Create Finance Policies and Procedure Manual

Financial policies accurately reflect the status of organizations’ financial operations. Policies and procedures provide a base for strong internal control, assistance in financial activities, criteria for decision-making, and direction for transactional activities. Internal financial policies are created with the intent to maintain

• Trust 
• Transparency 
• Credibility
  

They play a strong role in retaining these important values across the organization. Building solid internal control, especially for companies in the nonprofit, banking, financial service, and insurance sectors, resolves discrepancies and ensures the effect of a financial management system (FMS).

But what about documenting these policies?

According to a study, one of the biggest concerns for any financial auditor is excessive documentation. Next in line are

• Fraud assessment
• Data processing
• Issues across departments

Ask any Financial Auditor or for that matter any IT Manager, they are always on the lookout for simple and systematic ways to implement documentation. Take a look at the example below of how this IT Manager was looking for a sustainable and wholesome solution to record documents and procedures.

Source: Reddit

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Continue reading to learn about the benefits, how to create policies and manuals, key sections to add, and best practices. However, before we begin, let’s clear the basics, shall we…

What Are Finance Policies and Procedures Manual?

A finance policies and procedures manual acts as a regulatory guidebook for an organization, defining rules and processes for managing a company’s financial activities. They reflect your company culture, values, and financial ethics.

It consists of detailed financial policies followed by procedure documents that include budgeting, purchasing, payment approvals, and asset management to ensure consistency and accountability.

Other sections are added, such as business continuity, vendor management, and sustainable practices that affect finances in the long run.

For example: A financial policy for asset purchase approval can be:

• Purchase value above $1000 needs approval from the CEO.
• A vendor list for buying assets is provided and if there’s an exception, take consent before approaching.
• The device must meet a certain quality standard.

 Whereas the procedure of purchasing a fixed asset would include terms like:

• The procurement team must contact at least three vendors for quotations before they finalize the deal.
• Before admitting to purchase, get the final approval from the finance manager for budget alignment.
• A copy of the purchase order, payment receipt, and inspection report is saved in the company’s financial system for tracking.

Altogether, policies and procedures help employees understand how things will work. They give them a clear roadmap to align with organizational goals and ensure that they abide by the law and consequently meet legal requirements.

Let’s understand the benefits of having a finance policies and procedures manual.

As mentioned in the above section, financial policies and procedures play a huge role in setting rules and guidance for your organization’s day-to-day activities. Besides, they can also help you make

• Better financial decisions
• Improve communication
• Eliminate confusions

That’s not it. Let’s look into other important benefits of implementing financial policies and procedures

1. Standardized Financial Processes

Discussion between the teams and departments makes decision-making faster and more efficient. Take for example the policies state that inventory is to be evaluated using a recorded formula say FIFO or weighted average. It would be used for upcoming years as well until the policies state otherwise.

However, without any documented manuals, your team can switch to different methods for any reason, which can create irregularities in the work or the reports.

2. Legal And Regulatory Compliance

Sound and structured policies drastically reduce the risk of non-compliance. When drafting a policy for your organization, you should keep in mind different compliance threats, such as tax, labor laws, harassment, and more. It reduces the chances of errors and increases your efficiency so the returns are filed timely, taxes are paid accurately, and all the relevant laws and compliances are followed effectively.

3. Fraud Prevention And Better Accountability

If you know you are responsible for a task, accountability is crystal clear. When your organizational policy and procedure specify your roles and responsibilities, there is hardly any scope for evading responsibility. For example, you can assign one person for accounting and another one for making payments. Segregation of duties not only ensures transparency but also helps prevent fraud.

4. Easing Employee Training And Onboarding

When any new employee joins your organization the well-documented policy will serve as a training manual so they easily align with your organization’s culture and policies. This will not only help save the added training cost and help them prepare to take up the role faster.

Plus, if any employee needs to take on any other role for any reason, the manual can act as a guide in preparing them for the task at hand.

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Key Sections to Include in a Finance Policies and Procedure Manual

Sometimes, when we think of rulebooks or policy manuals, it’s easy to picture something straight out of Wizards of Waverly Place—a giant, dusty tome that looks like an encyclopedia, totally complex that nobody wants to read.

That’s why policy and procedure manuals need to be created to be accessible to everyone and contain all the information employees need to know.
Here are a few sections to include:

1. Authority and Financial Responsibilities

Start with the substantial. Define roles and responsibilities relating to financial decision-making within your organization.

• Who is going to approve the budgets and expenditures?
• Who has the authority to sign contracts?
• What shall be the responsibilities of executives, finance teams, and department heads?

The section should be answerable to such questions. To further ensure transparency within the organization, the section should outline detailed mechanisms for tracking and reporting financial actions.

2. Procedures for Resolving Financial Disputes

There might come circumstances when you discover far-reaching disputes related to financial transactions arising in the organization. Having a protocol documented in advance can save you from trouble. Invigorate the spirit of smooth operations by including:

• Step-by-Step Resolution Process wherein you will be addressing financial disagreements, including escalation paths.
• Roles and Involvement to clarify who should be involved in dispute resolution, such as finance managers or legal teams.
• Timelines should define realistic deadlines for resolving disputes to prevent delays and encourage an empathetic work environment.
• Documentation to emphasize the importance of maintaining detailed records of disputes and resolutions.

3. Payroll Policies

If payroll has not been an essential part of your organization yet, it will be as you move from a small scale to a larger one. This part would be shared within almost every department, team, and part of the organization, from key stakeholders to employees.

Ensure timely and accurate payroll processing for maximum satisfaction by including

• Payment schedules specify when employees can expect their salaries, like monthly, bi-weekly, hourly, etc.
• Overtime and bonus policies define how additional payments are calculated and processed.
• Deductions clarifying taxes, benefits, or other contributions.
• Full & final settlement handling resignation, retirement, or termination of the employees.
• Compliance ensures alignment with labor laws and tax regulations.

This can also include a section wherein the employees can ask queries or request information about their paychecks.

4. Spending and Reimbursement Policies

Essential to guide employees in managing work-related expenses and also seeking timely reimbursements, the manual would help in equitable practices. The section would govern adherence to financial accountability and compliance with the company standards. Key points to cover:

• Clearly define allowed expenses that are directly reimbursable, like travel, meals, and office supplies as well as include caps or limits wherever applicable.
• Outline the steps required for expense approvals in prior and mention who is authorized to approve the specific expenses.
• Frame out documentation specifying the type of receipts, invoices, or proof of purchases, along with their dates, amounts, item descriptions, etc. required for reimbursements.

In employees’ interest, the policies must also set a clear timeframe within which the reimbursement requests should be submitted as well as settled.

5. Vendor, Supplier, and Contractor Relations

Begin with selection criteria. Provide details on how vendors, suppliers, and contractors are evaluated and chosen based on quality, cost-effectiveness, reliability, and compliance with company standards. Continue to outline contract terms. Emphasize deliverables, payment terms, timelines, and penalties for non-compliance. This will ensure mutual accountability. A conflict of interest policy can be included to maintain ethical practices further. This will ensure no more bias and decisions that are in the organization’s best interest.

Finally, jump to performance monitoring. Establish a framework for ongoing vendor performance evaluation against predefined criteria, enabling consistent quality and long-term, productive relationships.

6. Payment Terms and Invoicing Procedures

Streamlined payment and invoicing processes ensure financial stability. In payment terms and invoicing procedures, include-

• Payment methods to define acceptable payment methods, such as bank transfers or credit cards.
• Invoice requirements specify what information invoices should include, like tax details and payment terms.
• Approval workflow to outline steps for invoice approval before payment.
• Late payments including policies for handling late payments and penalties.

7. Billing and Collection Procedures

Efficient billing and collection policies help maintain cash flow. While they also ensure timely payments and financial stability, don’t miss out on these key elements to cover:

• Billing schedule to define when invoices should be generated and sent to clients.
• Following up & outlining steps on unpaid invoices, reminder intervals, and guidance on how to handle non-responsive clients.
• Collections policy to handle overdue accounts and specify any late fees, interest charges, or penalties for non-payment.
• Keep a check on record maintenance. Store invoices, payment receipts, and correspondences. For detailed financial documentation, choose to comply with legal and regulatory standards.

8. Policies and Procedures for GDPR

If your organization handles personal data, complying with the General Data Protection Regulation (GDPR) is important. This means having clear policies that include guidelines for securely collecting, storing, and processing sensitive information while following principles like data minimization and purpose limitation.

Employee training is also crucial to help staff understand how to handle data responsibly and identify potential risks. Additionally, you need processes for managing consent, ensuring individuals give explicit, informed permission for using their data, with proper documentation and a way to handle withdrawal requests.

Finally, your policies should include clear steps for dealing with data breaches, including how to report and address them quickly to reduce impact and stay compliant with regulations.

Also Read:  What is the Role of Knowledge Management System In Finance

Best Practices To Maintain And Updating Your Manual

Here we come to the important part of this blog. Don’t get us wrong, each section is informative and important, but this section talks about maintenance and updation that most of us don’t put in the effort on, and slowly things become irrelevant.

But not with these best practices and the software that helps you update in real time. Here are the best ways to keep your manual uptight and relevant

1. Schedule Regular Financial Policy Reviews

An organization has a lot of financial folds. Add any new or extra event, and it will first impact the finances.

Take for example, if a company is merging or acquiring, or launching a new feature or a sub-product, the new operations need to be accommodated and for that, the financial policies need to be revised.

There are multiple factors that influence financial policies, some need to be added, some revised, and some eliminated. And to keep things running smoothly all of it has to be updated as soon as possible.

The best way to do so is to keep a check (annually or bi-annually) so there are no gaps.

2. Utilize Knowledge Based Software

Information that is kept centralized is always easy to access. When you use knowledge-based software to champion and communicate your policies and procedures, the chaos of searching, editing, managing, or piling up documents is all a thing of the past.

The documents are hosted on the cloud and are easily accessible to everyone on the team who is authorized to contribute to your financial schemes.

3. Involve Key Stakeholders In Policy Updates

Rarely do you see stakeholders getting involved in operations, more so updating policies. However, when they do, stakeholders seek presentable updates with quick numbers.

When using knowledge-based software, you can give what your stakeholders seek. Invite them to participate in the shared document to receive timely updates or quick check-ins.

4. Monitor Compliance

Compliance with every financial year gets more rigid and requires strict adherence. As your company grows, so do your services and so do the area of compliance.

It is important to keep a check on regulatory compliance. However, security can be easily compromised when you are in a rush of growth. It could easily transpire to legal penalties or worse reputational damage.

Regular monitoring of policies and timely updates will help you stay on the compliance track.

Wrapping Up

As you move down the road, you will realize that an effective Finance Policies and Procedure Manual isn’t just a rulebook. It’s a practical guide that empowers your organization to function smoothly and transparently, especially when your organization transitions from small-scale operations to large-scale expansion.

Though the manual should be modified to adapt to your organization’s workflow and operations, knowledge-based software such as Document360 can help create a customized manual. With Document360, you can create a resource that supports employees, strengthens compliance, and enhances financial management.

An intuitive knowledge base software to easily add your content and integrate it with any application. Give Document360 a try!

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