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.
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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.
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Duties to be Segregated
Authorization
• Approval of POs and invoices
• Approval of access to vendor master files
• Signing of checks
Custody
(Access to Asset)
• 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
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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
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
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
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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
 If
up vendors before any payments are made
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
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