Financial Management Program BEST PRACTICES IN ACCOUNTS PAYABLE GASBO 2015 Tracy Arner, CPA tarner@uga.edu 1
Objectives 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 2
Accounts Payable Defined 3
What is Accounts Payable? The principle purpose of any accounts payable department is to pay the government s bills. Continued on next slide 4
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. 5
Accounts Payable Department An accounting department dedicated to verifying, tracking, and paying all accounts payable. Continued on next slide 6
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. 7
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 Continued on next slide 8
Accounts Payable The Liability Example: check issued for the office supplies 9
Accounts Payable and Internal Control 10
COSO Committee of Sponsoring Organizations 11
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: Continued on next slide 12
COSO s Internal Control Definition Effectiveness and efficiency of operations Reliability of Reporting Compliance with applicable laws and regulations 13
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 14
Internal Control Components 15
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. 16
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. 17
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. Continued on next slide 18
Risk Assessment and A/P Objective No. 2: All valid accounts payable transactions 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 19
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. Continued on next slide 20
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 with management s general authorization. Have written policies concerning the purchase of goods and services. Continued on next slide 21
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. Continued on next slide 22
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. 23
Duties to be Segregated Authorization Custody (Access to Asset) Approval of POs and invoices Approval of access to vendor master files Signing of checks Access to accounts payable checks/bank accounts (EFT) Mailing accounts payable checks Record Keeping Preparing source documents Maintaining journals, ledgers, or other files Reconciliations (Accountability) Preparing reconciliations 24
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 25
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. Continued on next slide 26
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 27
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. Continued on next slide 28
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 29
Information and Communication Examples: and A/P 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 amounts for financial statements. 30
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 31
Other Best Practices 32
P-Card Use Supporting documentation Policy Set limits Authorized users 33
NEW 1/1/2016 Purchasing 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 34
W-9 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 35
OCGA 13-10-91(b)(1) 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 36
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 37
38
www.vinsoninstitute.org 2015 The Carl Vinson Institute of Government. All rights reserved.