Managing financial policies and procedures: the steps in order

The process runs as a loop. Finance agrees service levels with the business, the controller writes accounting policy, and leadership approves it. The policy is then published, approval limits are loaded into systems and policed, and control reviews and audit findings send the work back to the start.

The steps in order

1. Agree service levels with the teams finance serves. The head of finance operations, or the shared services lead, sits down with business unit heads. They settle what finance will deliver and to what standard: invoice turnaround, close timetable, query handling. These agreements shape every policy written afterwards, so they come early.

1. Draft or revise accounting policy. The controller owns this. A technical accounting specialist usually holds the pen. The draft covers recognition, capitalisation thresholds, accrual rules and how estimates are made. On contentious points the external auditor is consulted informally before anything is final.

1. Approve the policy. The CFO signs off. Significant changes, such as a new revenue treatment or a shift in how assets are valued, often go to the audit committee as well.

1. Reflect the policy in the general ledger. A systems accountant or ledger owner adjusts the chart of accounts. New account classifications, categories and attributes get created so transactions can be recorded the way the policy now demands. Skipping this is the most common reason a new rule exists on paper and nowhere else.

1. Publish and explain it. The controller's office posts the policy to a central library and retires the old version. Affected staff get a short briefing. Good teams attach worked examples, because people follow examples far more readily than abstract rules.

1. Set approval limits. The CFO proposes a delegation of authority. The board or executive committee approves it. It states who can commit spend, approve invoices and sign off manual journals, and up to what level.

1. Load those limits into workflow. Finance systems staff configure purchasing, payables and ledger tools so that an invoice or journal voucher routes to the right approver automatically. Role changes, leavers and temporary cover all need updating here, and this is where drift creeps in.

1. Enforce limits in daily work. Accounts payable clerks, general ledger accountants and budget holders apply the rules transaction by transaction. Exceptions get logged. A payment that bypassed the proper approver is flagged and followed up, never quietly released.

1. Keep financial systems common across the organisation. The finance systems team works with IT so every entity uses the same ledger structure, approval workflow and master data. New acquisitions and new modules are brought into line. Local workarounds are retired or formally accepted.

1. Review controls and respond to audit. The internal control or compliance team tests whether policy and limits are followed. They maintain cycle memos describing how each process actually works, pull samples and answer auditor requests for documentation.

1. Feed findings back. Audit findings and control failures go to the policy owner. Some lead to adjusting journal entries. Others send a policy back to drafting at step 2.

Where it usually goes wrong

Policy and systems fall out of step. A capitalisation threshold changes in the manual, yet the asset module still applies the old figure. Nobody notices until year end.

Approval limits are approved once and then left alone. Within a year the workflow reflects an organisation chart that no longer exists.

Service level agreements get negotiated and then forgotten. When they are never measured, finance has no basis for saying a business unit's request is out of scope.

Questions to ask the people who run it

The documented process and the real one differ more here than in most finance areas. Ask these of the people doing the work, not only their managers.

• When a policy changes, how do you actually find out? Who told you about the last one?
• Which policy do you find hardest to apply, and what do you do when it does not fit the case in front of you?
• Who approves an invoice when the named approver is on leave? Is that written down anywhere?
• Have you ever been asked to split a purchase or a journal to stay under a limit?
• Which approvals happen in the system, and which happen by email and get keyed in afterwards?
• Are there spreadsheets or local tools you rely on that the central finance system does not replace?
• When auditors ask for a cycle memo, does it describe what you do today, or what was done when it was written?
• Which service level does the business complain about most, and is it ever measured?
• After the last audit finding in your area, what changed in your daily work?

Answers that disagree with each other matter more than answers that disagree with the manual. They show where the process has quietly split into local versions.

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.