SUMMARY OF STUDY OBJECTIVES

An introduction to administrative processes. There are three types of administrative processes: source of capital processes, investment processes, and general ledger processes. Source of capital and investment processes are nonroutine, lowtransaction-volume processes that occur only as needed. The general ledger processes record data from all other business processes into the general ledger, and involve monthly closing and reporting.

Source of capital processes. Organizations undertake processes to raise capital only when necessary. These processes require specific approval by upper management, a determination of the type of capital source, executing the issuance of debt or equity, collecting the proceeds, and properly accounting for these processes.

Investment processes. Organizations undertake investment processes when there are excess funds that are not immediately needed in operations. Upper management must determine when to invest excess funds, decide whether to invest in marketable securities or treasury stock, execute the investment, and properly account for the investment processes.

Risks and controls in capital and investment processes. Raising capital is specifically authorized by upper management and closely supervised by management. In addition, employees do not usually handle cash or assets in these processes. Therefore, the most important controls are the proper management authorization and supervision of capital and investment processes.

General ledger processes. General ledger processes include recording all financial transactions in the appropriate ledger and journal, posting to the general ledger, and period-end processes such as recording adjusting entries and closing entries. In manual systems, the general ledger processes involve special journals, subsidiary ledgers, a general journal, and a general ledger. In IT systems for general ledger processes, there may be few or no paper documents or records. Accounting software modules accomplish functions similar to special journals and subsidiary ledgers. The posting to the general ledger may occur automatically in more complex IT systems.

Risks and controls in general ledger processes. Two of the more important internal controls in the general ledger processes are the authorization to record transactions and segregation of duties. In manual systems, the authorization is through a journal voucher and the segregation is accomplished by preventing general ledger employees from authorizing journal vouchers, maintaining custody of assets, and recording special journals or subsidiary ledgers. In IT systems, the authorization for recording transactions may be pushed to lower-level employees or even trading partners. Adequate documents and records, security, and independent checks are also internal controls necessary in the general ledger.

Reporting as an output of the general ledger processes. Both external and internal reports are prepared from general ledger information. The external reports are usually general purpose financial statements. Internal reports are numerous and varied. The nature of an internal report can vary with the type of organization, the function managed, and the time horizon.

Ethical issues related to administrative processes and reporting. Unethical or fraudulent behavior in administrative processes is more likely to be undertaken by upper level managers than by employees. In capital and investment processes, full and complete disclosure is a very important ethical obligation. Managers should also use internal reports in a manner that encourages ethical behavior.

Corporate governance in administrative processes and reporting. The administrative processes described in this chapter are part of the management oversight of corporate governance. The internal controls and ethical tone and procedures within the administrative and reporting processes are also part of the corporate governance structure. Setting and monitoring financial goals, and establishing and maintaining reliable accounting journals and ledgers so that performance can be properly reported, are important to effective corporate governance. In addition, internal controls and ethical practices within the administrative processes help ensure proper financial stewardship of a company's administrative resources.

KEY TERMS