Miniseries – Best Practices for the Month-End Close – Key Internal Controls

• February 13, 2023
• Ally Spielvogel

Internal Controls Around the Financial Close Process

What does your organization’s current financial close process look like? Whether you scramble every month or feel like things run smoothly, it’s helpful to pay attention to certain key areas. A timely financial close process can help organizations manage their operations more effectively and efficiently. A strong internal control environment around this process can make it an even more meaningful tool. Small changes can be incorporated in an organization’s activities to help strengthen controls around this process. 

Communication

– A characteristic that is common among strong financial close processes is communication. Communication

Improvements:

• Identify all parties that should be involved in the process (i.e., Controller, CEO, department managers, any non-financial individuals, etc.)
• Make sure each participant in the process has a clear understanding of their responsibilities
• Hold pre-close and post -close meetings to communicate these responsibilities and obtain updates on how the process can be improved
• Provide timely financials to leadership and departmental managers to request feedback on variances

Documentation

– Clear and concise documentation can further facilitate everyone’s understanding of the process and can provide evidence that the process is occurring on a timely basis.

Improvements:

• Consider key balance sheet and P&L areas that need to be included in the close process which typically include major asset and liability line items as well as significant sources of income
• Identify the higher risk accounts, such as those subject to complexity and/or possible fraud, and designate those accounts for additional procedures or review
• Create a documented checklist of items that needs to be completed for these key areas during the close process and by when they should be completed, including who is responsible for those activities
• Designate a reviewer who is responsible for reviewing those completed activities and document when that review was completed

Templates

– Since the financial close process is typically routine in nature, it is also helpful to develop and use templates that help eliminate the room for error.

Improvements:

• Determine which areas have routine journal entries that are recorded every month
• Develop a standard template that can be used by all participants that can be updated with relevant information each period
• Seek out feedback for ways to simplify templates to make them easier to follow and update
• Use templates as a training tool for junior staff

In summary, a strong financial close process can be a valuable tool for organizations to help them make real-time decisions to manage their operations. The financial close process can be an even stronger tool if organizations have adequate internal controls around the process that include clear communication and well documented procedures. CLA has a wide team of professionals that can help with a variety of these issues. At CLA, we’ll get you there!

Previous posts in this series:

Series Intro and Closing Checklist: Intro and Closing Checklist

Closing AP, Accruals and Credit Cards: AP, Accruals, and Credit Cards

Closing Revenue: Closing Revenue

Financial Reporting & Analysis: Financial Reporting & Analysis

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