Spring 2009 issue of Horizons

GENERAL TOPICS Process Improvements and Internal Controls (cont.)

and the appropriate steps can be taken to investigate and determine whether the edits are appropriate. As a result, labor costs are reduced, and management can be comfortable that an internal control is in place to ensure employees are not paid in error. Another example we see with many of our clients is the account reconciliation review process. Most companies prepare account reconciliations for all balance sheet accounts every period. Each of these account reconciliations are then reviewed by an independent person. Depending on the number of divisions within the company and the company’s chart of accounts, hundreds and sometimes thousands of account reconciliations are prepared and reviewed each year. Think about the time and effort that is devoted to that control! So where would you start in evaluating how this control could be transformed to find a more efficient and effective approach to review? Ask these questions: • What other controls are upstream or downstream in your closing process from the account reconciliation review that mitigates your financial risk? • What are the attributes of your accounts: size of the balances, transactional volume, application of judgment to determine balances, and the relationship of the general ledger system with sub-systems? • What tools are available within your general ledger system that can be used to monitor account balances that are not currently being optimized? In some instances, companies have maintained the procedure of completing reconciliations on a monthly basis but have implemented a risk-based approach to account reconciliation review. Accounts identified as high-risk are still reviewed on a monthly basis. However, medium-risk accounts are only reviewed quarterly and low-risk accounts are reviewed annually. In addition, a monitoring control is implemented to identify any account balances that exceed a tolerance level when compared against budget, forecast or prior period, and a review is performed for these accounts to research the cause of the variance. As a result, companies see reduced labor costs and an increase in the quality of their account reconciliations.

Process improvement and a strong internal control structure are interdependent. By implementing the right combination of automated and monitoring controls, your company will maximize the benefits of process improvement efforts while managing risk to an acceptable level.

Questions? Contact:

Rick Feldt, CPA Partner Internal Audit Services Group 314.290.3220 rick.feldt@rubinbrown.com

or

Kristin Parshay Manager Internal Audit Services Group 314.290.3499 kristin.parshay@rubinbrown.com

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