Chapter 7 – Improving Quality in Accounting: Error Proofing

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Improving quality: error proofing

In lean accounting, the approach to improving quality is called error proofing. Error proofing is a systematic approach to reduce defects over time by:

1. Detecting defects as rapidly as possible
2. Reducing the effect of defects that occur
3. Preventing defects from occurring

DETECTING DEFECTS PROPERLY

In an error proofing system, detecting defects rapidly means creating a systematic response in daily accounting activities after a defect is detected. Defects need to be measured and initial root cause analysis performed on a daily basis. 

Daily measurement of the defect rate creates visibility by turning something abstract – a defect in information – into a number everyone can see. It reveals the extent of the problem and also measures the impact of improvements being made. A defect rate measurement can be broad, the total defect rate, or more specific, such as defect rate by type, to achieve greater visibility into the extent of the problem. 

REDUCING THE EFFECT OF DEFECTS THAT OCCUR

In lean accounting, a defect in an accounting process is considered an abnormal condition and, as we explained in daily lean management in Chapter 6, standard responses need to be developed to reduce the effect the defect has on the process. 

Standard responses are how the process, and the employees working in the process, should react to the defect. Standard responses can contain the following elements:

• A target resolution time
• A specific sequence of activities
• Dedicating a portion of a process team’s daily capacity to defect resolution
• Specific responses based on the source of the defect – inside accounting, inside the company or outside the company 

PREVENTING DEFECTS THROUGH PROCESS IMPROVEMENT

The third step in an error proofing system, is to build fail safe mechanisms into processes and activities to:

• Prevent defects from occurring (the ideal solution) or
• Detect defects at the source and prevent defects being passed to subsequent process steps (the next best solution)

In error proofing in lean accounting, go see is the essential method to improving processes to prevent defects because the source of most defects occurs outside the accounting function. Go to the source of the defect and observe the specific activities of the work performed. Identify the root causes of why the defect occurs. 

If the source of the defect is outside of accounting, but within the company, it’s best to use a cross-functional team for any improvement activity. If the source of the defect is outside of the company, it may not be possible to do a physical go see, but it is possible to apply PDCA to any defect to determine the root cause. It’s important to note here that there may be limitations to the amount of improvement which can be done with parties outside of a company if this is the source of the defect.

Here is an important point to remember regarding any process improvement for defects that requires cross-functional support. Fixing defects impacts the party where the source of the defect occurs as much as it does accounting. When accounting can take the initiative to work collaboratively to eliminate defects it discovers, it will benefit the other party as much as it does accounting. 

ERROR PROOFING WRAP UP

Defects are the bane of accounting’s existence. As such, it is a great place to begin improving accounting because of the immediate impact it can have on process performance and the burden of work on accounting teams. Developing an error proofing system is also a great way to learn and demonstrate PDCA in all accounting processes – payables, receivables, payroll and month-end.