ON THE ROAD TO COST SAVINGS

AND EFFICIENCY –analysis and optimization of internal control and

accounting procedures

4/12/14

Olga Mazina Deputy Director of Accounting Department

Tax Advisor

1

1. Business processes of a company and value of accounting2. Structure of accounting and kinds of accounting work3. Risks of inefficient accounting4. Analysis of accounting department5. Indicators of efficiency of accounting work6. Problem areas and factors for analysis7. 5 questions method8. Goals and methods of optimization9. Internal control: requirements of law 10. Procedures of internal control11. Typical mistakes in organizing internal control12. Recommendations for organizing internal control

Contents:

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Business processes of a company

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Managing Operational Supporting

Business processes that

manage the company

Business processes

comprise the general

business of a company

Business processes

serve the business

Corporate management

Strategic management

Production

Trade

Purchases

Marketing

Accounting

Recruitment

IT support

Business processes of a company

- Any business process - a set of interrelated tasks that define the organization of a business, its development strategy and its stability

- Well-established business processes give a great competitive advantage!

- Accounting is a management tool which allows us to monitor other processes effectively

Value of accounting

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Structure of accounting

Accounting according to

RAS

Management accounting (IFRS, etc.)

Tax Accounting

+ Salary calculation+ Stock accounting+ Payments+ Accounting for fixed assets and investments+ Accounting for sales+ Accounting for costs+ Calculation and declaration of taxes+ Calculation of financial result+ Reporting+ Etc.

Each process consists of several actions. Because of the use of accounting programs programs many actions are automated. Accountant’s daily routine includes:includes:

- preparation of primary documents - data input to accounting program- analysis and processing of data to produce results

Kinds of accounting work

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Missed Deadlines

• Reports are not prepared on time

• Salary is not calculated and paid on time

• Failure to fulfill contractual obligations

• Taxes are not paid on time

Additional Costs

• Fines and penalties for delays

• Costs resulting from mistakes in calculations

• Overtime payments to accounting staff

• Fraud

Management risks

• Lack of timely and reliable information

• Mistakes in financial statements

• Etc.

Risks of inefficient accounting

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• Study of the activity, organizational structure, core business processes

Express analysis of company’s business

• Determination of accounting procedures, information flows needed

• Determination of problem areas

Analysis of department

• Setting goals for optimization

• Planning methods for implementationOptimization

Analysis of accounting department is necessary to eliminate risks, increase efficiency and allow constant development

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- Interview key persons

- Study the documents

- Analyze the accounting database

- Interview accounting staff

Methods of analysis:

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Logical

• Satisfactory implementation of tasks

• Number of stages of a process matches its complexity

• Sequence of actions accounting process is formed logically

• Good organizational interaction

Economic

• Low functioning costs of accounting department (salaries, outsourcing, recruiting and training of accounting staff)

• Optimal workload of accounting staff

• Absence of errors that may lead to inefficient management and losses

Time

• Minimal time used for accounting processes (given the existing automation)

• Share of time spent auxiliary work is minimal

• Flexibility (ability to carry out urgent tasks and sometimes work under time pressure)

Indicators of the efficiency of accounting work (1)

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Space

• Convenient location of workstations (arranging work environment with regard to the employees duties)

• Optimal document flow routes (internal and external)

• Flexibility (ability to arrange additional workstations, to adapt changes)

Personnel

• The required number of (corresponding to the volume of work)

• Necessary qualifications (qualifications of personnel with the functions they perform)

• Sufficient training (training which allows staff to adapt to the needs the company)

• Flexible working hours (the ability to cover, contribution to employee loyalty)

Indicators of efficiency of accounting work (2)

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• The following situations require analysis:- Downtimes or stoppages in activities

- Unused capacities / resources

- Duplication of work tasks

- Errors in transmission of information

- Losses of information

- Mistakes in documents

- Branched structure of management, including several levels

• The following situations are factors for analysis:- Technology changes

- Changes of working systems

- Opening of new branches or kinds of business

Problem areas and factors of analysis

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Goal• What is the purpose of this work?

People

• Who does this work? Why this person?

• Who else could do this work? Who could do this work better?

Place

• Where is this work being done? Why?

• Where else can it be done? Where can it be done better?

Method

• How is this work done? Why is this work done like this?

• What other methods can be used? Which method is better?

Time

• When is this work done? Why it is done at that time?

• What are the alternatives? Which alternative is better?

5 question method

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Eliminate time gaps

Minimize oral information

Set control points

Goals of optimization

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• Eliminate manual/routine work

• Liquidate obstacles to smooth work

• Reduce document flow routes

• Limit excessive control

“Delete”Method

• Decrease complexity of processes

• Simplify formats of documents and reports

• Division of labor

“Simplify” Method

• Use accounting, management, office programs

• Standardize methods, development of instructions for personnel

• Unify communications, methods of collection and transfer of information

“Standardize” Method

Methods of optimization

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+ Federal Law of 06.12.11 No 402-FZ “On Accounting” (Article

1. The economic entity is obliged to organize and implement internal control of the facts of economic life.

2. The economic entity financial statements of which are subject to statutory audit shall organize and carry out internal control of accounting and preparation of financial statements (except cases when General Director is in charge of accounting).

+ Recommendations for organization and implementation of internal control are given in Information No PZ-11/2013 issued Ministry of Finance of RF

Internal control: requirements of law

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Procedures of internal control

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Documentation of operations

Verification of documents for compliance with requirements, conformity between documents

Authorization of deals and operations

Reconciliation of payables / receivables

Division of powers, rotation of duties

Control of the actual availability and condition of assets, security, restricted access, inventory

Internal audit

Procedures connected with the use of computer programs (control of access to databases, automatic validation of data input, reports on errors)

• Electronic key (signature) is kept by the employee preparing payment orders

• Authorization stamps on invoices are not completed

Ignoring the authorization

procedure

• Disorganized warehouses

• No accounting for value of assets below 40 t. RUR

• No inventories of assets or improper inventories

Improper storage of assets

• No permanent committee

• Improper inventory registers

• No recounting of assets in the case of deviations between registers

Violation of procedures of

inventory

Typical mistakes in organizing internal control (1)

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Typical mistakes in organizing internal control (2)

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• One and the same person makes payments and records of accounts payable

• One and the same person takes part in inventory of assets and records its results

Insufficient separation of powers and

responsibilities

• Total control of all operations regardless of their amounts

• Departments check each other’s work and actually perform duplicated work

Excessive control

• No reconciliation on reporting dates• Ignoring of differences (e.g. interests per

loans)• Expiry of limitation periods for returning of

tax overpayments or other receivables

No reconciliation of accounts payable

and accounts receivable

Annual assessment of the internal control system

Notification to personnel about the risks related to their area of responsibility and control procedures

Documentation of order of organization and implementation of internal control

Selection and description of internal control procedures

Identification of risks of company's activity

Description of business processes in a company

Recommendations for organizing internal control

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THANK YOU!

Olga Mazina

Deputy Director of Accounting Department,

Tax Advisor

Accountor

+7 812 325 82 94 /+7 921 189 88 34

olga.mazina@accountor.ru

www.accountor.ru

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PASSION FOR RESULTS

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