Organizing an Accounting Department – Basics

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Many growing for profit and nonprofit organizations find themselves with financial reports that make no sense, “forgotten” revenues and slow bill paying processes. They may be at a point where the part-time bookkeeper is over his or her head and flooded in work. So, what can you do? You can look at accounting tasks and divide the work within these tasks. For example, a typical accounting department performs the following work:

  • Pay bills – Accounts Payable
  • Recognize revenues – Accounts Receivable
  • Process payroll – Payroll Administrator

Other tasks associated with an accounting department are: Cash management, bank reconciliations, budgets, financial reporting and taxes. In large businesses each of these functions is performed by one individual or more. In smaller firms, tasks are shared and staff is supervised by a manager or a controller, who often is responsible for financial policies and procedures for the organization.

A mistake common in growing small businesses is to assume that accounting is easy and can be done by the person who is a receptionist or works in another part of the business. Without training or education, this person should be able to perform accounting functions of a full-charge bookkeeper. That’s a mistake and is not fair. Hire accounting people who have the proper education and experience. Accounting managers or controllers should have at least a bachelors’ degree in accounting. Someone with a four-year degree in business, and a few years of accounting experience may also qualify.

As you organize the department, consider segregation of duties. For example, the person that opens the mail or receives money is NOT the person who books revenues in the accounting system. If the person running accounts payable is also doing bank reconciliations, then a manager or controller should review the reconciliation and look at cashed checks.

Before hiring anybody for accounting positions, run a background check on all individuals, who should be trustworthy with a clean credit history. Of course, exceptions can be made, but they are usually rare occasions.

Many businesses organize their accounting department using flowcharts and job descriptions. You don’t want to have the same task be performed twice or three times and at the same time, you don’t want to miss an important process. Some firms hire outside consultants to help them in organizing their department for maximum efficiency, while considering risks and controls. Unfortunately, this last option is usually used after a fraud or loss situation, when people are traumatized and willing to pay for professional advice.

When considering a new accounting department, you have a few options and what works for one business may not work for another. You could organize the department yourself and then ask for an outside CPA or management firm to review your set up for internal control and efficiencies.

Source by Sheila Shanker

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