Best Practice Financial Processes: Fixed Assets2PwC175Fixed Assets - Best Practice ObjectivesFixed AssetsObjectivesTo maintain a complete register of all the organisations fixed assets which reflects location, age, current values, associated cost centresTo calculate depreciation consistently with financial reporting requirementsTo optimise replacement policiesTo minimise ownership costsOrganisationAsset recording integrated with maintenance and non financial dataCentralised asset accountingAsset ownership devolved to business unit levelPeopleControl focusedChallenge asset requisition proposalsProcessesMaintain asset registerAcquisitions and disposalsDepreciation chargeVerifying asset baseMaintaining of valuation basisControlsAsset verificationAsset valuationAcquisition and disposal authoritiesMeasuresNumber of assets maintainedCost of departmentElapsed time to record assetInformation SystemsAsset ledgers integrated with GL and APDepreciation and project control by cost centreAutomated depreciation calculation3PwC175Maintain fixedasset registerControl acquisitionsand disposalsManage periodicasset depreciationVerify and valueasset baseProcess FeaturesDetermine asset categories for internal and statutory purposesMonitor asset maintenance chargesApply insurance valuation to key assetsEnsure asset responsibility at BU levelIdentify asset usage Set up appropriate control of asset acquisition and disposals across companyReport on acquisitions and disposals on a monthly basisMonitor tax issues related to acquisitions or CIPEnsure BU responsibility for assets in their use and for disposal lossesDepreciate at point of asset useApply depreciation rules to asset classesDepreciation rates in management accounts in line with statutory ratesLinks asset depreciation to production and product costs/developmentRevalue key assets on a regular basis based on book value and high riskComprehensive asset verification on regular periodic or rolling basis where asset cannot be verified via technical assumptions (most telcos do not verify network assets: the fact that the network works is verification enough)Verify non capitalised assetsSystem FeaturesOn line asset register holding key data and current cost allocationCost code validation with GLAutomatic links to AP and Project Accounting system to capture acquisitionsRevaluation of features and mass transfers of assets to new cost centresLeased asset features compliant with accounting standardsAcquisition linked to purchase order and accounts payable ledgerDisposals linked to sales ledgerCIP linked to capital project accountingEffective tax management integrated with the fixed assets systemDepreciation charged automatically to cost centres in GLForecast asset depreciation for budget purposesVariable depreciation rules for classes of assetsAssets can be grouped for depreciation rulesVariable asset valuation mechanisms eg historic, current replacementComplete asset reports by physical location and cost centreReport on identified or missing assetsHold non capitalised physical assists for verificationBar coding of assets for verificationFixed Assets - Best Practice Features4PwC175Fixed Assets - Measures/Cost DriversNo of Business Unit FTEs per Fixed Assets FTE90 percentileMedian10 percentile5,2001,40035010 percentileMedian90 percentile731151Cost driversFixed Assets cost per Business Unit FTE (in s)Median14 days90 percentile40 days10 percentile1 dayFixed Assets processing timeComplexity of assetsNumber of assets on registerNumber of asset movementsComplexity of depreciation policiesComplexity of authorisation proceduresRange of data heldNumber of users of data rangeSource: Statistics taken from Benchmarking database: 21 February 19975PwC175Separate fixed assets moduleLack of asset ownershipCost of asset usage not attributed to productPerformed by Finance DepartmentIntegrated systems for:Asset tracking via Geographical Information System (GIS)Asset usageNetwork Capacity PlanningAsset MaintenanceCapital project planning and controlProduct/service costingBU responsibility for ownershipFromToFixed Assets - Trends6PwC175Fixed Assets - Critical Success FactorsThese are a summary of the key business requirements, which must be met to achieve the objectives.Asset accounting policies clearly documentedAppropriate coding by asset category establishedAuthority levels clearly definedProcedures surrounding Fixed Asset process are documented and communicated to staffBudgets in place for capital expenditureAll existing assets identified and classifiedStaff trained in FA process and have clear roles and responsibilitiesStatutory and tax requirements understoodFA calendar in place and communicated to staffStanding data set up on the system reflecting asset accounting policiesAbility to model depreciation scenario7PwC175InventoryAccounts PayableAuditProject accountingPurchasingGeneral LedgerFixed Assets - Level 0 Context DiagramAsset data (depreciation etc)Goods issuedAsset details& asset paymentsMgt ReportsStatutory reportsAsset disposalsCapitalised assetsCommitmentsUnique asset identifierManagement AccountingAccounts receivableMaintenanceMaintenace CycleCircuit ProvisioningUsage data8PwC175Fixed Assets - Level 1 OverviewFA 1.1 Maintain Standing DataFA 1.2 Add AssetsFA 1.3 Dispose of AssetsFA 1.4 Maintain Asset RegisterFA 1.5 Perform Period End RoutinesFA 1.6 Verify Physical AssetsActivitiesFA 1.7 Answer Adhoc queriesRaise request e.g. new asset classPrepare formal requestReview and approve Set up new codes / dataNotify affected users and departmentsInput automatic dataInput manual dataAdd additional informationPost asset detailsReceive requestTransfer assetsAdjust assetsRevalue assetsCapitalise WIP assetsReport on amendmentsWrite - off / down assetsCapitalised labour calculationDepreciation calculated Depreciation posted to GL Reconcile accountsSend monthly reports to ownersCompile accurate data for asset verificationConduct inventory checkHighlight exceptionsTrack asset history & reconcileUpdate FA register & prepare GL journalsReceive requests for adhoc reportsProduce reports Select assets to disposeObtain quote if applicableSell / dispose of assetsNotify relevant accountantsRecord transactions in accountsReconcile GL accountsCalculate profit/loss on disposalChanges in FAPolicies and ProceduresFA registerstructuremaintainedUpdated FA RegisterUpdated FAregister &reportsReconciledGL A/ csRequest for adhoc reportsReportsVerified FARegisterAuthorised GLadjustmentsAssets from AP or project accountingAsset AdditionnotificationGL a/ cs maintainedfor disposalUpdated FARegisterGL a/cs maintainedfor additions Asset addition notificationAmend/update asset types or categoriesMaintain Standing DataFA 1.1Add AssetsFA 1.2Dispose of AssetsFA 1.3Maintain Asset RegisterFA 1.4Verify Physical AssetsFA 1.6Answer Adhoc QueriesFA 1.7AdjustmentsReportsNotification proceduresSystem validation controlsChange request proceduresAuthorisation rulesRequesterFA accountantFinance managerSystem controlsAccounting policiesDisposal procedures, validation procedures, authorisation, reconciliation proceduresCost centre manager, FA accounting staff,FA requester, financial managerReportsAP systemFA accounting staffCost centre managersAuthorisation proceduresMaintenance policySystem controlsFA accounting staffCost centre managerManagement accountantDepreciation policiesMaintenance policiesSystems controlsMonth end reconciliationPeriod end timetableCost centre analysisFA accounting staffFA systemVerification timetableInventory control systemAudit trialAuthorisation for write offsFA accounting staffInventory staffReporting guidelinesSystem controlsFA accounting staffFA systemsCost centre managersPerform Period End RoutinesFA 1.59PwC175Fixed Assets - Level 2 FA1.1 Maintain Standing DataFA 1.11 Raise requestFA 1.12 Prepare formal requestFA 1.13 Review and approveSub Processes / NotesFA 1.14 Set up new codes / dataSend request to FA accountant by e-mail with full explanation / reason for requestEvaluate request against current FA Register to identify actual need for new standing dataRaise request and attach originalEvaluate requestCommunicate acceptance or rejection to originatorSet up standing data by FA AccountantReview set-up data and codes periodicallyFA 1.15 Notify affected users and groupsChanges inFA PoliciesandProceduresRequestFormal requestAcceptedrequestRejected requestActionedrequestFA RegisterstructuremaintainedAmend/updateasset typesor categories Raise requestFA 1.11Prepare formal requestFA 1.12Set up new codes / dataFA 1.14Notify affected users & groupsFA 1.15Send formal notification of set-upNotify that request rejected and whyChangerequestproceduresChangerequestproceduresAuthorisationrulesSystemvalidationcontrolsNotificationproceduresRequesterFA AccountantFinance ManagersFA AccountantFA AccountantReview and approveFA 1.1310PwC175Fixed Assets - Notes on Maintain Standing DataBest Practice FeaturesAsset accounting polices clearly documented; Master Data set up on the system to reflect these policiesAppropriate coding by asset category establishedProcedures surrounding the Fixed Asset process are documented and communicated to staff including requirements for issuing new codesAsset Register Rules incorporated into Master File, which control issues of new numbers within structured coding schemeStaff trained in Fixed Asset Accounting processes and have clear roles and responsibilities. They should have a good understanding of network and engineering areasSupervisory staff understand statutory and tax requirementsInternal Control RequirementsOnce entered, updates should be verified against the original requestsCodes will be received from the Master File and updates will be confirmed against the Master FileThe system will check that all required data fields are completeThere must be supervisory review for Master Data updatesKey Performance IndicatorsSpeed of update: time from receipt of request to modification and verification of records: this should not exceed one dayNumber of input errors when asset details are validated: this should be zeroCost DriversComplexity of assetsNew types of assetsNumber of changes to physical location coding11PwC175Fixed Assets - Level 2 FA1.2 Add AssetsFA 1.21 Input automatic dataFA 1.22 Input manual dataFA 1.23 Add additional informationFA 1.24 Post asset detailsSub Processes / NotesReceive asset addition notifications from AP into FA RegisterRun interfaces with AP to transfer invoice linesTag/label asset with unique identifierManually enter assets which do not have invoice informationIdentify assets as ; WIP;Expenses; andCapitalised assets.Add additional asset datail to lines e.g.assign asset categories;split or merge assets; andadd to existing as cost adjustment.Assign asset lifeAssign asset to departmental manager, location Post prepared lines to fixed asset registerAssets from AP orProject AccountingAsset additionnotificationAP lines withSkeleton detailsAP lines with additional informationAdded AssetsUpdated FA RegisterFA register structuremaintainedFA register structuremaintainedGL a/c maintained for additionsInput automatic dataFA 1.21Add additional informationFA 1.23Post asset detailsFA 1.24Input manual dataFA 1.22System controlsAccounting policiesAccountingPoliciesSystemControlsAP SystemFA accounting staffSystem controls & accounting policiesFA accounting staffFA accounting staffFA accounting staffCost centre managers12PwC175Fixed Assets - Notes Add AssetsBest Practice FeaturesLinked databases used in recording asset details, to increase accuracy of the asset register and to eliminate duplicate paper trailsAppropriate asset “numbering” methods driven by users of asset information; bar coding used on relevant assetsDirect links to Project AccountingClear policy established for treatment of assets and guidance on how to classify different types of assets, to reduce the number of reclassifications neededSystem interconnection to MIS (Management Information Systems) for tax and insurance planningAssets identified by “custodian”, i.e. person who controls the asset, rather than a department or the company as a wholeUnified transfer pricing in all Business Units for asset transfersUse of asset transfer strategy to optimise the usage of assetsInternal Control RequirementsAsset number controlsAll asset register updates reviewed after entry, to limit period end differencesUpdate details sent periodically to source and asset custodian (or other initiator of the update) for information and coroboration purposesKey Performance IndicatorsNumber of reconciliation at period end: if a reconciliation is needed between Fixed Assets and other accounts, this indicates that one or other of the accounts is not up to dateNumber of changes processedNumber of verification adjustmentsCost DriversNumber of assetsAverage useful life of assets (i.e. rate of asset turnover)Number of changes in Master Data leading to manual adjustments.(e.g. change in organisation codes)Number of revaluations / disposals13PwC175Fixed Assets - Level 2 FA1.3 Dispose of AssetsSales priceand buyerconfirmedSale/DisposalcompletedAsset sale ordisposalregistered withAccounts deptFARegisterupdatedAssetsidentifiedfor disposalAsset disposalnotificationInterfaceto GLFA 1.31 Select assets to disposeFA 1.32 Obtain quote (if applicable)FA 1.33 Sell / Dispose of Asset FA 1.34 Notify Accountants FA 1.36 Reconcile GL accountsSub Processes / NotesCost Centre managers identify items for disposal Cost Centre manager to obtain quote for asset, place item in auction, or advertise as appropriate Asset sold and monies received by Cost Centre managersCost Centre managers to ensure monies received for assets as agreed or expected from auctionInvoices raised by AR for sale of assets on creditCost Centre managers to notify FA staff /accounts of disposals Cost Centre manager to ensure asset payment received and registered.Ensure FA register reconciles with asset values in GLGL maintained for DisposalsEnsure that all details of profit / loss have been recorded accurately to the correct cost centres in GL FA accountant to update register with disposalsFA 1.35 Record Transactions in accountsSelect assets to disposeFA 1.31Obtain quote (if applicable)FA 1.32Sell/dispose of assetsFA 1.33Notify financeFA 1.34Reconcile GL accountsFA 1.36GL a/csmaintainedfor disposalsUpdate FAregisterDisposal proceduresValuation proceduresAuthorisation proceduresDisposal proceduresDisposal proceduresReconciliation proceduresCost centre managersCost centre managersCost centre managersCost centre managerFA accounting staffFA registerFA accounting staffFinancial managerRecord transactions in accountsFA 1.3514PwC175Fixed Assets - Level 2 FA1.4 Maintain Asset RegisterFA 1.41 Receive RequestFA 1.42 Transfer Assets FA 1.43 Adjust AssetsFA 1.44 Write-off / down assetsSub Processes / NotesFA 1.45 Revalue AssetsFA 1.46 Capitalise WIP AssetsFA 1.47 Report on adjustmentsReceive request to alter fixed assets registerTransfer single asset between GL depreciation expense accounts or departmentsTransfer a group of assets between GL depreciation expense accounts or departmentsReserve adjustments i.e. adjust for accumulated depreciation for single or groups of assetsFully or partly write off assetsCalculate gains and losses before running depreciationRecognise go live statusCommence depreciationRevalue assetsRun depreciationRun reports detailing changes to FA registerSystems controlsUpdated FARegisterFA accounting staffCost centre managersManagement accountantAuthorisation proceduresMaintenance policyAsset register updatedReportsAuthorisation proceduresMaintenance policyFA Accounting staffCost centre managersReceive requestFA 1.4Transfer AssetsFA 1.42Adjust AssetsFA 1.43Write-off / down AssetsFA 1.44Revalued AssetsFA 1.45Capitalise WIP AssetsFA 1.46Report on adjustmentsFA 1.47FA accounting staffApproved request15PwC175Fixed Assets - Level 2 FA1.5 Perform Period End RoutineSub Processes / Notes FA 1.52 Calculate depreciationFA 1.53 Post depreciation to GLFA 1.54 Reconcile accountsFA 1.55 Send monthly reports to asset ownersCalculate cumulative depreciation to date in the year based on current asset register with reference to relevant asset rulesPrepare all postings for GL e.g. additions, disposals, depreciation, adjustmentsPost to GL automatically Reconcile Asset register to Balance SheetReport on adjustments / corrections required Generate standard month end asset / depreciation report for relevant managersReportsUpdated FAregister & reportsReconciled GLaccountsDepreciationamountsFA interface with GLAdjustmentsCalculate depreciationFA 1.52Postdepreciationto GLFA 1.53ReconcileaccountsFA 1.54Spend monthly reports to asset ownersFA 1.55Depreciation policiesMaintenance policiesSystems controlsMonth end reconciliationPeriod end timetableCost centre analysisPeriod end timetableFA accounting staffFA accounting staffFA systemFA accounting staffFA accounting staffFA systemAdjustments16PwC175Fixed Assets - Notes Depreciation calculation Best Practice featuresIntegrated fixed asset systems to calculate depreciation charges for tax and accounting purposesDepreciation rates by asset category are based on useful life of the asset, rather than designed to meet accounting requirements onlyConsistency of depreciation methods and rates across the businessInternal Control requirementsResults of depreciation run compared to expected amounts (from budget or forecast) to identify potential errors and over-runsUpdates to assets depreciation information must only be accepted if properly authorised and consistent with management/tax policyKey Performance Indicators Time taken to update depreciation data in fixed asset register at period close Reconciling items on depreciation accounts: should be zeroCost DriversNumber of depreciation ratesNumber of assets17PwC175Fixed Assets - Notes Perform Period End RoutineBest Practice FeaturesAutomatic data flows between ledgers, e.g., between Fixed Asset Register and General Ledger, Project Accounting, etc., to remove manual reconciliation effortSystem allows assets to be grouped or desegregated for reporting purposesInternal Control RequirementsSystem internal controls (e.g. user profiles)Timely and accurate clearance of system reject reportsReconciliation of budget Vs. actual period end totalsReconciliation of movement in fixed asset accounts for the month (e.g. new NBV = old NBV + additions - disposals - depreciation)Key Performance IndicatorsTime taken to close Fixed Asset Register at period endTime taken to complete the GL/FA reconciliation Differences during reconciliationTime to print out the period end reportsCost DriversNumber of asset recordsCPU time for generation of reportsReconciliation required to clear General Ledger mis-matchesNumber of necessary changes during reconciliation with General Ledger18PwC175Fixed Assets - Level 2 FA1.6 Verify Physical AssetsFA 1.61 Compile accurate data for asset verificationFA 1.62 Conduct inventory checkSub Processes / NotesFA 1.63 Highlight exceptionsFA 1.64 Track asset history & reconcileFA 1.65 Update FA register & prepare GL journalsValidation checks on FA registerCompile FA reports to required specificationsConduct inventory check / FA verificationComplete formal check reportsIdentify book value and physically check variancesReport differences Track asset histories / audit trialReconcile differencesEnter write-off on FA register via adjustment or disposal journals Updated FAregister &reportsComplete listfor InventorycontrolFeedbackon itemsheldItems to be furtherinvestigatedIdentifiedcorrectionsVerified FAregisterAuthorisedGL adjustmentsCompile accurate data for asset verificationFA 1.61Conduct inventory checkFA 1.62Highlight exceptionsFA 1.63Track asset history and reconcileFA 1.64Update FA register & prepare GL journalsFA 1.65Verification timetableInventory control systemInventory control systemAudit trialAuthorisation for write offsFA accounting staffInventory staffFA accounting staffFA accounting staffFA accounting staffFA accounting staff19PwC175Fixed Assets -Notes Verify Physical Assets Best Practice featuresAll existing capitalised assets identified and classifiedRegular physical verification, focused on high-value and high-risk areasUse alternative verification methods where appropriate eg review maintenance log, establish that asset is operating effectivelyInternal Control requirementsRegular physical verification exercises and reconciliation to the Fixed Asset RegisterFixed Assets must ensure that transferred assets retain their original project number identification in the asset record, to ensure appropriate access to archived recordsCost DriversNumber of verifications required20PwC175Fixed Assets - Level 2 - FA 1.7 Answer Adhoc QueriesReceive request for adhoc reportsFA 1.71Produce reportsFA 1.72FA RegisterFA accounting staffFA systemsRequest for adhoc reportsReportsFA Report routineReportsSystem controlsFA register routinesFA accounting staffFA systemsCost centre managersFA 1.71 Receive request for adhoc reportsFA 1.72 Produce reportsSub Processes / NotesReceive non-standard specificationPrepare reports routinesGenerate reports21PwC175Fixed Assets - Appendix 1 : IDEF Process FlowThe diagram below provides a key to the process diagrams used in this document.Process / activityControls(i.e. ProceduresStandardsRequirements for rework)Output(i.e.InformationMaterial)Resources(i.e.PeopleFunctionsIT systemsMachines)Input(i.e.InformationMaterial)Cash Mgmt updateBest Practice Financial Processes: Cash Management23PwC175gCash Management - Best Practice ObjectivesCash ManagementObjectivesOrganisationPeopleProcessesControlsMeasuresInformation SystemsManage short term liquidity and long term funding requirementsMinimise companys cost of capitalEfficiently manage the processing of cash transactions Effectively forecast cash requirementsManage petty cash efficientlyCentralised cash office & poolingIntegrated with Accounts functionsRecord/manage receipts and paymentsManage cash positionPerform reconciliationsPerform period end closing & reportingPolicies & ProceduresBank liaisonAuthorisation limitsInternal controlsSpeed of reportingAccuracy of forecastingReturn on CapitalIntegrated bank account with sub-ledgersAutomatic bank reconciliationsOn-line/real timeCash forecastingCash management skillsLiaison with financial institutions24PwC175gProcess FeaturesSegregate cash management from accounts receivable and accounts payable functionsLocalise cash collectionMinimise level of petty cash requirementsTransmit mechanisms evaluated on cost and risk basisCreate netting arrangement with internal business partnersObtain pan-European banking facilities that allow netting off of account balancesMap cash collection and payment cycles, identify actions to minimise these periodsMinimum number of banking relationships maintained to ensure coverage and purchasing powerClear unmatched cash within 1 dayRegular reconciliation of all cash books. Maintain petty cash imprest systemsObtain access to on line bank statementsMonitor the cost of cash transmission mechanismsCash balances reported on a daily basis by account and business centresTreasury determine short term cash requirements from cash forecast and daily reportCash surpluses managed by TreasuryPetty cash/foreign currency floats periodically auditedCompany loan accounts reconciled monthlyTreasury consolidate and manage cash forecast requirementsMonitor bank facilities to minimise interest payments and maximise receiptsForecast cash on a regular basis: rolling 12 month forecast - annual 5 year ahead reviewsCash Management - Best Practice FeaturesEstablish and maintain cash control mechanismsPerform bank reconciliationsReport andmanage cash balancesForecast cash requirements25PwC175gSystem FeaturesEDI used for majority of payments and receipts Comprehensive system security and password features for paymentMulti-currency systems.Transmission used for bank statementsBank remittance notices issued with sales invoicesElectronic reconciliation of bank statement and cash bookCurrency rates available for sterling equivalentsIndividual bank account cash balance reports produced on a daily basisSummary consolidated cash reports available on-line to TreasuryIntercompany netting bank accounts reconciled automaticallyIntegrated enquiry from cash book entries to sub-ledgersAutomatic production of cash forecast statements from commitment/accrual accountingProject analysis and control linked to finance systemsAnalysis by market share/product cost etcCash Management - Best Practice FeaturesEstablish and maintain cash control mechanismsPerform bank reconciliationsReport andmanage cash balancesForecast cash requirements26PwC175gCash Management - Critical Success Factors These are a summary of the key business requirements, which must be met to achieve Cash management objectives.Electronic Interfaces with Accounts Payable, Accounts Receivable, Payroll and General LedgerEstablish and maintain good relations with banksAgree Finance terms Reconcile bank accounts on a regular basisEDI for the majority of payments and receiptsAutomated bank reconciliation systems and processesCash monitoring and forecasting techniques provide first class accuracyIntegrated on line systems to audit trail cash transactionsOperate minimum petty cash and foreign currency floatsSeparation of Cash management staff duties from other finance operations27PwC175gCash Management - Measures / Cost DriversMeasuresCost of CapitalNumber of bank accountsNumber of banking relationshipsNumber of outstanding reconciling items 3 months oldDifference of interest rate of cash accounts vs. Money Market rates per currencyPercentage of cash transactions effected electronicallyNumber of days in obtaining value for fundsFloating days per bankCost of cash function as a percentage of total finance costNumber of cash transactions per FTENumber of unreconciled cash transactionsNumber of accounts outside cash pooling28PwC175gCash Management - Measures / Cost DriversCost DriversElectronic payment and receipt mechanismsNumber of banking locations and bank accountsNumber of international locationsSystem interfaces available for cash entriesTypes of payments and currencies usedNumber of petty cash sitesNumber of transactions per dayExtent of government regulation29PwC175gCash Management - Level 0 Context DiagramBudgetingand controlCash officeManagementteamAuditPurchasingAccountsreceivableAccountspayablePayrollBanksGeneralledgerFinancialinstitutionsCash forecastingCashflow monitoring & forecastingCheck reconciliationsTreasury expertiseRemittancesCommitment detailsPetty CashProcess ReceiptsProcess PaymentsPayroll paymentsCM detailsBankStatementsSales order processingSales ordersCash requirements30PwC175gCash Management - Level 1 OverviewCustomer accountsCashiersBankCM & BillingsystemRecord receiptsDaily bankingReceive cashcheques bank receiptsReceipt information included incash book and GLAP controlsAuthorisationPayment TermsMatching rulesAuthorised invoice/expense, DD/SO,Other payments, CashCash Office (CO)AP department & systemBankFDPayroll departmentPerson requesting cashReconciliation proceduresException reportsClear unmatched itemsJournal rulesReconciled cash booksCash Office (CO)AP reportCustomer accountsManagement AccountantBankPayment information includedin AP (cashbook) and GLReporting proceduresReviewBenchmarkingCash management staffBankTransmission MechanismClose procedureReconciliation proceduresForecasting rules and proceduresReporting formatsForecast & Reporting TimetablesFinancial accountantCash management staffAPCustomer AccountsSales & MarketingCustomer EngineeringStrategic PlanningManagedcashReportsBank statementsCash forecastsConfirmarrangementsLoan details& repaymentschedulesProcess receiptsCM1.1Process paymentsCM1.2Reconcile bank statements to ledgersCM1.3Manage cash positionCM1.4Period end closing forecasting & reportingCM1.5Cash updatesCurrent banking terms and transaction rates31PwC175gCash Management - Appendix 1 : IDEF Process FlowThe diagram below provides a key to the process diagrams used in this document.Process / activityControls(i.e. ProceduresStandardsRequirements for rework)Output(i.e.InformationMaterial)Resources(i.e.PeopleFunctionsIT systemsMachines)Input(i.e.InformationMaterial)Best Practice Financial Processes: Project Accounting33PwC175iProject Accounting - Best Practices ObjectivesProject AccountingObjectivesOrganisationPeopleProcessesControlsMeasuresInformation Systemsto record and maintain costs and time at a project and task levelto maintain project assets & Work In Progressto bill / charge for jobs carried outto assist in planning, scheduling and controlling projectsto measure ongoing profitability and technical effectiveness of projects and enable corrective action to be taken Bridge between financial management & project managementEstablish project structure and typeCreate new projectAllocate budgetTrack actual costs and timeReview projects progressBill or capitalise costsClose projectMonthly reportingReconciliation to other modulesPhysical progressInvoices being paidKey performance indicatorsProfitability of projectVariance analysis (cost, time & materials)Achievement of technical objectivesOn-line timesheet inputEliminate rekeying of dataIntegrated systemsEmpower project managersTo control information and take corrective action34PwC175iA logically defined project & task numbering system is used with a project / job number that allows division and reporting by logical elements or segmentsA facility to predefine a list of project typesEstablish who owns, who controls and who monitors the projectBudget established in financial and quantitative terms as an optionBudgets by individual property and group of projectsReforecasting / multiple budget facilityMulti currency budgetingInformation from past projects available to assist with estimate of future project costsDirect costs allocated per timesheet entry Indirect costs per timesheet/ algorithmsCollect costs in line with project milestones / phasesVarious ways of collecting costs; full cost, marginal, direct costs, direct costs and uplift, etc, Actuals and commitments (ie PO) raised against project budgetMonitor against defined milestonesConfirm physical progress of projectAmend budgets for known costs overruns / savingsProject costs can be allocated to departments or billed to customers at appropriate times Charge against agreed milestonesBest Practice FeaturesProject Accounting - Best practice featuresEstablish projectAllocate budgetsAllocate costs& timeReview project progress vs costs & budgetBill or charge for project35PwC175iSystem records all necessary project data Any level of project task hierarchy is permittedSystem allows budgeting at the lowest or highest task level Budgeting can be on a cost time, material or revenue basisStandard as well as value budgetsMarginal or full costing basisNotes facility to support documentation of all budget assumptionsIntegrated to financial & HR systems to aid input Time costed at multiple ratesAutomatic interface with inventory / accounts payableMulti currency costsMarginal or full costing basisSoftware supports standard & ad hoc reporting and variance analysisSoftware supports on-line enquiry by project managementReal-time check against projects budget when raising POsDrill down to source features availableIntegrated with billing system or internal charging system Integration with fixed asset system for capital project capitalisationMulti currency billingIntegration with GL for cost recharging / allocationInterim / final invoice to move costs from Work in ProgressSystem FeaturesProject Accounting - Best practice featuresEstablish projectAllocate budgetsAllocate costs& timeReview project progress vs costs & budgetBill or charge for project36PwC175iProject Accounting - Critical Success FactorsProject team led, finance supported. Participative approach to financial project management leading to real buy-in;Comprehensive communication and training to maximise benefits of better informationStandard formats and means of data collection / consolidation in place with manageable level of detail;Timetable in place with deadlines for inputting costs and timesheets agreed;Guidelines clearly defined and communicated;Effective communication and feedback mechanisms in place between central group(s) and project / job managers;Approval levels and responsibilities clearly defined;Effective use of management time during the review process;Integrated systems in place with software to support on line reporting and analysis by operating management;Strong analytical support to decision making, by both finance departments and project teams;Efficient use of IT, to ensure project managers receive timely and accurate information. These are the a summary of the key business requirements which must be met to achieve Project Accounting objectives:37PwC175iProject Accounting - Issues and TrendsLink with work management / resource schedulingTrendsLink with project management tool for financial and project reportingProjects often will across financial / fiscal years, this can make year end accounting complicatedIssuesThe trend is towards integrated systems / bespoke solutions tailored to meet sector specific needsPropriety project management tools (eg PMW, MS Project) have only high level financial reporting, job and project costing modules have no progress reporting or planning functions - no good solution currently available. The trend is to integration and data warehousingIndependent closing or cleardown of project details from fiscal year close in main financial ledgers38PwC175iProject Accounting - Projects ClassificationsProjects can be broadly defined as:Capital projects such as network building;Billing projects which are customer facing projects and result in the customer being invoiced during the life of the project or at the completion of the project.39PwC175iProject Accounting - Level 0 Context DiagramProjectAccountingEmployee DetailsCapex / budgetsFixed AssetsPurchasingHuman ResourceGeneral ledgerCapitalised assetsProject detailsPurchase Orders(commitments)PayablesReceivablesInvoicesWork management schedulingWorks orders and tasksSupplier invoicesCustomersTime informationContract detailsInvoices & project detailsExternal suppliers (eg sub-contractors)Program reportingMilestone definition/ targetsBudgeting & planningTime recording systemInventoryGoods booked outSurplus items40PwC175iProject Accounting - Level 1 OverviewStanding dataRequestBudgeting proceduresAuthorisation procedureTechnical Policy / requirementsProject Accounting PolicyManagement AccountantTechnical supportBudget holderProject owmer PA structureAchieve informationAuthorisation rulesReporting rulesTechnical standardsPA procedures / templatesManagement accountantProject managersFinancial accountantBudget holderReportsProgress reportsFinancial proceduresPA proceduresManagement feedbackTechnical Feed backAuthorised projectCommunication and reporting guidelinesPA proceduresManagement feedbackTechnical Feed backManagement accountantTechnical StaffProject ManagersAP systemPO systemTime recording systemTechnical staff/operationsProject ManagersFinancial accountantMaintain standing dataPA1.1Set up projectPA1.2Monitor projectPA1.3Analyse and revise projectPA1.4Close projectPA1.5Project authorisation documentationUpdated project details and costsTime and costsClosed projectCustomer invoicesCapitalised costsStatus guidelinesNotification proceduresFA proceduresReview proceduresConsolidate procedureReporting guidelinesReview ProceduresReporting & authorisation proceduresBudgeting proceduresClarify proceduresArchiving proceduresManagement accountantProject managers/ownerDirectorsBudget HolderBilling systemFA accountant/systemAsset management system41PwC175iProject Accounting - Appendix 1 : IDEF Process FlowThe diagram below provides a key to the process diagrams used in this document.Process / activityControls(i.e. ProceduresStandardsRequirements for rework)Output(i.e.InformationMaterial)Resources(i.e.PeopleFunctionsIT systemsMachines)Input(i.e.InformationMaterial)Best Practice Financial Processes: Accounts Payable43PwC175b(1)Accounts PayableObjectivesOrganisationPeopleProcessesControlsMeasuresInformation SystemsTo maximise processing efficiencyTo ensure invoices are processed to agreed termsTo ensure payments made only when due and payableTo ensure liabilities are fully recorded and distributed correctlyTo achieve effective balance between extending credit and maintaining good relations with suppliersTo take full advantage of opportunities to recover VATCentralised processingOutsourcing potentialMaintaining supplier detailsProcess vouchersProcess paymentsPeriod end processing and reportingAuthorisation rulesSystem access controlsUser proceduresValidation and matching rulesSpeed of processing supplier amendments Invoices processedInvoice processing timeNumber of payments Period end closure timeInterface between Accounts Payable and other related processesShared employee and supplier detailsSystem validation and approval checksSupplier relationsCreditor controlAccounts Payable - Best Practice Objectives44PwC175b(1)Accounts Payable - Best practice featuresAuthorise and set up new suppliers payment detailsMaintain supplier payment detailsSegregation of duties between supplier set up, voucher processing and payment processingAccounts payable process vouchers: invoices, expense claims, credit notes, debit memos and prepayment requestsSuppliers required to use PO number on all documents and three way match wherever possibleConsolidated periodic invoicing for high frequency suppliersProcess FeaturesMaintain supplier detailsProcess vouchersOptimisation of early payment discounts Payment runs properly authorisedProcess paymentsAll transactions completed before period closedReconciliation of Accounts Payable activity and reconciliation with General Ledger control accountManagement reports run once period is finally closedPeriod end processing and reporting45PwC175b(1)Accounts Payable - Best practice featuresSingle supplier databaseSingle employee databaseAudit trail of changes to supplier payment detailsPurchase invoices transacted via EDI with major suppliers wherever possibleElectronic validation and approval of invoicesAutomatic matching of invoice to order and goods received note (GRN) Interface with General Ledger, Purchasing, Fixed Assets and Project AccountingUse of workflow software to resolve queries and monitor processSystem FeaturesMaintain supplier detailsProcess vouchersElectronic paymentsDefault payment terms held on supplier file with manual override at P.O. and invoice Production of forward payment entry schedules to aid cash flow managementInterface with General Ledger, Fixed Assets, Project Accounting and Cash ManagementFacility to suspend paymentsProcess paymentsIntegration with General Ledger minimises reconciliation adjustmentsTransaction processing prevented for closed periodsPeriod end processing and reporting46PwC175b(1)Accounts Payable - Measures/Cost driversNumber of invoices received per monthNumber of suppliersNumber of different terms and conditionsComplexity of authorisation processProportion of invoices automatically matched with POsNumber of supplier queries Proportion of invoices received electronically Proportion of payments made electronicallyMedian16 days90 percentile49 days90 percentileMedian10 percentileNumber of purchase invoices per FTE per annum15,0007,0003,000 or lessCost per purchase invoice processed10 percentileMedian90 percentile261710 percentile6 daysInvoice processing time in daysCost driversSource: statistics taken from Benchmarking database 21 January 199747PwC175b(1)Accounts Payable - TrendsFromToSeparate AP modulePayment by chequeManual matchingPerformed by finance departmentIntegrated systemsElectronic paymentOn-line matchingShared Service Centres or outsourced services48PwC175b(1)Accounts Payable - Critical Success FactorsThese are a summary of the key business requirements, which must be met to achieve the objectives.Single supplier databaseStaff trained in AP process and have clear roles and responsibilitiesPayment terms defined and agreed with supplierEffective communication and feedback mechanisms in place to handle queriesEstablish and maintain good supplier relationsProcess in place for monitoring the status of invoices and payment schedulesAP calendar in place and communicated to staffAuthorisation levels and payment terms held on the systemAutomated workflow to route documents to relevant personnel when problems need to be resolvedForward payment schedule to cashflow managementFlexible matching criteria49PwC175b(1)Accounts Payable - Appendix 1 : IDEF Process FlowThe diagram below provides a key to the process diagrams used in this document.Process / activityControls(i.e. ProceduresStandardsRequirements for rework)Output(i.e.InformationMaterial)Resources(i.e.PeopleFunctionsIT systemsMachines)Input(i.e.InformationMaterial)50PwC175b(1)Accounts Payable - Level 0 Context DiagramGroup / Mgt.teamFixed AssetRegisterPurchasingGeneralLedgerSuppliers /EmployeesFixed Asset detailsSupplier/EmployeeamendmentsProject expense detailsInvoice / Payment detailsPurchase ordersReconcile paymentsHumanResourcesCashManagementManagement reportsPaymentsCash requirementsEmployee detailsProjectAccountingReceipts51PwC175b(1)Accounts Payable - Level 1 OverviewVoucher approved for paymentNew period openPayment details ready to post to General LedgerPayment and remittance adviceVoucher : Invoice/expense claim/Credit note/prepayment requestNotification of changes from supplier or employee Maintain supplier detailsAP 1.1Process vouchersAP 1.2Process paymentsAP 1.3Period end processing and reporting AP 1.4Voucher processing proceduresAuthorisation rulesMatching rulesSystem validation and approval checksException handling proceduresAP deptAP systemPO systemSupplierRequisitionerBatch controlsAuthorisation rulesReporting guidelinesPosting controlsReconciliation proceduresPeriod end timetableAP deptAP systemPayment deviceAuthorised personnelAPAP SystemHRAuthorisation proceduresSystem access controlsUp to datesupplierrecordsVouchers filedAP deptAP systemGL systemManagement ReportsEmployee joiners and leavers detailsMaintenance requestApproved vouchers ready to post to General LedgerVoucher details available on-lne to Fixed Assets and Project AccountingCancelled vouchers reversed out of AP and filedPayment details available on-line to cash managementPayment cancelled52PwC175b(1)Accounts Payable - Notes Maintain Supplier Details Best Practice FeaturesShared supplier database with Purchasing. Purchasing responsible for approving suppliers (having made the required checks), agreeing terms and conditions and maintaining general and purchasing related supplier details on the database, including payment terms. Accounts Payable responsible for maintaining all payment related supplier data, such as bank details, payment method, payee name and address, payment contacts. Shared employee database with Human Resources. Employee details are maintained by Human Resources, but sufficient details must be held and maintained by Accounts Payable, to allow payment of expenses. Employee details required include payment method, bank details, remittance address, payee name and employee cost centre. Accounts Payable should not have access to other confidential employee data.One payment address for each vendor. Where a vendor provides goods or services from a number of locations, the consolidation of the payment process not only reduces the number of payments necessary but also removes the potential need to reconcile a number of individual accounts.Centralise the vendor set-up capability in order to minimise the risk of unauthorised or duplicate vendors being set up more than once. From an audit point of view, the control over vendor set up is also viewed as a critical activity which needs to be tightly controlled.Changes to supplier details are processed expeditiously.If, the vendor is also a customer, details are consistent in both databases.53PwC175b(1)Accounts Payable - Notes Maintain Supplier Details Internal Control requirementsNew suppliers must be checked and approved by Purchasing in accordance with company policy. Similarly, Purchasing are responsible for processing any mergers, acquisitions or deletions. To enable efficient invoice payment processing and ensure segregation of duties, Accounts Payable are responsible for the maintenance of all payment related supplier data. In addition, authorisation for payments within Accounts Payable should be separate from the responsibility of maintaining supplier payment data and processing vouchers. Audit of changes to supplier payment details must be possible.Key Performance IndicatorsTime taken to process supplier amendments.54PwC175b(1)Accounts Payable - Notes Process PaymentsBest Practice FeaturesUse of electronic banking systems for payments, thus minimising the need for manual intervention in the process.Centralisation of the payment processing in order to minimise the risk of making duplicate payments.Payments made no sooner than the due date in order to maximise cash flow benefits.Facility to suspend individual payments. The withholding of payment can be a powerful tool in ensuring that the vendor complies with any requirements asked of it.Avoid payments in cash. Apart from being costly to administer, the potential for fraud is greatly increased.55PwC175b(1)Accounts Payable - Notes Process PaymentsInternal Control requirementsPayment processing needs to be tightly controlled and totally segregated from vendor set-up and invoice processing activities.Key Performance IndicatorsNumber of payments per FTE. Number of overdue payments. Number of payments made too early. 56PwC175b(1)Accounts Payable - Notes Process PaymentsCost DriversThe following generate the costs for the processing of payments:-Number of payment runs.Number of manually prepared payments.Number of payment media (cheques, vouchers, diskettes, etc.).Number of foreign payments.Varied payment terms.ReportsSummary of payments per run.Payments on hold.Reports on Key Performance Indicators.Overdue unpaid invoices57PwC175b(1)Accounts Payable - Notes Period end processing and reportingBest Practice FeaturesAutomatic process requiring little or no manual intervention. Posting to GL should be daily. This ensures GL data is up to date and also reduces the time taken for the period end posting as fewer records are being processed.Internal Control requirementsThe basic requirement is to ensure that the data transmitted to the general ledger is complete and on time. There is a requirement to ensure that the information recorded in the general ledger agrees with the output from accounts payable.Key Performance IndicatorsDelivery of information to general ledger on timeTimely delivery of end of period reportsCost DriversVolume of transactionsTime to close periodsDegree of automation in the interface with general ledgerBest Practice Financial Processes: Accounts Receivable59PwC175cAccount Receivable - Best Practice ObjectivesAccounts Receivable ObjectivesOrganisationPeopleProcessesControlsMeasuresInformation SystemsTo ensure customer payments are received efficiently and effectively for goods/services delivered, within the agreed terms and conditionsTo manage credit risk efficiently without creating unnecessary delays in the sales cycleTo maintain a complete and accurate statement of outstanding debtorsTo provide complete forecast information to assist the management of short-term cash requirementsCentralised processingEconomies of scaleCustomer focusEstablish credit levelsIssue sales orderIssue invoiceMonitor creditCollect cashProcedures manualAuthorisationValidation/matchingCredit controlCost per invoiceCredit notes percentageCost per payment receivedDays debt outstandingIntegrated with sales systemAutomatic matchingElectronic receiptsCustomer relationsLegal framework awarenessCredit management60PwC175cAccounts Receivable - Best Practice FeaturesProcess FeaturesFormal credit checks applied to all new customers within 24 hours using credit bureau Monitor credit status/terms on regular basis Customer account managers provided with up to date credit statusTreasury policy set on late and prompt paymentsAuthority levels clearly definedCredit policies defined and agreedTerms and conditions agreed with customersConsolidated periodic invoicing for high frequency shipmentsBank remittance notices issued with sales invoices to facilitate reconciliationSelf billing invoices by high volume customersConsider outsourcing regular invoice/payment eg utilitiesRegular review of invoice queries and credit notesReconciliation of AR balances to GL control accounts on a regular basisCredit insurance arrangements evaluated periodically Customer account managers responsible for sales and cash collectionConstant monitoring of debtor days, daily collection, ageing of debtCustomer contact records maintainedOutsource cash collection where appropriateDetermine and report on credit targetsMonitor overdue debts and take action within agreed policyEstablish credit levelsIssue sales orderIssue invoiceMonitor credit/ collect cashSales orders prepared using pricing database with pricing profiles for products and customers No order processed without valid customer PO referenceDelivery note acts as invoice for low-frequency shippings61PwC175cAccounts Receivable - Best Practice FeaturesEstablish credit levelsIssue sales orderIssue invoiceMonitor credit/ collect cashSystem FeaturesConsolidated credit position for group of customersSystem provides on-line customer payment history and termsUse of workflow software to monitor process and help resolve queriesStandard credit control reportsCommon SOP and AR customer databaseInvoices automatically generated from SOP and shipment dataSelf billing invoices automatically matched to customer ordersMulti currency invoicesAutomatic commitment and accrualsAutomatic reconciliation facilities between integrated SOP AR and GL systemsSOP linked to debtors ledger to ensure customer credit limits not exceededSales documents sent via EDI for all major customersIntegrated order & billing systems available on line & hard copyPayments received electronically where possibleAutomatic matching of payments to invoicesOn-line diary facility to monitor callsAutomatic flagging and reporting of high risk accountsAutomatic dunning letters issued within agreed trading termsIntegrated systems to facilitate customer query handlingForecast cash receipts available for treasury purposes62PwC175cAccounts Receivable - TrendsFromToSeparate AR modulePayment by chequeComplex/variable trading termsManual matchingPerformed by Finance departmentIntegrated systemsElectronic paymentCommon trading terms for all customersAutomatic matchingShared or outsourced services63PwC175cAccounts Receivable - Measures/Cost Drivers90 percentileMedian10 percentileNumber of customer payment received per accounts receivable FTE per annum40,3005,500700 or lessAccounts receivable cost per sales invoice processed10 percentileMedian90 percentile1318Median1 day90 percentile4 days10 percentile1 dayDays to process invoice/credit note (ie, time between receipt of invoice/credit note and entry into the accounting system)Cost driversNumber of AR receiptsLevel of multiple receiptsUse of direct debiting/standing ordersUse of electric funds transferLevel of credit risk associated with customer baseVariety in payment termsDegree of foreign currency receiptsLevel of credit notes64PwC175cBilling - Measures/Cost Drivers90 percentileMedian10 percentileNumber of sales invoices generated per billing FTE per annum 90,00011,1001,600Billing cost per sales invoice and credit note processed10 percentileMedian90 percentile1222Median2 days90 percentile15 days10 percentile1 dayDays from despatch of goods to preparation of sales invoiceCost driversNumber of invoicesNumber of customersUse of EDIComplexity of service/goods suppliedVariety in terms and conditionsComplexity of discountsDegree of foreign currency invoicingNumber of complaintsAccuracy/level of credit notes65PwC175cAccounts Receivable - Level 0 Context DiagramBillsAdhoc invoices & standing dataReminders &StatementsGLPostingsGeneral LedgerCustomersBankManual InvoicesBilling SystemStandingDataPayments(cash, cheque)Direct DebitInstructionsStatementsPayment details(Bank Giro credits)Customer Services SystemAlso electronic AP/AR data from bank for auto cash management66PwC175cAccounts Receivable - Level 1 OverviewCustomerStandingData , Bills& Credit NotesAR StaffAR systemBilling systemCustomerdetailsAR data import proceduresInterface RulesAR StaffBilling systemAR systemCustomer DataLogged on ARSystemInvoice/credit noteentry rules,Bills and credit notes loading proceduresAR StaffAR SystemBills & credit notesManual invoice request Customermaintenanceprocedures, Customer relationshiprulesImport standing data, bills & credit notesAR 1.1Maintain customer dataAR 1.2Process bills, invoices & credit notesAR 1.3DatavalidationreportCustomer reportManage receivablesAR 1.4Process receipts and direct debitsAR 1.5Process period endAR 1.7Credit control policies and procedures,Call logging procedures,Provision creation rules,Legal proceedings rulesAR staffAR systemCredit controlOpen invoiceson AR systemPrint invoices despatchedGL updatesOutstandingdebtorsCheque and receipts processing rules,Automatic allocation rules,Manual allocation rules,On account payment rulesCash/cheque/bank receiptsList of DD customers amounts dueAR staffAR systemBank statementTransaction dataReview procedures,Archiving rules,Period data proceduresAR staffAR systemPayment on accountlogged on AR systemMatched DDreceipts logged on AR systemRequest to bankProcess amendmentsAR 1.6New periodopenedon AR systemPeriod endGL postingsMatchedreceiptsarchivedPeriod reportsproducedAmendment ofvalidation rules,Amendment inputproceduresAdjustmentsAmendmentsGL updatesAudit reportDebtor reportDunningletter/statementAmendment request, notify departmentProvision journals67PwC175cAccounts Receivable Notes Maintain customer dataBest Practice FeaturesSend bill to one address only. Where a customer is provided with goods or services at a number of locations, the consolidation in the billing process not only reduces the number of bills to be verified or created but also decreases the potential need to reconcile a number of receivables on individual accounts. Centralise the customer set-up process in order to ensure consistency.Internal control requirementsIn order to minimise the risk of duplication of the data and the unauthorised set-up of customers, the process should be centrally controlled and operated. Before any customer is deleted from the system, evidence should be produced that the customer has been inactive for the appropriate period of time and no outstanding balances are present. Approval for deletion is obtained by management authority signature.The changes to customers report is regularly checked and monitored.System notification of duplicate business and birth registration numbers. 68PwC175cAccounts Receivable Notes Maintain customer dataCost DriversNumber of customersNumber of new customersNumber of customer changesNumber of required customer standing data fields Possibility of sharing standing databaseOverlap between databasesSearch criteria and standardisation to avoid duplication/redundancyKey Performance IndicatorsNumber of changes and additions carried out in a year per FTENumber of customers in op. database without transactions for 1 yearPercentage of changes and additions of total customer base69PwC175cAccounts Receivable Notes Manage ReceivablesBest Practice FeaturesAged debit balances should be reviewed by management on a regular basis and explanations sought as to why debts have failed to be recovered.Overdue debit balances occur as a result a number of factors of sub-optimal performances within the sales department or within the credit control process or AR - info not recorded from bank quickly enough and therefore not processed quickly enough or timing of invoice issue. The root causes need to be addressed and rectified by altering the creditability status of the customer.Automatic flagging and reporting of high risk accounts.Materiality and time limits.Internal control requirementsIt is essential that debit balances are reviewed regularly and matched with payments promptly in order to avoid the risk of fraud and minimise the chances of bad debt.Computer diary of actions taken. Stops placed on overdue customers.Aged debtor report sent to legal department and functional managers.70PwC175cAccounts Receivable Notes Manage receivables (Cont)Cost DriversNumber of overdue open items.Number of steps in the dunning procedure.Quality and timing of the matching process of receipts.Availability of dunning enforcement measures.Tolerance criteria.Payment terms and conditions policy.Key Performance indicatorsDays outstanding as a percentage of average payment term.Value of overdue invoices as a percentage of outstanding balances.Bad Debt Provision as a percentage of outstanding balances.Process cost/customer payment received.Number of dunning letters as % of total invoices.Write off value as % of (sundry) sales revenue.71PwC175cAccounts Receivable Notes Process receipts and direct debitsBest practice featuresUse of an electronic interface between bank, cashiers and AR treasuryAutomatic matching of receipts by value and invoice number Internal control requirementsInterface control total with bank and cashiers, dailyRegular supervisory review of open and unmatched itemsDocumentation of all overdue open items and unmatched receipts72PwC175cAccounts Receivable Notes Process receipts and direct debitsCost DriversNo. of Receipts for more than one transactionPercentage of downpaymentsQuality of payment informationNumber of unmatched paymentsNumber of foreign currency receipts and exchange rate differencesTolerance payment differencesNumber of criteria for automatic matchingKey Performance IndicatorsMonthly and cumulative tolerance difference amountsPercentage of receipts cleared automatically in monthNumber of manually matched receipts per FTE Number of unmatched receipts older than 1 month73PwC175cAccounts Receivable Notes Process amendmentsBest Practice FeaturesSingle contact point for all queries. Although the query processing can be distributed there are obvious inefficiencies in directing enquiries to a number of contact points.Have access to sufficient data to be able to handle the majority of queries on-line. In this context, the use of image processing allows invoices to be called up on screen quickly and, if necessary, automatically copied to the enquirer through the medium of autofax.Internal control requirementsIn order to operate an effective helpdesk, staff will require to have access to most parts of the accounts receivable system. This should be on a read only basis in order to minimise the potential for fraud taking place.Targets set for time to answer queries.74PwC175cAccounts Receivable Notes Process amendmentsCost DriversNumber and variety of queries received.Availability and flexibility of standard screens.Complexity of database for tailor-made queries.Response times of enquiry systems.User-friendliness of enquiry systems.Key Performance IndicatorsAverage time taken to process queries.Percentage of queries answered within targeted time.75PwC175cAccounts Receivable Notes Process period endBest Practice FeaturesAutomatic process requiring minimum or no manual intervention. This is a standard feature of modern Accounts Receivable packages and the only possible problem area could be with the nature of the interface with the general ledger package.Internal control requirementsThe basic requirement is to ensure that the data transmitted to the general ledger is complete and on time.There is a requirement to ensure that the information recorded in the general ledger agrees with the output from accounts receivable.A reconciliation should be carried out between debtor balances on GL compared with AR. Check VAT exception report to pick up any late VAT postings.Cost DriversVolume of monthly period end reports.Quality of day to day controls.Key Performance IndicatorsPercentage of period end closures within target.Average number of days to produce monthly information.Best Practice Financial Processes: General Ledger77PwC175aGeneral Ledger - Best Practice ObjectivesGeneral LedgerObjectivesOrganisationPeopleProcessesControlsMeasuresInformation SystemsTo be the primary source of financial informationTo ensure the integrity of financial management informationTo apply period end (e.g. monthly) disciplines and routines to produce periodic financial and management accountsTo support the preparation of statutory accounts and comply with fiscal reporting requirements (e.g. VAT)Centralised processingEconomies of scaleMaintain cost codesMaintain standing dataRecord & validate financial dataCarry out period end ? and reportingPrepare cashflow reportsPrepare status report and tax reportAnswer queriesProcedures manualCalendar timetableQuality of dataMonthly routinesDays to produce accountsManual Journal entries per period. (i.e. not system - automated)JVs per headSingle sourceIntegrated with other ledgersData accurate and timelyControl awarenessLegal framework awarenessProvision of quality information to business78PwC175aGeneral Ledger - Best Practice FeaturesEstablish and maintain standingdataEstablish and applyaccounting controlsApply andallocation rulesProduce periodicfinancial reportingand informationProduce statutoryaccountsProcess FeaturesCommon chart of accountsMinimal number of accounts to meet information needsRegulated control of new account creationPeriodic check of inactive accountsAll users of financial systems fully trained in standards and controlsClearly defined procedures cover reconciliation of control accountsStandard journal and authorised input forms are usedClear month end cut off processElectronic approval of journals Clear authority levelsManagement accounting information is sourced from GL (no reconciliation to financial accounts required)Level of detail is driven by business requirementsAllocation rules are based on agreed rates or service level agreementsConsistent use of account codes across business allowing comparison of costsRigorous period end and year end routines to ensure accuracy of dataDetailed procedures applied to reconciliations, accruals and prepaymentsPeriod and financial reports produced within 5 working days of period endFlash results within 1 dayCyclical reconciliation of balance sheet accountsBalance sheet accounts allocated to GL staffSoft close for non quarter monthsRegular liaison with auditors to minimise ad hoc trail and reporting requirements for statutory reportsCorporation disallowable and allowable tax data controlled through use of chart of accountsPeriod end timetable communicated to all relevant staff79PwC175aGeneral Ledger - Best Practice FeaturesEstablish and maintain standingdataEstablish and applyaccounting controlsApply andallocation rulesProduce periodicfinancial reportingand informationProduce statutoryaccountsSystem FeaturesIntegrated system eliminates duplication of maintenanceLocal variation to common core chart of accountsComprehensive security and access controlsEfficient copy and editing facilitiesExtra segment (s) provided for future expansion of requirements (fundamental change to business)System allows control prior period postingVariable journal input types such as standard, reversal, recurringSystem controlled month end procedures and processesOn line training and help facilitiesSystem provides control over combination of accounts and cost centresControls applied for use of balance sheet and profit and loss accountsReal time allocation to cost centresAutomatic reconciliation of management and financial accountsAutomatic period end reports producedComprehensive report writer facilities to provide user defined reportsOne line reporting of information and drill downOn line graphical display or links to EIS systemScreenbased exception reportingSystem allows prior year postings and automatic balances carried forwardSystem is sole source of consolidated statutory reporting requirements and holds non financial dataDrill down facilities provides full audit trail on financial dataAdditional period used solely for year end accountsMulti-currency, multi-country consolidation80PwC175aGeneral Ledger - Measures/Cost DriversNumber of reporting periodsNumber of manual interfacesNumber of accounts and cost centresComplexity of costing and reporting structureApproval process for journalsMechanism to calculate accruals and prepaymentsMedian8 days90 percentile16 days90 percentileMedian10 percentileNumber of journal entries per FTE486,00066,6003,200 or lessGeneral Ledger cost per Business Unit FTE (in s)10 percentileMedian90 percentile3215757410 percentile3 daysDays to produce monthly management accountsCost driversSource: Statistics taken from Benchmarking database: 21 January 199781PwC175aGeneral Ledger -TrendsFromToSeparate GLAnalysis via spreadsheets/ manual inputMultiple source of data across multiple systemsManual reconciliationPerformed by finance departmentIntegrated global systems and complianceGraphics and analysis/drill down toolSingle source of data via data warehouseAutomatic reconciliationShared or outsourced services82PwC175aGeneral Ledger - Critical Success FactorsThese are a summary of the key business requirements, which must be met to achieve the objectives.Authority levels clearly defined for journals/accrualsGeneral Ledger procedures and guidelines documented Staff trained in GL process and have clear roles and responsibilities Period closing and reporting calendar established and communicated to all staff Chart of Accounts and cost centres defined Statutory accounting requirements understood Budget responsibilities communicated to staff Reconciliation procedures in place83PwC175aGeneral Ledger - Level 0 Context DiagramAccountsReceivableAccountsPayablePurchasingPayrollCost Centres/ OperatingDepartmentsFixed AssetsProjectAccountingInventoryAuditCompany /Group / HQBoard andExternalAgencyLegal EntitiesBilling AccrualsAccounts ReceivabledetailsConsolidation / ManagementReportsBudget & Financial Reports, ManagementReportsAssets data (Depreciation etc.)Project detailsInventory detailsCheck ReconciliationStatutory, Tax & Regulatory,Management AccountsreportsPayroll detailsCommitmentsAccounts PayabledetailsAccounting PoliciesBillingAccrualsBudgeting & forecastingBudget dataCash ManagementCM details84PwC175aGeneral Ledger - Level 1 OverviewPrepareForecasting& CashflowReportingGL 1.6AnswerqueriesGL 1.8BusinessneedsProcedural reviewPeriod changesPersonnel changesCOA dataUpdateddataManagement Accountant,GL system databasesReport generators, andquery tools, spreadsheets,System controls, Timetable,System access rightsRequest procedures, COA structure and rules, GL rules - Notification proceduresMgt. Acct. User, DBA,G/L d/basePrescribed Journal format,System controls, &Timetables. On line GLdata validationManagement AccountantSystem clock andprocessesSource info. DepartmentsSub ledger managersAudit trail / Basicfinancial dataReconciliation procedures,On line GL data validationSystem controlsAccounting guidelines,Variance analysisReview dataFinancial resultsManagement AccountantG/L SystemSpreadsheet reportsLedgersReporting controls ReviewManager approvalReportsManagement Accountant G/L System, prior year stats. FinancialsResponsesQuery handling procedureMgt. Acct. Auditors, G/L system, Ledgers, On liequery and download tools, Auditors, Mgt. reportsFinancialresultsBasic financial dataLocal GAAP rules,Reporting FinancialsManagement Sign offTax rulesFinancial Accountant, Management Accountant G/L System, FD Prior Year Stats. Tax experts User departmentsOptionalPrepareStatutory & Tax reportingGL 1.7Maintain standing dataGL1.2Maintain COA codes / reportsGL 1.1Record andvalidate financial dataGL 1.3User querySystemConsolidation of data for Grp reportingGL 1.4Carry out period end routines and reportingGL 1.585PwC175aGeneral Ledger - Notes - Carry out period end routines and reportingBest practice features (Carry Out Period End Routines)Single ledgerSingle calendar Procedures for interfaces (both internal and external)Eliminate manual entries as much as possible to avoid reconciliation problemsAutomatic journals for recurring documents (see GL01) to minimise the manual data inputJournals with automatic reversal postingsBalance sheet accounts allocated to GL staff (integration with related subledgers)At maximum 5 days for closingAutomatic downloads available for efficient external report processing.Best practice features (Reporting)Calendar/report scheduleMinimum necessary number of reports to eliminate duplication of information providedAutomatic report processing enabled by flexible report writerRegular contact with auditor to minimise ad hoc queriesSame data for management and statutory reportsFlash report within 1 day, monthly/preliminary year end reports within 5 days.86PwC175aGeneral Ledger - Notes (cont )Internal Control RequirementsAll the interface data and underlying documentation has to be approved by responsible senior manager. The process of acc. operations covers part of the internal control processes - the reconciliation of the balances with the other processes. The reconciliation rules to be covered by the Accounting Manual. The uniformity of the process procedures within the company has to be achieved as well. Each balance has to be approved by appropriate senior manager.The report reconciliation with the actual GL data has to be in place. All the reports have to be signed by senior mgt.Key performance indicators Processing time Number of queries87PwC175aGeneral Ledger - Notes - Answer queriesBest Practice FeaturesSingle contact point for all queries. Although the query processing can be distributed there are obvious inefficiencies in directing enquiries to a number of contact points.Have access to sufficient data to be able to handle the majority of queries on-line. Internal control requirementsIn order to operate an effective helpdesk, staff will require to have access to most parts of the other subsystems.Wherever possible, this should be on a read only basis in order to minimise the potential for fraud taking place.Key Performance Indicators Number of queries received. Average time taken to process queries. Number of outstanding queries at period end.88PwC175aGeneral Ledger - Appendix 1 : IDEF Process FlowThe diagram below provides a key to the process diagrams used in this document.Controls(i.e. ProceduresStandardsRequirements for rework)InputOutputResources(i.e.InformationMaterial)(i.e.PeopleFunctionsIT systemsMachines)(i.e.InformationMaterial)Process / activity