Accounting Policy Manuals (avoiding management letter comments, part 4)

Not having a written accounting policy manual can be detrimental to your controls, so it shows up often as a management letter comment.   This is usually considered a control deficiency. Below are some suggestions on what to include in an accounting manual and what should be included in each area so you can avoid the management letter comment.

• Maintenance of the chart of accounts –which number sequences are used for assets, liabilities, net assets, revenues, and expenses. Don’t over-complicate it, but make it work for your needs.
• Capitalization and depreciation policy – what is the cutoff for a purchase to be capitalized or expensed, what is the expected useful life that will be used to depreciate the item.
• Petty cash policy – how much is kept on hand, how regularly is it refilled, what can it be used for, and who has access to it.
• Credit card usage and receipt retention policy – who in the organization is allowed to have a credit card, what are the credit cards to be used for, and what purchases require advance approval.
• Equipment lease policy – what is the basis to determine if the lease will be considered a capital or operating lease.
• Processing of cash receipts – who will do what, and when processes should occur.  See Part 1 of this series for help on planning the process.
• Processing of cash disbursements and payables – who will do what, and when processes should occur.  See Part 1 of this series for help on planning the process.
• Processing of payroll– who will do what and when processes should occur.
• Bank reconciliation procedures – who will do what and when processes should occur.  See Part 1 of this series for help on planning the process.
• Check signing policy – who and how many need to sign the checks.
• Procurement policy for contracts and large purchases – when are multiple bids needed before handing out a large contract (such as for your audit or payroll company services).
• Board designated net asset fund (if applicable) – what are they to be used for.
• Travel and expense reimbursement policy – is travel time included in your work hours for the week, what expenses can be claimed for reimbursement, when advance approval is needed.
• Revenue recognition – what is your policy for handling different revenue streams?  This will also be included in the footnotes to your financial statements.
• Valuation of donated items and services – what is the basis for determining value.
• Monthly closing process – what needs to be done monthly and who will do it, what reports will be generated monthly and retained on file.
• Year-end closing process – what needs to be done annually and who will do it, what reports will be generated and retained on file.
• Expense allocation – what is the basis for determining how your overhead expenses be divided between your different programs.
• Obtaining and maintaining debt – who has the ability in the organization to obtain debt in the organization’s name, what instruments are acceptable.
• Record retention policy – how long will you keep your supporting documents on file.
• Backing up records – how often will this be performed, where will the back-ups be kept, how frequently will back-ups be tested to ensure they work.
• Inventory policy – what is the basis for determining its value and what accounting method will be used.
• Policy on updating the accounting policies – Hey, what’s the point of having the accounting policies written down if you don’t have a policy on how often they need to be updated? Outdated policies don’t do anyone any good.

Having these items written down and approved by the board of directors allows for an easy access for when questions arise on how situations are supposed to be handled.  It is also a good part of your internal controls and can be a useful tool for thinking through where risky or weak areas might be.

These are just generic suggestions if you feel you have a unique setup and need help deciding on what to include in your accounting policy manual, please feel free to contact us.  Part of our job is to help you help yourself.

This is part 4 of a continuing series on common management letter comments.  Click here to read part 1, part 2, and part 3.

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