As competition heats up in the aggressive business world, companies find themselves faced with the prospect of shrinking profits. In such an environment, effective management of financials becomes critical. Micro accounting is essentially accounting that happens on a small, often individual level. It deals with pieces of information and focuses on the accounting options and liabilities for independent people or divisions. Associate Editor Zenifer Khaleel offers a detailed view.

001Micro accounting is a service activity which benefits the company by the provision of apt and timely information. Managers need to know how to interpret this information and accrue it in the best possible way. Based on this they can analyse the financial status of their organisation and manage it to ensure future financial stability.

The accounting department does not directlygenerate revenues. Rather, it provides a fixed set of services to the rest of a company, while striving to do this at the lowest possiblecost. Bearing in mind the proposition of cost reduction, the accounting staff is expected to process transactions, write reports, create new processes or investigate old ones. They have to decipher and identify the areas in which costs can be controlled or totally curtailed. This cost- based environment is very difficult for most accountants as there is constant pressure from management.sohail ausaf (2)

Sohail Aosef, Business Transformation Managerfor the Cleanco Group based in Abu Dhabi says,“At Cleanco we have a workforce of 10,000 peopleand a business chain which is spread all overUAE. The accounts of the different departmentsare integrated and managed by our accounts department in the center. Our accounting system is continually upgraded to keep in step with the times. The finance managers constantly come up with ideas on cost control without compromising on quality. As we are a service industry, our procedures are implemented based on practicality and productivity without affecting efficiency.”

To put an effective accounting system inplace, a comprehensive Financial Operations Assessment should be conducted periodically to ensure the company’s accounting and financial operations, including  accounting processes, procedures, internal controls and financial reporting are working harmoniously and effectively. The finance department should thoroughly study the existing flow-chart and identify areas of improvement.

Best practices in Micro accounting

• The finance department should thoroughl study the existing flow-chart and identify areas of improvement. Every company has a unique set of requirements based on itsoperational principles, nature of business,connection with suppliers etc. It would needsome re-organisation at different levels to getall fundamental accounts in place

• The finance team should conduct a thoroughcost-benefit analysis. These costs must includeproject team payroll and related expenses outside services, programming costs, training. travel and capital expenditures.

• Implementation of new technology in accounting aids the smooth functioning of the finance department. There are new devices or software on the market that can clearly improve the efficiency of a company’s operations, and make a demonstrative impact on a company’s competitive position. However, it is better to wait till the technology has been tested in the marketplace for a short time before proceeding with an implementation. Once the new system is it place, it should also be tested for practical efficiency and risk of failure.

• There should be continuous employee training of the new system and procedure. The key element of any training class is procedure. A few untrained employees can result in the failure of a new best practice.

Areas of improvisation in saving

The accounts payable function is the most labor-intensive of all the accounting functions. It is an excellent source of savings if the correct practices can be implemented. The process is labour-intensive because there is such a large amount of reconciling to be done between customers and suppliers. The volume of work can lead to inaccuracies, and incur unnecessary costs even to issue a single payment. The finance department should aim to consolidate the number of invoices arriving from suppliers, thereby shrinking the paperwork from the source. They could also reduce or eliminate the number of receiving documents by basing payments solely on proof of receipt.

Electronic transmission of invoices is far less laborious and cost saving than its paper equivalent. It also saves on the time factor. Under an electronic system, the company’s systems send a standard electronic invoice, which is automatically translated into the invoice format bythe recipient company. The risk of losing invoices by manual transfer, erroneous transfer etc is eliminated. It also automates all invoices, thereby making the process of reconciliation and tallying easier. Data assimilation, compilation, and generation of reports for the final audit can be done easily by the electronic process. Companies which deal with multiple products, produces large volumes and deals with many suppliers should have a very efficient automated system for invoicing.

 Forensic accounting is another area of micro accounting which needs careful scrutiny.  This needs to occur as soon as fraud is suspected or, better still, as a planned programme of continuous testing for fraud through testing of physical and IT components.

Abdul Mahir“Forensic accounting helps pinpoint where the accounting system may have gone wrong.” says Abdul Mahir who works in the Fraud prevention Unit of RAK Bank in Dubai. “The term ‘forensic’ simply means suitable/presentable in courts of law. Fraud examiners conduct their examination with the assumption that the case may end in litigation. Issues of fraud need not necessarily be intentional. It can also arise due to lack of awareness of policy of the end user. The fraud examiner’s duty is to analyse the data and determine the intention and intensity of fraud. As forensic accounting identifies problems at the more individual level, it can hold a certain individual responsible for certain cases. Ultimately, these issues may end up in the court of law. However we try to deal with the issues on a case- to –case basis”

The process of forensic accounting involves building the case, reconstructing the paper trail, validating and or reconstructing the financials, reviewing the contractual and non-contractual elements around key transactions, identifying side letters and agreements, investigating conflicts of interest in the entity’s dealings etc; to determine whether fraud has occurred. This function falls squarely in the hands of the forensic accountant whose role is akin to investigative audit. He should have the necessary technical IT background coupled with his accounting prowess.

It is not possible to use all of the best practices together, since some are mutually exclusive. Depending on the nature and volume of your business, the company should formulate the correct set of best practices. Best practices focus on the overall accounts payable process, attempting to either shrink or automate the number of steps required before a company issues payment to a supplier. In a nutshell, the finance department has to conceptualize innovative ways to reduce time, labour and cost in the income and outflow of money.