In accounts payable, there is a specific subset of rules and controls you can put into place to reduce risk in this area. Here are just a few ideas.
All bills should be approved by the appropriate level of staff in your business. Sometimes a bill gets approved that is fake or shouldn’t be approved, especially in areas where the approver doesn’t have technical knowledge of what they are buying. Be sure to read the fine print on the bill and make sure you know what you are paying for.
Segregation of Duties
The person who pays the bill should be different from the person who submitted the bill. These people should be different from the one who signs the check. This reduces employee fraud.
A packing slip or other confirmation of receipt of the goods or services should be matched to the invoice, line item by line item.
A prudent step is to check an invoice’s math, at least for reasonableness.
If a vendor emails their bill as well as mails a hard copy, controls should be put in place (usually automated) to avoid duplicate payments on the same bill.
If there are a significant number of transactions between you and a vendor, an accounts payable reconciliation should be performed each month via a statement.
Missing Check Numbers
Most systems provide a missing check numbers report that you can use to make sure all checks are accounted for.
A bank reconciliation is a sure way to see exactly what checks cleared your bank account.
Coding each transaction to the correct expense account, inventory, asset, or cost of goods sold account is an essential part of the process.
Income Statement Review
Each month, a review of the balances in your expense accounts as well as a disbursements ledger review for reasonableness can provide added peace of mind.
Requiring purchase orders is another control you can add to your process. Purchase orders should be matched to packing slips and invoices before payment or approvals are made.
In-Depth Knowledge of Your Business’ Numbers
The more you get to know the numbers in your business, the greater chance you’ll have of accurate accounts payable handling.
If you’d like to discuss your accounts payable function with us and how it can be improved, we’re happy for you to reach out any time. Just give us a call or schedule a consultation.
This is general information and should not be acted upon without first determining its application to your specific situation. Please contact us, your CPA or tax adviser for additional details.
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