01A second signature on everything
At month-end, a mid-sized finance team posts hundreds of journals, and every one needs a second signature: the recurring accrual, the reversal of last month's accrual, the allocation that runs the same way every month. Someone senior works through the queue and approves each one.
Each approval feels like a control. Most of them check a number a rule already decided. The approver has no new information, so the signature adds time to the close and very little protection.
The journals that do carry risk sit in the same queue and get the same treatment.
02Three kinds of work
Before redesigning any process, sort the work in it into three layers.
| Layer | What it is | A finance example |
|---|---|---|
| Process | Repeatable and rules-based. A system does it, and people supervise | Posting a standard accrual |
| Judgement | Needs experience to interpret. Tools help, and a person decides | Setting the provision for a doubtful debt |
| Control | A named person is accountable, and it can't be delegated | Signing off the accounts |
The same step can sit in two layers depending on the case. A variance of $2 on a matched invoice is a rule. A disputed quantity from a new supplier needs someone who knows the supplier. That split is where most of a finance team's week goes, and where most of the redesign value sits.
03Sorting the month-end close
| Step in the close | Layer | Why |
|---|---|---|
| Recurring accruals | Process | Same amount or same formula every month |
| Reversals | Process | The system can reverse last month's entry on a rule |
| Standard allocations and recharges | Process, Judgement when disputed | The basis is agreed; a dispute needs a person |
| Provisions, impairments and estimates | Judgement | Someone who knows the business decides and owns the number |
| Manual entries posted after close | Control | High risk, and rare enough to deserve a proper look |
| Entries to accounts that rarely move | Control | Unusual by definition |
| Signing off the accounts | Control | A named person is accountable |
Most teams find the Process rows make up the bulk of the volume, and the Control rows a small share of it.
04Where your auditor already looks
The auditing standard on fraud, ISA 240 (ASA 240 in Australia), requires auditors to test the appropriateness of journal entries for the risk of management override, whatever their assessment of controls. Its application material lists the features that make an entry worth a closer look:
- entries to unrelated, unusual or seldom-used accounts
- entries made by people who don't usually post journals
- entries recorded at period end or after close, with little or no explanation
- round numbers, or numbers that end in the same digits
Those features are a ready-made map of where real control belongs. A named person should approve those entries, and look properly. Everything else can run on rules with review by exception.
05Simplify first, then automate
The fastest closes get there by simplifying before they buy anything.
- Fewer manual journals. Turn the recurring ones into standing entries or system rules.
- Standard templates. One way to raise each type of journal, with the supporting detail attached.
- Thresholds. Routine entries under an agreed amount post without a second signature and are reviewed by exception.
- Owners for estimates. Every provision and impairment has a named owner who explains the movement.
- Concentrated control. The features in section 04 route to a senior approver, who now has time to look.
The order matters. Automate first, and you approve the same journals faster, and your automation ends up with its own exception team. Simplify first, and the system runs the Process layer, people spend their time on Judgement, and Control gets stronger because it is no longer buried in routine sign-offs.
Check any change to approval thresholds and delegations with your auditor before you make it.
06Try it on one process this week
The same sort works on any finance process. Take invoice to pay: receive, capture, match, fix the mismatch, route, approve, pay. Most of those steps are Process. Fixing the mismatch is Judgement. Real Control sits in a handful of places: a new supplier being set up, bank details changing, a payment above delegation.
A manager approves a $300 invoice that is already on a purchase order, from a supplier used for five years, and matched to the receipt. Ask what that approval controls. Then map one process end to end with the team that runs it, and mark each step P, J or C.