The Accounts
Payable/
Cash Disbursement
(AP/CD) Process
1
Learning Objectives
• Know definitions and basic
functions of the AP/CD process
• Understand relationship
between the AP/CD process
and its environment
• Achieve a reasonable level of
understanding of the logical
and physical characteristics of
typical AP/CD process
• Become familiar with various
technologies used to
implement the AP/CD process
• Know core process goals and
the plans used to control a
typical AP/CD process
AP/CD
AP/CD on the AIS Wheel
• In this chapter, we spotlight one
business process, the accounts
payable/cash disbursements
(AP/CD) process and explore
the processes, systems, and
controls that should be in place
to ensure that the accounts
payable/cash disbursement
process operates efficiently and
effectively.
• Additionally, we will examine
specific process control
procedures that help ensure all
accounts payable are paid in a
timely fashion.
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Process Definitions and Functions
•
The accounts payable/cash disbursements (AP/CD)
process is an interacting structure of people,
equipment, methods, and controls that is designed to
accomplish the following primary functions:
1. Handle the repetitive work routines of the accounts
payable department and the cashier
2. Support the decision needs of those who manage the
accounts payable department and cashier
3. Assist in the preparation of internal and external reports
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AP/CD Horizontal Perspective
1. Invoice
Received
from vendor
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AP/CD Horizontal Perspective
2. Approved
voucher sent
to cashier
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AP/CD Horizontal Perspective
3. Accounts
payable
notification
sent to
general
ledger
process
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AP/CD Horizontal Perspective
4. Check sent
from cashier
to vendor
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AP/CD Horizontal Perspective
5. Paid
voucher
returned to
the AP
department
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AP/CD Horizontal Perspective
6. Notification
of the cash
disbursement
sent from the
cashier to the
general ledger
process
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Vertical perspective-AP/CD
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The AP/CD Process—Level 0 Diagram
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AP/CD Process Level 1 DFD:
Validate Invoice
(Assumes non-voucher system—a formal
voucher would have space for formal approval
and account distribution)
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AP/CD Process Level 1 DFD:
Make Payment
(Triggered by due date of invoice)
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Purchase Returns and
Allowances
• In some cases defective goods may be
returned or an allowance made for nonconforming items
– This exception routine usually begins at the point
of inspecting and counting the goods or at the
point of validating vendor invoices
– Purchaser transmits a debit memo to the vendor
requesting the account adjustment
– The vendor responds with a credit memo
indicating the authorized account adjustment
15
Processing Non-Invoiced
Disbursements
• In some cases disbursements are not
invoiced, e.g., freight bills, rent, payroll, etc.
• The handling of non-invoiced disbursements
depends on whether or not a voucher system
is used
• A voucher system prepares a voucher for
every expenditure from payroll to purchases
of raw materials
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Processing NonInvoiced
Disbursements
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Logical Data Descriptions for the
AP/CD Process
• Accounts payable master data. This data store is a
repository of all unpaid vendor invoices
– The data design should consider how the data will be processed
when the cash manager is deciding what payments to make
– For example, the manager may want to merge vendor invoices so
that the total amount due each vendor can be accumulated
– Alternatively, the manager might want to select specific invoices for
payment
• Cash disbursements data. The purpose of this data is to
show, in chronological sequence, the details of each cash
payment made.
– Each record in this data normally shows the date the payment is
recorded, vendor identification, disbursement voucher number (if a
voucher process is used), vendor invoice number and gross
invoice amount, cash discount taken on each invoice, net invoice
amount, check amount, and check number.
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EntityRelationship
(E-R)
Diagram
(Partial) for
the AP/CD
Process
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Technology Trends and Developments
• The AP/CD process is the primary candidate for EDI in major
organizations (as it is in the OE/S, B/AR/CR, and purchasing
processes as well)
• Several major companies have implemented EDI systems into
the AP/CD process, resulting in significant cost savings
– An increasing trend among some of these major companies is to
require all vendors to use EDI in their transactions with the
company
– If the vendor does not implement EDI technologies, the major
companies simply find a new supplier
• In the last few years, several alternatives to EDI have been
deployed
– These new technologies, based, for example, on XML or IP-based
EDI (Internet EDI), have not replaced EDI
– Services provided by the value-added networks (VANs) and the
high degree of EDI standardization make EDI attractive for fully
digital B2B collaboration among trading partners for years to come
• Many organizations are using Web-based payment systems
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AP/CD Process:
Systems Flowchart
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AP/CD Fraud
• AP fraud usually involve
fictitious vendors and
false invoices
– A dishonest employee
who has access to the
vendor file and
authorizes payment
– May embezzle amounts
refunded by vendors
– Human error is still a
leading cause of loss
• CD fraud is less
sophisticated
– Usually involves check
fraud
– Check fraud takes many
forms from stealing and
passing stolen checks to
changing amounts on
legitimate checks or
check forgery
– CD fraud is becoming
easier and more common
with computer duplication
technology
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Exposure to Loss and
Destruction of Resources
• Although the subject of fraud and
embezzlement is seductively interesting,
resource losses due to unintentional
mistakes and inadvertent errors are as costly
as, or more costly than those caused by
intentional acts of malfeasance
– Making payments for incorrect or larger amounts
– Paying the wrong vendor
– Paying the same invoice twice
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AP/CD Fraud
• AP fraud usually involve
fictitious vendors and
false invoices
– A dishonest employee
who has access to the
vendor file and
authorizes payment
– May embezzle amounts
refunded by vendors
– Human error is still a
leading cause of loss
• CD fraud is less
sophisticated
– Usually involves check
fraud
– Check fraud takes many
forms from stealing and
passing stolen checks to
changing amounts on
legitimate checks
– CD fraud is becoming
easier and more common
with computer duplication
technology
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AP/CD Control Matrix
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