Financial Management Program
GASBO 2015 Tracy Arner, CPA
tarner@uga.edu
1
BEST PRACTICES IN
ACCOUNTS PAYABLE
At the end of this session, the participant will
be able to
-• Discuss the definition of accounts payable
• Recall components of internal control
• Recite best practices for accounts payable
within a strong internal control framework
Accounts
Payable
Defined
What is Accounts Payable?
The principle purpose of any
accounts payable department is
to
pay
the government’s
bills
.
What is Accounts Payable
• Unpaid
bills are listed under Accounts
Payable on the General Ledger.
• Any money
owed
as an
account payable
is a
current liability.
• Money owed must be
paid
in a
timely
manner
to avoid late penalties or fees.
• Some vendors offer
discounts
for
paying
within a certain number of days of the invoice
date.
Accounts Payable Department
An accounting
department
dedicated to
verifying
,
tracking
,
and
paying
all
accounts payable.
Accounts Payable Department
• Handles all accounts payable in
timely
manner
• Follows a system of
checks
and
balances
.
• Uses many tools to assist with tracking
accounts payable functions.
– Modern technology = paperless system; affordable scanners and computers;
accounts payable software makes
tracking and paying accounts a seamless process with little margin for error or duplication.
Accounts Payable—The Liability
• The accounts payable account on the
general ledger is classified as a liability –
something that is owed for
Example: office supplies are bought on credit
Accounts Payable—The Liability
Example: check issued for the office supplies
Accounts
Payable
and Internal
Control
COSO
C
ommittee
o
f
S
ponsoring
O
rganizations
COSO
’s Internal Control Definition
Internal control is a
process
,
effected
by an entity’s
board
of
directors
,
management
and other
personnel
, designed to provide
reasonable assurance
regarding the
achievement
of
objectives
in the
following categories:
COSO
’s Internal Control Definition
• Effectiveness
and
efficiency
of operations
• Reliability
of
Reporting
• Compliance
with applicable
laws
and
regulations
Objectives for Accounts Payable
Preapproved A/P transactions
A/P transactions recorded in proper period (cutoff)
Transactions accurate and recorded in timely manner
Recorded A/P transactions represent events that occurred and are in accordance with management’s authorization
A/P and vendor records are controlled and restricted to authorized personnel
Duties are assigned so that no one individual can control recording and processing transactions
Internal Control Components
Control Environment and A/P
• Control environment affects accounts
payable by establishing protocols:
Published code of ethics communicated with employees.
Personnel hired that possess the knowledge
and skills to accomplish A/P tasks.
Job descriptions that provide for proper
segregation of duties for responsibility and authority.
Control Environment and A/P
• Control environment affects accounts
payable by establishing protocols:
Written procedures that cover all phases of accounts payable.
Adequate training policies that communicate roles and responsibilities in the A/P area.
Management should exhibit commitment for ongoing training of employees in the A/P area.
Risk Assessment and A/P
Objective No. 1: All accounts payable transactions are preapproved.
Written process for the establishment of a payable account, starting with a preapproved listing of
vendors and the use of purchase orders.
Risk Assessment and A/P
Objective No. 2: All valid accounts payabletransactions are included in the accounting records in the proper period.
At the end of each accounting cycle, any vendor invoices should be recorded into the general ledger
in the period in which the goods and/or services were received.
Continued on next slide
Risk Assessment and A/P
Objective No. 3: All valid transactions are accurate, consistent with the originating transaction data, and information is recorded in a timely manner.
Establish a schedule – daily, weekly or monthly recording of accounts payable transactions to
ensure all information is recorded in a timely manner.
Risk Assessment and A/P
Objective No. 4: All recorded accounts payable transactions fairly represent the economic events that actually occurred, are lawful in nature, and have been executed in accordance withmanagement’s general authorization.
Have written policies concerning the purchase of goods and services.
Continued on next slide
Risk Assessment and A/P
Objective No. 5: Access to accounts payable and vendor records are controlled and properly
restricted to authorized personnel.
Safeguard accounts payable records.
Risk Assessment and A/P
Objective No. 6: Duties are assigned to individuals in a manner that ensures that no one individual can control both the recording function and the
procedures relative to processing a transaction.
Segregation of duties.
Duties to be Segregated
• Approval of POs and invoices
• Approval of access to vendor master files • Signing of checks
Authorization
• Access to accounts payable checks/bank accounts (EFT)
• Mailing accounts payable checks
Custody
(Access to Asset)
• Preparing source documents
• Maintaining journals, ledgers, or other files
Record Keeping
• Preparing reconciliations
Reconciliations
(Accountability)
Control Activities
• Match invoice, receiving and purchase order
information and follow up on missing or inconsistent information.
• Follow up on unmatched open purchase orders,
receiving reports and invoices and resolve missing,
duplicate or unmatched items, by individuals
independent of purchasing and receiving functions. • Use of control totals or one-for-one checking.
• Restrict access to accounts payable and files used in processing payables.
Continued on next slide
Control Activities
• Reconcile vendor statements
to accounts
payable items.
• Resolve differences
between the accounts
payable subsidiary ledger and the accounts
payable control account.
• Pay
vendors only from
original invoices
supported by purchase and receiving
documents.
Control Activities
• Take discounts if appropriately approved.
• Purchases are authorized and in accordance with the school's approval levels.
• Record transaction accurately in the general ledger.
• Promptly perform Accounts Payable
reconciliations for aging and clearing accounts and review reconciliations in a timely fashion. Continued on next slide
Control Activities
• Process
invoices according to invoice
payment terms
.
• Route
check requests
to the appropriate
personnel for
review
prior to input into
accounts payable.
• Accurately record expenses in the accounting
records
during the period in which the liability
was
incurred
.
Control Activities
• Make payments made to
preapproved
vendors
. That approval process should
include identifying 1099 vendors in
compliance with IRS regulations.
• Obtain affidavits for contractors providing
services
• Research and resolve, if possible,
old
outstanding accounts payable
checks
including compliance with State laws and
regulations regarding
escheat
property
Information and Communication
and A/P
• Examples:
Governing board/management: Aging of accounts payable.
Internal customers: Discrepancies in vendor invoices.
External customers: Discrepancies in vendor invoices.
External auditors: Types of payables and
Monitoring and A/P
• Supervisory activities:
Initial and date face of
reconciliation
Review all changes to vendor
information
Supervisory approval for changes to invoice once entered into A/P system
Other Best
Practices
P-Card Use
• Supporting documentation
• Policy
• Set limits
• Authorized users
33Purchasing card for elected officials
–
New law effective 1/1/16
–
OCGA 36-80-24
–
Governing authority must vote on
issuance of card and create policy
for use of the card
Set up vendors before any payments are made
If not, vendor file incomplete
1099’s could be impossible to prepare and government could
be assessed fines and penalties
W-9
• All public employers in Georgia are required to collect a signed, notarized affidavit from any contractor who
contracts with the local government for the physical performance of services
– Attorney General indicates a purchase order is a contract
• Affidavit must be maintained 5 years
Other Items
• Check vendors for debarred listing www.sam.gov for federal grant expenditures
• Positive pay
• Set software controls to restrict access to authorized personnel
