UO - SMARTStream
Theory - Purchasing and Accounts Payable
University of Ottawa
May 1999
4.
Administrative Processes for the Acquisition and the Payment of Goods
and Services
4.1
Introduction
This chapter describes the redesigned processes for the acquisition and payment of goods and services
following the Administrative Simplification project that was undertaken at the University in 1996. It has
been slightly modified from its original version to include all necessary references to the UO SMARTStream financial system installed in 1999.
When the need to purchase goods or services arises, you must choose and follow the appropriate process. In
this chapter, you will find a detailed description of the six administrative processes that exist at the University
of Ottawa. Their descriptions should be read in conjunction with the following flow diagram in order to
determine which one applies to your specific situation. The same numbering scheme is used in the
descriptions and in the diagram.
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Theory - Purchasing and Accounts Payable
University of Ottawa
May 1999
4.1.1
Basic Principles
•
The principle of two signatures for each financial transaction should be respected at all times. Two
distinct, knowledgeable, and responsible individuals must participate in every financial transaction.
Both of these individuals must understand the business principles that apply and be familiar with the
technical aspects of the process.
•
Only original invoices must be used to initiate a payment; account statements must never be used as
reference for a payment. Rather, they should be forwarded to Financial Services for follow up.
•
Invoices must be entered in UO - SMARTStream as promptly as possible in order to benefit from
any applicable discounts and to post the expense to Funds Control and to the General Ledger.
•
The approval process engaged upon by the approver is the last step taken before finalizing the
payment request; no other verification or control will be done by central services before the cheque
is actually produced.
•
Under no circumstances should someone divulge their password to someone else. The use of an
unauthorized userid is a reprehensible act of fraud and subject to disciplinary action.
4.1.2
Role Players
Every person involved in an administrative process assumes one of the roles listed below. Even though it is
possible for a single person to assume more than one of these roles, it is not possible for one person to be both
payer and approver for a particular transaction. Always consider that two distinct, knowledgeable, and
responsible individuals must intervene in every single financial transaction.
•
•
•
•
•
•
•
•
Managers (Deans, directors, researchers, or their delegates)
Buyers/Requesters (Faculties and Services)
Purchasing Officers (System Buyer) (M aterials Management)
Payers (Faculties and Services, Financial Officers)
Approvers (Faculties and Services, Financial Officers)
Financial Services
Materials Management Service
Suppliers
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Theory - Purchasing and Accounts Payable
4.2
University of Ottawa
May 1999
Local Invoice Entry with no Purchase Order
This process applies to purchases of non-restricted goods and services for a value not exceeding $5,000
(before taxes).
4.2.1
Planning the purchase
Once a need for such a purchase has been identified, the buyer plans the acquisition of goods or services in
compliance with policies and methods of the University and regulations of granting agencies (if applicable).
He must make full inquiries in order to obtain the best combination of product, supplier, price, warranty,
payment terms, and delivery options.
The manager accountable for the project’s budget must approve the purchase of the goods or services either
in writing or verbally. He must verify that the required funds are available and that any University and/or
granting agency rules that should apply in the purchasing process are in fact respected.
4.2.2
Ordering
The buyer records the order number and all other pertinent information in the unit’s log book. He conveys
the order to the supplier by telephone, fax, letter, or e-mail, indicating the order number, article, quantity,
price, delivery and payment terms, delivery address, invoicing address,...
4.2.3
Receiving the goods or services & approving the paper invoice
Upon reception of the ordered goods or services the buyer or the manager examines them, initials the invoice
or packing slip, (to indicate that the goods or services received correspond to the invoice/packing slip) and
sends it along to the payer thereby indicating that the payment process should be initiated.
4.2.4
Entering the invoice in SMARTStream Payables
After receiving the initialized original invoice or the invoice and initialized packing slip, the payer initiates
the payment process in SMARTStream Payables. The packing slip and original invoice documents must be
matched if they have been sent as separate documents.
Aside from a short predetermined period of time at the end of the year, there is no need to create batches of
invoices for processing. All invoices are entered and saved as independent transactions. There are three types
of invoices: regular invoices, credit memos and debit memos, all of which can be added using the Invoice
activity in SMARTStream Payables. In this activity, the payer enters the details of the transaction and saves
the completed invoice.
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UO - SMARTStream
Theory - Purchasing and Accounts Payable
University of Ottawa
May 1999
When saving the invoice, SMARTStream Payables:
•
Verifies the existence of the accounting key and displays an error message when the key does not
exist in the Chart of Accounts window in SMARTStream Ledger;
•
Verifies the availability of funds for the transaction and adjusts the corresponding Funds Control
records. W hen there are insufficient funds for the transaction or if the accounting key used is valid
but not included in Funds Control, a Funds Control Exception occurs and the payer receives an
informational message to indicate that an error has occurred. The Funds Control records will not be
updated. At this stage, further processing of the invoice document is blocked and an exception
message is routed to Financial Services for remedial action. In cases where for administrative reasons,
Financial Services cannot release an invoice with a Funds Control Exception, the payer is required
to amend the invoice to remove the exception or delete the invoice altogether. Once these exceptions
are resolved, saving the suspended document reassesses funds availability and enables the corrected
documents to be further processed;
•
Generates all of the appropriate entries to be posted to the General Ledger;
•
Triggers the approval process by sending an electronic informational message to the approver’s New
To Do List and submitting the corresponding invoice to the approval process. The payer must also
forward to the approver the (physical) invoice thereby indicating that it is ready to be approved in
SMARTStream Payables.
4.2.5
Approving the invoice electronically
The workflow component of SMARTStream Payables sends the completed invoice to the designated
approver, or to a designated approval workgroup. Upon receiving the informational message in their New To
Do List and the paper invoice, each approver must review, then approve or reject the invoice from either the
Invoice Approval window or the Invoice Approval Status window.
To approve each individual invoice, the approver must first verify the pertinence of the request for payment
and compare it to the physical documents in hand. After the invoice is approved, its status changes to
Complete. Payables can process it for payment. If the approver refuses to approve the invoice, it acquires a
status of Rejected and is not eligible for payment; the approval process stops. SMARTStream Payables will
send a message to the payer to Review Rejected Invoices. In order for a rejected invoice to be eligible for
approval again, the payer can make a few modifications either by changing the existing accounting key(s) or
the payment method, or by adding new accounting distribution lines to the invoice. The invoice once again
becomes available for approval.
If an invoice is posted to the General Ledger before the approver processes it, and the approver subsequently
refuses to approve it for administrative reasons, the approver must ask the payer to cancel the invoice; when
this is done, SMARTStream Payables generates reversing entries for all of the entries it created when posting
the original document.
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Theory - Purchasing and Accounts Payable
4.3
University of Ottawa
May 1999
Central Invoice Entry with a Purchase Order
This situation arises when the value of a purchase exceeds $5,000 (before taxes) or the goods or services being
purchased are considered restricted.
4.3.1
Planning the purchase
Once a need for such a purchase has been identified, the buyer in consultation with the requester, plans the
acquisition of goods or services in compliance with policies and methods of the University and regulations
of granting agencies (if applicable). He must make full inquiries in order to obtain the best combination of
product, supplier, price, warranty, payment terms, and delivery options.
The manager accountable for the project’s budget must approve the purchase of the goods or services either
in writing or verbally. He must verify that the required funds are available and that any University and/or
granting agency rules that should apply in the purchasing process are in fact respected.
4.3.2
Creating and approving a requisition in SMARTStream Purchasing
After the sourcing for the goods or service is done, the requester creates a requisition in SMARTStream
Purchasing. From the log book, the requester selects the next available number for the requisition and enters
all of the required information about the requested goods or services. The requester also ensures all other
pertinent information is recorded in the log book for each transaction.
Once the requisition is completed, the requester must forward and save the requisition in order to make it
available for approval. Saving the requisition first triggers the validation of the accounting key and
subsequently verifies that funds are available for this purchase. Should the accounting key be invalid or funds
be insufficient, an error message will be displayed and the requester must take appropriate action. When
saved, a SMARTStream Workflow will automatically route the requisition to the assigned approver by
delivering the message “Requisition Forwarded for Approval” in the approver’s New To Do List. From the
New To Do List, the approver selects the task and approves or rejects the requisition. If the requisition is
rejected, the requester receives the message “Requisition Rejected” in his New To Do List. In this case, no
changes can be made to the existing requisition and a new requisition must be resubmitted, if desired.
4.3.3
Verifying and attaching the requisition
Once approved, the requisitions are routed automatically to the Buyer Workgroup MMS of Materials
Management Services. Also, approved requisitions with open requisition lines created with the Buyer
Workgroup MMS appear on a daily report used to convert the requisitions into purchase orders. A designated
purchasing officer, who is a member of this Buyer Workgroup, verifies the details of the requisitions with
all of the supporting documents for the transaction. He converts the requisition into a purchase order, at the
same time making any required adjustments. Once completed, the purchase order is saved in SMARTStream
Purchasing.
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UO - SMARTStream
Theory - Purchasing and Accounts Payable
4.3.4
University of Ottawa
May 1999
Ordering
Once a day, the purchasing officers will print and mail all purchase orders to the suppliers. In addition to
being mailed, some purchase orders will occasionally be sent by fax as well.
4.3.5
Receiving the goods or services & approving the paper invoice
Upon receipt of the goods or services, the requester or the manager of the requesting unit examines their
condition if it’s a good, and initials the invoice or the packing slip to indicate that the goods or services
received correspond to the invoice/packing slip information.
4.3.6
Forwarding all supporting documents to Financial Services
The signed invoice/packing slip is forwarded to Financial Services thereby indicating that the invoice
matching process should be initiated.
4.3.7
Receiving in SMARTStream Purchasing and entering the invoice in SMARTStream Payables
A designated financial officer at Financial Services initiates the payment process upon receiving the original
invoice duly approved. The officer verifies the information on the invoice/packing slip against the Receiving
activity making the purchase order lines available for payment. The officer then carries the corresponding
purchase order line(s) into the Invoice window to complete the invoice entry process.
Once a day, a SMARTStream process will match the invoices with the purchase orders and the corresponding
receipt information. This is known as 3-Way Matching. Discrepancies from the matching process will result
in a “matching exception”. These exceptions need to be resolved in order to allow a cheque to be printed.
Matching exceptions messages are automatically routed to the purchasing officer’s New To Do List; he
reviews each case and takes appropriate actions.
4.4
Central Invoice Entry with a Purchase Order for Encumbrance Only
This process is invoked when purchasing goods or services whose value exceeds $5,000, which are explicitly
exempted from policy 36, and for which an encumbrance is required in order to reserve funds.
4.4.1
Planning the purchase
When such a case arises, the buyer in consultation with the requester, plans the acquisition of goods or
services in compliance with policies and methods of the University and regulations of granting agencies (if
applicable). He must make full inquiries in order to obtain the best combination of product, supplier, price,
warranty, payment terms, and delivery options.
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UO - SMARTStream
Theory - Purchasing and Accounts Payable
University of Ottawa
May 1999
The manager accountable for the project’s budget must approve the purchase of the goods or services either
in writing or verbally. He must verify that the required funds are available and that any University and/or
granting agency rules that should apply in the purchasing process are in fact respected.
4.4.2
Creating and approving a requisition in SMARTStream Purchasing
Once the sourcing for the goods or service is done, the requester creates a requisition in SMARTStream
Purchasing. From the log book, the requester selects the next available number for the requisition and enters
all of the required information about the requested goods or services. The requester also ensures all other
pertinent information is recorded in the log book for each transaction.
Once the requisition is completed, the requester must forward and save the requisition in order to make it
available for approval. Saving the requisition first triggers the validation of the accounting key and
subsequently verifies that funds are available for this purchase. Should the accounting key be invalid or funds
be insufficient, an error message is displayed and the requester must take appropriate action. When the
requisition is successfully saved, a SMARTStream Workflow will automatically route the requisition to the
assigned approver by delivering the message “Requisition Forwarded for Approval” in the approver’s New
To Do List. From the New To Do List, the approver selects the task and approves or rejects the requisition.
If the requisition is rejected, the requester receives the message “Requisition Rejected” in his New To Do List.
In this case, no changes can be made to the existing requisition and a new requisition must be resubmitted,
if desired. The original requester must cancel his rejected requisition in order to free the committed funds.
4.4.3
Verifying and attaching the requisition
Approved requisitions with all open requisition lines created with the buyer FIN appear on a daily report used
to convert the requisitions into purchase orders. A financial officer, verifies the details of the requisitions
with all of the supporting documents for the transaction. The officer converts the requisition into a purchase
order, at the same time making any required adjustments. Once completed, the purchase order is saved in
SMARTStream Purchasing. This purchase order exists only as an electronic document and it is assumed that
the actual order was placed using another mechanism.
4.4.4
Receiving the goods or services & approving the paper invoice
Upon receipt of the delivered goods or services, the requester or the manager of the requesting unit examines
their condition, and initials the invoice or the packing slip to indicate that the goods or services received
correspond to the invoice/packing slip information.
4.4.5
Forwarding all supporting documents to Financial Services
The signed invoice/packing slip is forwarded to Financial Services thereby indicating that the invoice
matching process should be initiated.
4.4.6
Receiving in SMARTStream Purchasing and entering the invoice in SMARTStream Payables
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UO - SMARTStream
Theory - Purchasing and Accounts Payable
University of Ottawa
May 1999
A designated financial officer at Financial Services initiates the payment process upon receiving the original
invoice duly approved. The financial officer verifies the information on the invoice/packing slip against the
Receiving activity making the purchase order lines available for payment. The officer then carries the
corresponding purchase order line(s) into the Invoice window to complete the invoice entry process.
Once a day, a SMARTStream process will match the invoices with the purchase orders and the corresponding
receipt information. This is known as 3-Way Matching. Discrepancies from the matching process will result
in a “matching exception”. These exceptions need to be resolved in order to allow a cheque to be printed.
Matching exceptions messages are automatically routed to the purchasing officer’s New To Do List; he
reviews each case and takes appropriate actions.
4.5
Local Invoice Entry and Central Approval
This process is invoked when purchasing goods or services whose value exceeds $5,000, which are explicitly
exempted from policy 36, and for which no encumbrance is required.
4.5.1
Planning the purchase
Once such a need has been identified, the buyer plans the acquisition of goods or services in compliance with
regulations and methods of the University and/or granting agencies. He must make full inquiries in order to
obtain the best combination of product, supplier, price, warranty, payment terms, and delivery options.
The manager accountable for the project’s budget must approve the purchase of the goods or services either
in writing or verbally. He must verify that the required funds are available and that any University and/or
granting agency rules that should apply in the purchasing process are in fact respected.
4.5.2
Ordering
The buyer records the order number and all other pertinent information in the unit’s log book. He conveys
the order to the supplier by telephone, fax, letter, or e-mail, indicating the order number, article, quantity,
price, delivery and payment terms, delivery address, invoicing address,...
4.5.3
Receiving the goods or services & approving the paper invoice
The buyer or the manager examines the delivered goods or services, initials the invoice or packing slip, (to
indicate that the goods or services received correspond to the invoice/packing slip) and sends it along to the
payer thereby indicating that the payment process should be initiated.
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Theory - Purchasing and Accounts Payable
4.5.4
University of Ottawa
May 1999
Entering the invoice in SMARTStream Payables
Upon receiving the initialized original invoice or the invoice and initialized packing slip, the payer initiates
the payment process in SMARTStream Payables. The packing slip and original invoice documents must be
matched if they have been sent as separate documents.
Aside from a short predetermined period of time at the end of the year, there is no need to create batches of
invoices for processing. All invoices are entered and saved as independent transactions. There are three types
of invoices: regular invoices, credit memos and debit memos, all of which can be added using the Invoice
activity in SMARTStream Payables. In this activity, the payer enters the details of the transaction and saves
the completed invoice.
When saving the invoice, SMARTStream Payables:
•
Verifies the existence of the accounting key and displays an error message when the key does not
exist in the Chart of Accounts window in SMARTStream Ledger;
•
Verifies the availability of funds for the transaction and adjusts the corresponding Funds Control
records. W hen there are insufficient funds for the transaction or if the accounting key used is valid
but not included in Funds Control, a Funds Control Exception occurs and the payer receives an
informational message to indicate that an error has occurred. The Funds Control records will not be
updated. At this stage, further processing of the invoice document is blocked and an exception
message is routed to Financial Services for remedial action. In cases where for administrative reasons,
Financial Services cannot release an invoice with a Funds Control Exception, the payer is required
to amend the invoice to remove the exception or delete the invoice altogether. Once these exceptions
are resolved, saving the suspended document reassesses funds availability and enables the corrected
documents to be further processed;
•
Generates all of the appropriate entries to be posted to the General Ledger;
•
Triggers the approval process by sending an electronic informational message to the approver’s New
To Do List and submitting the corresponding invoice to the approval process. The payer must also
forward to the approver the (physical) invoice thereby indicating that it is ready to be approved in
SMARTStream Payables.
4.5.5
Approving the invoice electronically (local approval)
The workflow component of SMARTStream Payables sends the completed invoice to the designated
approver, or to a designated approval workgroup. Upon receiving the informational message in their New To
Do List and the paper invoice, each approver must review, then approve or reject the invoice from either the
Invoice Approval window or the Invoice Approval Status window.
To approve each individual invoice, the approver must first verify the pertinence of the request for payment
and compare it to the physical documents in hand. If the approver or one person in the approval workgroup
refuses to approve the invoice, it acquires a status of Rejected and is not eligible for payment; the approval
process stops. SMARTStream Payables will send a message to the payer to Review Rejected Invoices. In
order for a rejected invoice to be eligible for approval again, the payer can make a few modifications either
by changing the existing accounting key(s) or the payment method, or by adding new accounting distribution
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Theory - Purchasing and Accounts Payable
University of Ottawa
May 1999
lines to the invoice. The invoice once again becomes available for approval.
If an invoice is posted to the General Ledger before the approver processes it, and the approver subsequently
refuses to approve it for administrative reasons, the approver must ask the payer to cancel the invoice; when
this is done, SMARTStream Payables generates reversing entries for all of the entries it created when posting
the original document.
4.5.6
Forwarding all supporting documents to Financial Services and approving the invoice
electronically (central approval)
The signed invoice/packing slip is forwarded to Financial Services thereby indicating that it is now available
for electronic approval. The workflow component of SMARTStream Payables sends the locally approved
invoice to the designated approver at Financial Services. Upon receiving the informational message in their
New To Do List and the paper invoice, the approver reviews, then approves or rejects the invoice from either
the Invoice Approval window or the Invoice Approval Status window.
To approve each individual invoice, the approver must first verify the pertinence of the request for payment
and compare it to the physical documents in hand. After the invoice is approved, the status changes to
Complete. Payables can process it for payment. If the approver refuses to approve the invoice, it acquires a
status of Rejected and is not eligible for payment; the approval process stops. SMARTStream Payables sends
message to the payer to Review Rejected Invoices. The local approver is also informed of the decision to
reject the invoice he has approved. In order for a rejected invoice to be eligible for approval again, the payer
can make a few modifications either by changing the existing accounting key(s) or the payment method, or
by adding new accounting distribution lines to the invoice. The invoice once again becomes available for local
approval and subsequently central approval.
If an invoice is posted to the General Ledger before the approver processes it, and the approver subsequently
refuses to approve it for administrative reasons, the approver must ask the payer to cancel the invoice; when
this is done, SMARTStream Payables generates reversing entries for all of the entries it created when posting
the original document.
4.6
Central Invoice Entry with no Purchase Order
The following process applies to documents which are considered to be either Statement Type Invoices or
Special Payroll Requests. The latter is a specific paper document submitted by the Human Resources Service
when a special payroll cheque must be issued to an individual outside of the regular pay cycle.
Statement Type Invoices are received by Financial Services from vendors that offer a service to most units
across campus but choose to issue a single invoice for all services rendered. This often results in multiple
small charges to various units on one invoice. To expedite the payment process, those invoices are entered
by Financial Services. An example are the invoices received from most courier service companies.
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UO - SMARTStream
Theory - Purchasing and Accounts Payable
4.6.1
University of Ottawa
May 1999
Entering the invoice in SMARTStream Payables
Upon receiving the Statement Type Invoice and all supporting documents from the vendor, the payer
(financial officer) initiates the payment process in SMARTStream Payables. The financial officer will match
the supporting documents against the invoice.
The invoices are entered using the Invoice activity in SMARTStream Payables. In this activity, the payer
enters the details of the transaction and saves the completed invoice.
When saving the invoice, SMARTStream Payables:
•
Verifies the existence of the accounting key and displays an error message when the key does not
exist in the Chart of Accounts window in SMARTStream Ledger;
•
Verifies the availability of funds for the transaction and adjusts the corresponding Funds Control
records. W hen there are insufficient funds for the transaction or if the accounting key used is valid
but not included in Funds Control, a Funds Control Exception occurs and the payer receives an
informational message to indicate that an error has occurred. The Funds Control records will not be
updated. At this stage, further processing of the invoice document is blocked and an exception
message is routed to Financial Services for remedial action. In cases where for administrative reasons,
Financial Services cannot release an invoice with a Funds Control Exception, the payer is required
to amend the invoice to remove the exception or delete the invoice altogether. Once these exceptions
are resolved, saving the suspended document reassesses funds availability and enables the corrected
documents to be further processed;
•
Generates all of the appropriate entries to be posted to the General Ledger;
•
Triggers the approval process by sending an electronic informational message to the approver’s New
To Do List and submitting the corresponding invoice to the approval process. The payer must also
forward to the approver the (physical) invoice thereby indicating that it is ready to be approved in
SMARTStream Payables.
4.7
Requests for Bank Drafts with Central Invoice Entry
This process is applied when a bank draft or a fund transfer is requested by a foreign supplier as payment for
goods or services. This is usually the case when dealing with a supplier in a foreign country other than the
United States. Regardless of the type of payment being issued, all purchases are subject to policy 36 which
includes all foreign purchases of goods and services.
4.7.1
Planning the purchase
Once a need has been identified, the buyer plans the acquisition of goods or services in compliance with
policies and methods of the University and regulations of granting agencies (if applicable). He must make full
inquiries in order to obtain the best combination of product, supplier, price, warranty, payment terms, and
delivery options.
The manager accountable for the project’s budget must approve the purchase of the goods or services either
in writing or verbally. He must verify that the required funds are available and that any University and/or
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May 1999
granting agency rules that should apply in the purchasing process are in fact respected. The individual should
obtain the appropriate exchange rate from Financial Services and convert the invoice amount into Canadian
dollars before verifying the availability of funds.
4.7.2
Ordering the goods or services
The buyer records the order number and all other pertinent information in the unit’s log book. He conveys
the order to the supplier by telephone, fax, letter, or e-mail, indicating the order number, article, quantity,
price, delivery and payment terms, delivery address, invoicing address, ...
4.7.3
Receiving the goods or services and approving the paper invoice
The buyer or the manager examines the delivered goods or services, initials the invoice or packing slip to
indicate that the goods or services received correspond to the invoice/packing slip. If any of the essential
information fields are not present on the invoice (i.e. supplier’s name, price, payment terms, accounting keys,
and corresponding amounts), then a payment request form should be completed and attached to the original
invoice.
4.7.4
Forwarding all supporting documents and entering the invoice in SMARTStream Payables
(Financial Services)
The signed invoice/packing slip is forwarded to Financial Services thereby indicating that the payment
process should be initiated.
Once a week, normally on Friday mornings, Financial Services initiates the payment process for all duly
received original invoices and corresponding payment request forms (where applicable). The information is
first entered in a stand alone system that produces the bank drafts or fund transfers as requested. Then the
designated financial officer re-enters the invoice data in SMARTStream Payables; this generates the
corresponding transactions that are subsequently posted to SMARTStream Ledger.
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