent accounting policies/procedures. Continued challenges with accounting data may mean it is time to conduct an evaluation of the accounting department to identify where changes may need to be made. To help clients, prospects, and others get started with an evaluation, we have provided a summary of key evaluation criteria below.
Accounting Department Evaluation Criteria
- Timeliness of Information – A sign of a high-performing accounting department is the consistent timely delivery of information. The ability to quickly gather and report on key financial information as well as the consistent delivery of monthly reports not only supports decision making and company growth but also reflects a department that is highly organized with proven processes and policies.
- Information Accuracy – When making strategic business decisions it is important to have reliable information to inform the process. In terms of accounting, this means management should be able to rely upon the monthly reports, budgeting, cash flow forecast, accounts receivable, accounts payable, and other essential details. When these data points are not accurate and reliable, then the decisions made will have unintended negative consequences. When evaluating the department, consider the reliability of the reporting produced by the department, and how the professionals, processes, and the accounting software supports the production of accurate data.
- Robust Processes – The overall effectiveness of the department is often not the result of one single variable, but rather several conspiring together. Therefore, when chronic underperformance arises it is necessary to review policies and procedures to ensure they reflect best practices and support data and reporting that is useful to management. It is important to have clear processes that define, assign, and detail various steps to different internal accountants. The processes should also detail reconciliation and review procedures to protect against errors and provide visibility into the account activity.
- Appropriate Controls – A well-organized accounting department has appropriate controls in place to verify the accuracy of reports and other information and protects the financial assets of the company. This means there should be an experienced and competent Controller or other supervisor overseeing the department. A well-designed process should allow for multiple points of review, and clearly document data inputs as well as steps for identifying and resolving errors and discrepancies. This will ensure the data and underlying assumptions are clear and communicated to decision-makers as appropriate.
- Software Efficiency – Beyond people and processes, accounting software is key to the success of an accounting function. The accounting software is a tool that should support the processes and should also be designed to scale as the business grows. As part of the overall evaluation, it is important to identify existing challenges with the software, and review adaptability and assess functionality to determine whether the software is contributing to any departmental issues.
Chronic problems with reliable and accurate financial reporting lead to unwelcome outcomes. That is why it is important to identify, evaluate, and address issues as they arise to ensure resolution before larger problems appear. In some cases, this may mean policy updates or staff changes, and for others, the solution is to look to outsourced accounting. If you have questions about the information outlined above or need assistance with outsourced accounting, Calvetti Ferguson can help. For additional information call us at 713-957-2300 or click here to contact us.