Control function, may it be management or accounting, plays the same key role. It is, in many ways, a two-way process. First of all, a top-bottom control flow, where the upper management or higher authorities oversee a certain process, but it is also a bottom-top process, as is the case when the feedback and follow-up actions come from the lower levels.
In the case of the expenditure process, the top-down circuit is, first of all, characterized by the budget restrictions that are imposed on the upper management levels of the company. In this sense, the top management defines a certain amount of money that can be spend and notifies accordingly the lower levels within the company. All acquisitions are thus limited by the expenditure levels fixed in the budget.
In many ways, the control function tends to be associated with management accounting. As we know, one of the most important issues related to management accounting is r elated to "determining the cost of producing goods"
, but management accounting also related to controlling the expenditures within a company.
Additionally, we need to consider the auditing processes that are usually performed either by internal factors (in the case of internal auditing) or external ones. The auditing process can be deemed a controlling action performed by a different authority than the management. However, in terms of accounting and bookkeeping, auditing does not necessarily control the expenditures within a company, but mostly the way these are recorded and classified in accounting, to prevent any possible frauds.
In general, and this is also applicable to the other functions of bookkeeping and accounting functions we will be later discussing, the 4000 Direct Expense Account and the 5000 Indirect Expense Account of the balance sheet are where expenditures are generally recorded. In this sense, the control function will provide an overview evaluation of (1) whether the expenditures within the company were correctly recorded in each separate account (auditing process) and (2) whether the recordings are in line with the company's fixtures in term of budget and budgetary expenditures.
The 4000 Direct Expenses account is where expenses that "will stop when you are not working"
. Labor and materials are two examples that come to mind in this case. However, there is a long list of indirect expenses that are associated with a business and these are recorded in the 5000 Indirect Expenses account. This are supposed to never go away, but it may often be the case that a manager will discover all kinds of expenditures that were made and were recorded here, expenses which do not necessarily increase the added-value of the company.
A close eye on the 5000 Indirect Expenses account should be a key factor related to the control function and a way to improve the accounting system. The upper management can be associated into the process by relevant information send to the top management members and an evaluation on their part.
In my opinion, a significantly important role in the expenditure process, as related to the control function, is determined by the employees' feedback and the way this reaches the top management, as the main decision body within the company. Indeed, it is futile to establish some ground expenditure rules if you do not receive the necessary feedback that will let you know that the rules you have implemented are also respected. In this sense, as part of the control function, I suggest a weekly bulletin (a bulletin can be no longer than two pages) from each division in the company that will list the most important expenses from the respective division during the respective week, with a brief explanation of why this was performed and of the way it was recorded in the accounting books.
Of course, in order to make the process relevant and useful, only the expenses that are over a certain amount need to be listed. Such an "expense bulletin" would have several notable advantages. First of all, it would help us avoid unfortunate incidents such as Enron and, especially, the denial of responsibility from the upper management, who will not be able to say that they were not aware of what was going on in their own companies.
Second of all, the upper management would be constantly involved in the expenditure schemes and would be able to make relevant estimates on the future budget, knowing what the ground realities actually are.
The "expenses bulletin" can play the information role in the expenditure system. However, I also propose an approval scheme going up to relevant levels of the company's management. The approval scheme can include some of the items recorded in the 5000 Indirect Expenses Account (not related...
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