How To Create A Flowchart_v1

How to create a flowchart

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Advantages of using flowchart

• Easy read and understand. • Help to identify key controls and control weaknesses, especially lack of segregation of duties. • Clearly show the logical and physical elements of a process. • Illustrate the relationship among processes and information that flow between them. 1

Disadvantages of using flowchart

• Time-consuming. • Not easy to change when amendment is necessary.

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Step 1: Understand the process

• Understand the process through the following ways: • Review policies and procedures • Interview the process owner and relevant personnel • Observe the process physically • Review the relevant documents

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Step 1: Understand the process

• Pay attention to the following areas: • Which parties are involved in the process. • What are the responsibilities of each parties in the process. • What information is inputted, processed and outputted in the process. • How to deal with this information during and after the process.

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Step 2: Document the process • We use the following “Petty cash expense claim process” as an example:

• In this process, three parties are involved, i.e. Clerk A, Manager B, Cashier C. • Procedure 1: Clerk A completes the “Petty Cash Expense Claim Form”. The form together with the invoice are submitted to Manager B for review and approval. • Procedure 2: Manager B reviews the form and invoice. If it is ok, Manager B signs on the form. The form and the invoice are then sent to Cashier C. • Procedure 3: Cashier C checks whether the form is properly signed and the expense is paid in accordance with the company policies. If there is no problem, Cashier C posts the expense claim into general ledger and pays cash to Clerk A. 5

Step 2: Document the process

• Common symbols used in flowchart: Filing

Start / End / External party

Manual input

Computer process

Manual process

Document

Multiple documents

Connector

Document / information flow

Off-page Connector

Database

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Step 2: Document the process • How to use

Filing

? Example:

We use the following alphabets to represent the type of filing method:

N

D

A

T

Sales Invoice N = document is filed in numerical order

D = document is filed in date order

N

A = document is filed in alphabetical order

T = Temporary file 7

Step 2: Document the process • How to use

Manual process

?

We use this symbol to describe the process which is manually taken, e.g. review, approve, check, etc. Please be noted that prepare, update or create an EXCEL Spreadsheet should be considered as a manual process, not computer process. Examples: Application Form

Excel spreadsheet

Review and approve

Update

Signed Application Form

Excel spreadsheet

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Step 2: Document the process • How to use

External party or Process name

Example 1: External Party

? Example 2: Process

Invoice

Supplier

Account Payable Process

Invoice

Bank cheque

Supplier

Payment Process

Bank cheque 9

Step 2: Document the process • How to use

Manual input

,

Computer process

and

Database

?

Example 1: Posting process

Posting

Update master file

Master file

Example 2: Generate a report Input request

Generate report

Master file

Report

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Step 2: Document the process • First of all, we draw the frame. Number of columns of the frame is depended on how many parties the process has. • In our example above, three parties are involved, so we draw a fourcolumn frame. • Don’t forget to write down the process name, who prepare the flowchart and date of preparation.

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Prepared by: ABC Date: DD/MM/YY

Petty cash expense claim process Description

Clerk A

Manager B

Cashier C

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Step 2: Document the process

• Once the frame is constructed, we can use the symbols and arrows to indicate the process. • There are some rules needed to be observed: • Direction of information / document flow should be from “Left to right” and “top to bottom”. • Try to draw the whole process in one page. If not possible, use “Off-page connector” to connect the pages. • For some huge process, break it into several subprocesses. 13

Prepared by: ABC Date: DD/MM/YY

Petty cash expense claim process Description 1. Clerk A completes “Petty Cash Expense Claim Form” (PCECF). The form together with the invoice are submitted to Manager B.

Clerk A Supplier

• Write the process details at “Description” column. • Don’t forget to put the cross reference number.

Cashier C

Invoice PCECF

Invoice

(1) Prepare PCECF

Cross reference number

Manager B

• Use arrow to show the flow of the invoice and the form.

• Clerk A complete the form “Manually”, so we use trapezoid symbol. 14

Prepared by: ABC Date: DD/MM/YY

Petty cash expense claim process Description 1. Clerk A completes “Petty Cash Expense Claim Form” (PCECF). The form together with the invoice are submitted to Manager B. 2. Manager B reviews the form and invoice. If it is ok, Manager B signs on the form.

• Write the details of procedure 2 at here.

Clerk A Supplier

Manager B Invoice PCECF

Invoice

(1) Prepare PCECF

Cashier C Invoice signed PCECF

(2) Review & sign PCECF

• Manager B checks and signs the form “Manually”, so we use trapezoid again.

• Use arrow to show the flow of the invoice and the form.

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Prepared by: ABC Date: DD/MM/YY

Petty cash expense claim process Description 1. Clerk A completes “Petty Cash Expense Claim • Form” Write(PCECF). the details The of form together with the procedure 3 at invoice are submitted to here. Manager B. 2. Manager B reviews the form and invoice. If it is ok, Manager B signs on the form. 3. Cashier C checks the authorization of PCECF and the compliance with the company policies. 4. Cashier C posts the expense into general ledger. The form and the invoice are then filed in day order.

Clerk A Supplier

Manager B Invoice

Invoice

PCECF

signed PCECF

(2) Review & sign PCECF

General Ledger

Invoice

(1) Prepare PCECF

Cashier C

Cash

5. Cashier C pays cash to Clerk A.

• Complete the Cashier’s procedure as follow.

(3) Check PCECF

Update

(4) Posting

(5) Pay cash

Invoice signed PCECF

D 16

Prepared by: ABC Date: DD/MM/YY

Petty cash expense claim process Description 1. Clerk A completes “Petty Cash Expense Claim Form” (PCECF). The form together with the invoice are submitted to Manager B. 2. Manager B reviews the form and invoice. If it is ok, Manager B signs on the form. 3. Cashier C checks the authorization of PCECF and the compliance with the company policies. 4. Cashier C posts the expense into general ledger. The form and the invoice are then filed in day order. 5. Cashier C pays cash to Clerk A.

Clerk A Supplier

Manager B Invoice

Cash

Invoice

PCECF

signed PCECF

(2) Review & sign PCECF

General Ledger

Invoice

(1) Prepare PCECF

Cashier C

(3) Check PCECF

Update

(4) Posting

(5) Pay cash

Invoice signed PCECF

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Step 3: Walkthrough the process

• After drawing the flowchart, conduct walkthrough test to confirm whether the flowchart is accurate.

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Step 4: Identify key controls and control weaknesses

• Label the key controls.

KC1

• The identified key controls will be tested at a later stage to ensure they are in place and operating effectively.

• Label the control weaknesses.

CW1

• Consider whether there are compensation controls to mitigate the risk. • If no compensation control, report the control weaknesses. 19

Prepared by: ABC Date: DD/MM/YY

Petty cash expense claim process Description 1. Clerk A completes “Petty Cash Expense Claim Form” (PCECF). The form together with the invoice are submitted to Manager B. 2. Manager B reviews the form and invoice. If it is ok, Manager B signs on the form. 3. Cashier C checks the authorization of PCECF and the compliance with the company policies. 4. Cashier C posts the expense into general ledger. The form and the invoice are then filed in day order. 5. Cashier C pays cash to Clerk A.

Clerk A Supplier

Manager B Invoice

Invoice signed PCECF

PCECF Invoice

(1) Prepare PCECF

Cash

(2) Review & approve PCECF

Cashier C

(3) Check PCECF KC2

General Ledger CW1 KC1 Update

(4) Posting

(5) Pay cash

Invoice signed PCECF

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• Expense is reviewed and approved by the manager to ensure it is spent for business purpose and reasonableness. So it is considered as a key control.

• Expense is checked by the cashier independently before payment to ensure that it is authorized in accordance with the company policies. So it is considered as

a key control. • Cashier is responsible for the cash custody as well as accounting entry posting. It is lack of segregation, so it is considered as a control weakness.

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The End

Thank you!

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