accounting manual for chamber of commerce

ACCOUNTING MANUALWhat, why and how?

Friday, April 27, 2012Secretary General Conference

Lahore, PakistanBy: Malik Mirza, FCCA, ACA, MBA

www.wisdomfrombooks.com

4/27/2012 www.wisdomfrombooks.com

Today’s objectives?

Friday, April 27, 2012Lahore, Pakistan


What?

What do we mean by an accounting manual??????????


Accounting manual defined

• A manual that contains pertinent accounting rules and other information for a business or organization.

• Accounting manuals can contain guidelines for various policies and procedures. They also often specify organizational rules and standards for corporate accounts.

Source: Investopedia4/27/2012 www.wisdomfrombooks.com

Key components of an accounting manual

• Pertinent accounting rules• Guidelines for various policies and procedures• Organizational rules • Standards for corporate accounts. • Written procedures for accounting staff• Documentation of internal controls


• Do we really need an accounting manual?

• Let’s play a game: Chinese Whisper

• Voting please!

What?


Objectives of an accounting manual


Objectives of an accounting manual

What do we think about the objectives of an accounting manual in Pakistan?


Governance structure

• Why governance?• Do we have a governing committee?• Do we have a finance committee?• If yes, what are the roles and functions of the

committee?• If there is no finance committee, why not?


Role of Finance Manager

• What is the role of Finance Manager in the Chamber?

• Let’s play a small drama: “Paisa – Paisa”• Guidelines for preparation of drama:– Let’s divide in five groups– Two people to act as the Board of Governors

(President / Secretary)– One person to act as Finance Manager


Internal controls

• What?• Why?• How?• Examples?• Any feedback from day to day life?


Some basic internal controls

• Payable / payments• Receipts / receivable• Assets• Bank transactions


Some examples of basic internal controls

• Internal control over A/P disbursements is maintained by • segregating the authorization, • check signing, • processing, recording and bank reconciliation functions.

• All invoices are to be supported by receipts or approval indicating receipt of services i.e. complete supporting documents.

• The use of pre-numbered vouchers / invoices ensure

numerical control.


Some examples of basic internal controls

• Persons authorized to approve expenditures are limited and identified, with threshold limits established or double signature requirements.

• Authorized check signers will never sign blank checks.


Internal controls

• Delegation of duties• Defining approving limits, signing limits and

funds transfer authorityApproval authority Authority level

Finance Manager Upto Rupees _________

Assistant Manager Upto Rupees _________

Secretary General Upto Rupees _________

Co. Chairman Upto Rupees _________

Chairman Upto Rupees _________


Controls on chart of account

• Timeliness of accounting entries• Authorization of transaction and entries• Adequate supporting documents• Complete audit trail


A few terms

• Chart of accounts• General ledger• Assets• Liabilities• Income• Expense• Bank reconciliation statement


Fraud

• Frauds………….• Satyam: One of

the India’s biggest IT companies listed on NASDAQ


More on Satyam’s fraud

• Your thoughts?


What is Fraud?• Fraud is any Fraud is any intentionalintentional act or omission designed act or omission designed to deceive to deceive

othersothers, resulting in the , resulting in the victim suffering a loss victim suffering a loss and/or the and/or the perpetrator achieving a gainperpetrator achieving a gain, usually, monetary., usually, monetary.

Some Dictionary Definitions……• “A deception deliberately practiced in order to secure unfair or unlawful

gain”or

• “Deliberate deception or cheating intended to gain an illegal advantage”


Types of Fraud

• Corruption• Asset Misappropriation• Financial Statement Fraud• Cheque fraud • Duplicate payment fraud• Bank account fraud• Tax fraud• Any participant to share practical experience on

frauds?4/27/2012 www.wisdomfrombooks.com

The Fraud Triangle(Basic factor influencing the occurrence of fraud)(Basic factor influencing the occurrence of fraud)

PressurePressure

OpportunityOpportunityRationalization (Attitude)Rationalization (Attitude)

(due to weakand override of controls)

Medical bills, expensive tastes, addiction problems to Commit fraud

Every one does it. Simply borrow the money


Fraud indicators• Receipt of tip-offs• Refusal to take vacation or sick leave • Significant personal debt and credit problems • Behavioral changes - These may be an indication of drugs, alcohol, gambling, or

just fear of losing the job • High employee turnover, especially in those areas which are more vulnerable to

fraud • Lack of segregation of duties in a vulnerable area• Employee lifestyle changes: expensive cars, jewelry, homes, clothes• Management decisions are dominated by an individual or small group. • Managers display significant disrespect for regulatory bodies • Policies and procedures are not documented or enforced.


Prevention – Is Better Than a Cure• Screen applicants thoroughly before hiring them: Hiring the right employees is the

best way to stop fraud before it happens. It’s a good idea to perform background checks on potential employees.

• Implement internal controls to reduce fraud risk: Many businesses depend on one person to process payments and invoices, make bank deposits, handle petty cash, and reconcile bank statements. This is asking for trouble. Your business should implement a system that spreads and, if possible, rotates the financial duties of the business among two or more employees. Insist that all employees, especially those with financial responsibilities, take a mandatory vacation of at least one week of consecutive days.

• Be a role model and lead by example: An effective way to prevent fraud in your business is to create a positive work culture. It is important that the business owner and senior management serve as role models of honesty and integrity. Set clear standards example zero tolerance policy for fraud.

• Whistle blower: Every company should establish a system that makes it easy for employees, vendors and customers to anonymously report suspected fraud activities.

• Work with Professionals: Consider hiring a professional to conduct both regularly scheduled and surprise audits. Audits can serve as a deterrent because when employees are aware that there will be checks of their areas, they are more likely to stay honest.


Antifraud Programs and Controls• Identify fraud

risk factors, fraud risks and fraud schemes

• Link or map identified fraud risks to control activities

• Effective communication of antifraud programs and controls

• Monitoring effectiveness of antifraud programs and controls

•Tone at the top•Code of Conduct/Ethics

•Whistleblower Hotline

CreatingCreatinga Controla ControlEnvironmentEnvironment

PerformingPerformingFraud RiskFraud RiskAssessmentsAssessments

Designing andImplementingAntifraudControlActivities

SharingSharingInformation andInformation andCommunicationCommunication

MonitoringMonitoringActivitiesActivities

CRIME


Policy

• With reference to fraud policies are needed on:– How to prevent financial fraud?– What are the indicators of fraud existence?– What are the key risks of fraud?– What will happen if fraud is suspected?


Procurement

• To put simply, procurement is the purchase of goods or services

• What are the ‘allowed’ and ‘dis-allowed’ goods or services?

• Is there any approved list of vendors at chambers?


Procurement

• Cost comparison / analysis• Quotations• Approval limits– Authorized signatories– Board limits

• Budget availability


Bidding process

• Request for proposals (RFPs)– What– Why– How

• Key risks in procurement?


Procurement of services

• List of repetitive services• Verification of daily rate• Resumes of consultants• Documentation of negotiation process


Summary

• Accounting manual – definition and components

• Role & responsibilities of Financial Manager• Internal controls• Procurement• Take away: Let’s develop a checklist of

components to be included in the accounting manual of our chamber


Summary

Take away:

Let’s develop a checklist of components to be included in the accounting manual of our chamber


accounting manual for chamber of commerce

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