Every organization should undertake a regular audit of its financial policies and procedures. Finance teams that can efficiently run these reviews can get back to the key work of the business without spending too much time or money bringing policy up to date. After presenting cross-industry data on the costs of managing financial policies and procedures, APQC provides guidance that can help you ensure a smoother and faster review process.
Reviewing your financial policies and procedures regularly is critical for many reasons. Without these regular reviews:
- People will follow whatever policies or practices make sense to them, resulting in process variations and inconsistent cycle times;
- policies will grow outdated and irrelevant, potentially leaving the organization out of compliance or out of step with new technologies;
- organizations increase their exposure to cybercrime in the face of a constantly evolving landscape of threats; and
- unethical actors can more easily exploit loopholes to commit fraud.
A robust process for managing your policies and procedures will help you minimize these risks while keeping costs lower for the review process itself.
Breaking Down the Costs
Based on benchmarking submissions from nearly 2,000 organizations, APQC finds that top performers spend only eight cents (or less) for every $1,000 of their revenue to manage financial policies and procedures. Organizations at the 75th percentile, by contrast, spend more than five times that amount ($0.43) to manage their financial policies and procedures.
The difference between top and bottom performers on this measure (35 cents) appears small, but these pennies do add up. For example, a bottom-performing organization with $1 billion in annual revenue is going to spend $430,000 to manage its financial policies and procedures, compared to just $80,000 for organizations in the 25th percentile. An organization that could move from the 75th percentile to the median range of performance has the potential to save $260,000 on the costs of managing its policies and procedures.
Driving a More Cost-Effective Process
Personnel costs are the biggest contributor to the overall cost of managing financial policies and procedures. For that reason, it’s critical to build and maintain an ecosystem where people can gather and do the work as quickly and efficiently as possible. One of the most important things you can do to keep costs down is to review your financial policies and procedures regularly, rather than only gathering your team for this purpose sporadically.
Managing your financial policies and procedures is a lot like managing your oral health. If you fail to do the routine brushing and flossing and get regular checkups, you can easily end up having extensive, costly, painful, and time-consuming dental work down the road. Waiting five years to update your financial policies and procedures is going to be about as much fun for your team as a root canal, and it’s going to take longer than it should — which means costs will be higher.
Aim to review your financial policies and procedures at least annually. Some areas of finance, like accounting or treasury, may need even more frequent review (e.g., quarterly) to account for changes to business travel or evolving financial regulations.
Once you have a set cadence for review in each area of finance, the four practices below can help your teams use their time as effectively as possible:
- Make sure you have governance in place and have identified the parties who will be responsible for policy review. In larger companies, the head of each area of finance (e.g., VP of treasury) is responsible for leading policy and procedure reviews for their respective areas. Design governance structures that make sense for your organization so it’s clear who is responsible and accountable for the effort.
- Good content management is also critical for a smooth review process. Multiple versions or drafts of a policy held by multiple people will cause confusion that adds time to your review process. Work for a single source of truth for these documents so people know where to go for the most reliable, up-to-date version.
- Make a checklist and/or document your process steps for policy review. Process documentation should address who is involved, when reviews need to happen, and how they should be carried out. The more standardized your process, the less likely your teams will be to spend time doing things that don’t matter.
- Draw key stakeholders into the review process. For example, your biggest travelers should give meaningful input into your organization’s travel and expense reimbursement policies. This helps ensure that policies are relevant and meaningful to the people who will need to follow them.
Ongoing maintenance of your financial policies and procedures is much more cost-effective than a complete overhaul once everything is irrelevant or out of date. Along with a regular schedule for policy review in each area of finance, aim to standardize the process as much as possible. Identifying the key players and documenting the core steps of the process will help your team get down to business as quickly as possible, which will save them time and save your organization money.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.