Total Quality Control in Accounting

Quality control is about developing and maintaining a quality product that is economical, useful, and always satisfactory to the customer. And, quality comprehends the quality of the work, the service, information, the process, the employees and management, the company, and its objectives. Quality control involves the entire business process, and the accounting function is an integral part of this operation.

Accounting is integrally linked to every other aspect of the business, and is an active participant in every business activity. Quality control in every other part of the business must be supported by the corresponding level of quality control in accounting.

Accounting As a Support Function for Other Areas

Quality control in the purchasing function must be supported by good follow-up in accounts payable. Quality control in manufacturing and production must be supported by proper cost accounting records, to accurately reflect production costs, and to provide the information necessary to make informed decisions about efficiencies to be gained in order to produce an even better product at a more competitive price. The quality of the merchandising function depends on the proper safeguarding and accounting for inventory. Quality control in marketing must be supported by a quality credit function, and accurate billings to customers. Management decisions regarding overall direction and business strategy depend on accurate and complete financial information. The continuance of the business operation, and its good standing with taxing authorities and regulatory agencies depends on the timely payment of taxes, licenses, and fees. Quality control in human resources and labor relations, must be accompanied by a payroll function that ensures timely and accurate payments, to contribute to general employee morale and incentive. And, the business’s reputation with the public in general, and with shareholders, is enhanced by accurate, timely, and transparent financial reporting.

Accounting Customers

One of the basic elements of the essence of quality control is understanding the customer’s requirements. Accounting, as an administrative and support function, has several different types of customers, both inside and outside the business. These include:
�· Employees,
�· Other departments,
�· Auditors,
�· Management,
�· Owners,
�· Customers,
�· Vendors,
�· Contractors,
�· Lenders and creditors,
�· Benefit plan administrators,
�· Taxing authorities,
�· Regulatory agencies, and
�· The public in general.

Another concept of total quality control is that meeting standards may not be enough – the requirements of the customers themselves need to be satisfied. Standards for the accounting operation are a function of both internal and external factors. The accounting department has to meet the needs of different types of customers at the same time, and quality assurance in the accounting function requires reaching and maintaining the appropriate balance of standards, policies, practices and procedures to adequately satisfy these needs. These standards must be kept up-to-date with the requirements of accounting’s customers. These requirements may consist of changes in tax laws or regulatory reporting requirements, internal changes in business operations and procedures, and the need for different types of financial information as a result of changes in the business’s direction and strategy.

Real Quality Characteristics

The real quality characteristics that the accounting operation must be concerned with include the following:

�· Payroll: Employees must be paid correctly, in accordance with established parameters, on a timely basis.
�· Accounts Payable: Vendors and creditors must be paid, on time, for properly authorized and substantiated commitments that the business has assumed.
�· Accounts Receivable: Customers must be billed according to agreed upon sales terms and conditions, and collections on customer accounts must be made to ensure the viability and continuance of the business.
Ã?· General Ledger and Reporting: All business transactions must be accurately and completely reflected on the company’s books, in accordance with generally accepted accounting principles and in compliance with tax, legal, and regulatory requirements. Management must receive the financial information it needs to properly direct the business operation. Adequate, timely, and complete accounting must be made to the business owners.

These real quality characteristics can then be broken down and expressed in terms of the policies, practices, and procedures that accounting will follow in its operation. Total quality control involves an ongoing assessment of compliance with, and completion of the real quality characteristics. And there must be ways of measuring this compliance and completion, in an objective manner, with the purpose of correcting any defects or deficiencies, and ensuring the satisfaction of accounting’s customers.

Quality Control Parameters

The following are some of the parameters that can be used to assess total quality control in the accounting area.


�· Payroll master file data for each employee is correctly entered into the payroll system and is updated whenever there is a change.
Ã?· Individual employee files are complete with all necessary documentation, including application form, resume, offer letter, contract, W-4 form or other tax withholding document, court-ordered withholding certificates, benefit plan forms, confidentiality agreements, and any other information required according to the company’s personnel policies. If this documentation is maintained in a separate personnel or human resources department, the payroll function in accounting has a means of verifying data as necessary for payroll purposes.
�· All time input data is collected, verified, and processed with sufficient lead time to meet payroll deadlines.
�· All new hires are entered into the payroll system and paid on the payroll date for their first payroll period.
�· All terminations are processed, and final paychecks and pay statements are available on the agreed upon, or established date for final payment.
�· All personnel action forms or requests (raises, promotions, vacation advances) are verified for authorization and compliance with established policies and procedures, and are processed in time to meet payroll deadlines.
�· All payroll variations (overtime, bonuses, commissions) are processed and included in the appropriate payroll cycle.
Ã?· All data related to employees’ affiliation with benefit plans, such as medical insurance coverage, and pension or retirement accounts, is properly reflected in the payroll master file data, and any changes are processed in time to be included in the appropriate payroll cycle.
Ã?· All paychecks are distributed on the payroll date, or funds are available in employees’ bank accounts on that date, if they are paid by automatic deposits.
Ã?· U.S. FICA (social security and Medicare) taxes, and local, state, and federal income taxes are correctly withheld from employees’ pay and are deposited with the corresponding taxing authority.
Ã?· The employer’s portion of payroll taxes, including FICA and state and federal unemployment taxes, are properly calculated and recorded. The corresponding tax returns are filed, and tax payments are made on time. There are no penalties or fines for not filing, or for filing late.
�· Withholding of employee deductions for benefit plans such as medical insurance and pension or retirement accounts are correct, and are properly reported and paid to the benefit plan administrator or fund.
Ã?· All employer contributions to employee benefit plans are properly paid and recorded in each employee’s account.
�· All questions that employees may have on their paychecks are answered, and any discrepancies are promptly resolved.
�· There is an emergency or contingency plan in place, to continue payroll processing, in the event of any natural or other disaster that would prevent normal processing.

Accounts Payable

�· There is a control log or register of outstanding purchase orders and work requests, and follow-up is performed regularly to ensure that invoices are received for supplies and materials that have been received and work that has been performed.
�· There is a log, or other control record for all invoices received, to ensure that no invoices are misplaced or left out of the processing cycle.
�· Invoices received are matched with requisitions, purchase orders, and receiving reports or completion reports. This matching is documented, and follow-up is performed if there are any discrepancies.
�· Approvals are obtained for all purchase orders, work requests, and invoices, according to established policies and procedures. No disbursements are made without the proper approval.
�· All purchase orders, work requests, and invoices are accurately coded with the correct general ledger account number, subledger account number, business unit or cost center number, and any other identifying number used, according to the chart of accounts, in order to avoid the need for reclassifications.
�· All invoices are paid by the due date, avoiding late charges, penalties, breaches of contract, or any other problems with vendors, suppliers, or contractors, and to protect good credit standing.
�· All utility bills are paid on time, in order to avoid cut-offs of services, additional charges for late payments, or the need to make deposits.
�· Invoices are properly scheduled for payment, to avoid the need for rush payments or manual checks.
�· All taxes are paid on time, to avoid late payment penalties.
�· All licenses and fees are paid on time, to ensure continuance of business operations and avoid intervention by governmental entities and regulatory agencies.
�· There are inherent controls in the systems to detect potential duplicate payments.
�· There is complete and accurate reporting of all disbursement information for cash flow forecasting purposes.

Accounts Receivable

�· There are clear criteria and procedures for approving customer credit, based on the capacity to pay.
�· No credit sales are made without credit approval.
�· There are inherent controls in the system to flag any potential sale to a customer without credit approval on file.
�· Invoices are sent or transmitted to customers and clients as soon as the sale or service is complete.
Ã?· Invoices include a reference to the customer’s purchase order or work request number.
�· Invoices are accompanied by copies of shipping and proof of receipt documents, or acceptance of the work performed, as applicable.
�· The register of invoices is compared to sales reports, and reports of shipments or services performed, and any differences are promptly researched and resolved.
�· There are clear internal control procedures for receiving, recording, and depositing receipts from cash sales.
�· There is segregation of duties between the cash receipt and recording functions.
�· All checks received are recorded in a log, separate from the cash receipts journal.
�· Bank deposits are compared to total daily cash receipts and logs of checks received.
�· All receipts, in the form of cash, checks, and direct bank deposits are promptly recorded to individual customer accounts.
�· Bank reconciliations are performed regularly and any unidentified deposits or credits are promptly researched and resolved.
�· An accounts receivable aging report is issued on a regular basis, and is reviewed by the person(s) responsible for the credit and accounts receivable functions, and by management.
�· Statements are issued to credit customers on a regular basis.
�· Follow-up collection calls are made on a regular basis to customers with outstanding invoices.
�· Persons making collection calls are trained in the use of appropriate interpersonal communications skills to ensure good relationships with customers and clients, thereby contributing to future sales.

General Ledger and Reporting

�· There is consistent compliance with generally accepted accounting principles, and any special accounting requirements for regulatory effects.
�· All transactions are accurately reflected on the books.
�· Each accounting entry has supporting documentation.
�· A preliminary trial balance is reviewed before closing the books each period.
�· Accounting closings are completed in a timely manner, to meet deadlines for financial and tax reporting.
�· All general ledger balance sheet accounts are reconciled at least monthly, and any reconciling items are researched and resolved.
�· All income and expense account entries are properly recorded, to facilitate budget variance analysis and controls.
�· There is complete disclosure, avoiding any regulatory intervention.
�· Accurate records of tax liabilities are maintained, to facilitate the preparation of tax returns.
�· Depreciable and amortizable costs are properly capitalized to take advantage of income tax benefits.
�· Physical and electronic accounting records and files are kept in good order, to facilitate the work of internal or independent auditors and fiscal inspectors.
�· Financial information is generated to properly account to the owners, in a transparent manner, with full disclosure.
�· Financial reports are generated that facilitate the work of management in directing operations and planning for the future.

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