Financial System, Procedure and Control

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Financial system and management systems are used to record transactions and activities. The procurement system records purchases, sale system records sales, payroll system records wage and perks paid to employees, cash system records receipt and payment and inventory system records stocks of raw material and finished goods. Operating of these systems follows specific pattern. One action triggers another action and so there are defined policies and procedures to operate the system.

Defined policies and procedures in operating system help to minimize errors and mistakes, increase efficiency of users and organizes action and activities. Operators/staffs follow guidelines and instruction for operation. These measures are not sufficient to control fraud and irregularities. For such, control mechanisms are implemented. Controls system helps to safeguard company's assets and prevent fraud.

A specific financial process may compose of many follow up activities. For example: transaction process stage may compose of 'entry set-up review and approval', 'transaction review and approval', 'transaction verification', 'post-transaction report review', 'reconciliation' and 'balance analysis'. At each stage of financial process, there are one or more risks (errors and frauds), that could prevent the process from completing successfully. Appropriate control standards like authorization, segregation of duties and supervision and reconciliation help improve the process.

To manage risk of financial transaction processing failure, manual and/or automated control procedures are implemented at key stages of the process. Manual control procedures include; Transaction initiation review and approval - of expense reimbursement and transfer of expenditure, Asset receipt verification - review and approval of a receiving report, Post transaction review - of general ledger account, payroll report and purchase card transaction, Balance reconciliation - reconciliation account and Balance analysis - review of balances and re-calculations. Automated control procedures include; System access and function - password, Data input - format checking and maximum character, Data validation - account code validation and Data processing - Automatic posting of invoice to ledger.

Financial Transaction Control Procedures Guide