Fundamentals of Accounts Payable

Fundamentals of Accounts Payable Mary S. Schaeffer

Chapter 1 The Foundation of the Accounts Payable Function... 1 Learning Objectives... 1 Introduction... 1 Why Accounts Payable Matters... 1 The Three Way Match: The Foundation of the Payment Process... 2 The Basic Documents... 2 The Fourth Document: The Advance Shipping Notice... 3 Check Request Form... 3 Blanket Purchase Orders... 3 The Basic Payment Tools... 4 Controls: Using More Than One Payment Type... 5 Payments Made Outside the Normal AP Process... 5 Review Questions... 7 Review Answers... 8 Chapter 2 Master Vendor File: Where the Process Should Begin... 9 Learning Objectives... 9 Introduction... 9 Responsibility for Master Vendor File... 9 The Ownership Quandary: Three Questions to Ask Before Requesting Ownership... 9 Data in the Master Vendor File... 10 Cleansing the Vendor File... 10 Entering Data into the Master Vendor File... 11 Naming Conventions... 11 More about the Naming Convention... 11 Vendor Contact Information... 12 When Contact Information Really Matters: Change of Bank Account Requests... 12 How Good Is Your Contact Information?... 13 Controls Around the Master Vendor File... 13 Fraud through the Master Vendor File... 13 The Master Vendor File Change Report... 14 Vendor Portals in Accounts Payable: What You Need to Know to Get Started... 14 What Is a Vendor Portal?... 14 What Do Portals Do?... 14 What Do Vendor Portals Do in AP?... 15 How Do You Get One?... 15 How Vendor Portals Can Help the ACH Change of Bank Account Problem... 16 How the Fraud Works... 16 Detecting the Fraud... 16 Using Vendor Portals... 16 Review Questions... 17 Review Answers... 18 Chapter 3 Invoice Processing... 19 Learning Objectives... 19 Introduction... 19 Invoices the Old Way... 19 A Word about Faxed Invoices... 19 Electronic Invoicing... 20 Self-Scanning... 20 An Efficient Process for Handling Invoices Sent by Email... 20 Three Simple Ways to Increase the Number of Invoices Received Electronically... 21 Protecting Your Organization against Those Deadly Second Invoices... 22 Why This Creates a Problem... 22

What You Can Do... 22 When an Electronic Invoice Is Not Enough: The Double Invoicing Problem... 22 The Problem... 23 The Solution... 23 Review Questions... 24 Review Answers... 25 Chapter 4 Checks: The Original (and Least Efficient) Payment Vehicle... 27 Learning Objectives... 27 Introduction... 27 Headaches Caused by Paper Checks... 27 Check Stock... 27 Check Printing... 28 Signatures... 28 Rubber Signature Stamps... 28 Voided Checks... 28 Eliminating Paper Checks: Continued Vigilance Required... 28 Five Alternatives to Paper Checks... 28 What Not to Do... 29 Ways to Minimize Paper Checks... 29 Review Questions... 31 Review Answers... 32 Chapter 5 Corporate Procurement Cards: Streamlining the Payment Process for Small Purchases... 33 Learning Objectives... 33 Introduction... 33 The Corporate Procurement Card Policy... 33 Cards and Departing Employees... 33 Rebates... 34 Common P-Card Problems... 34 Create Your Own Purchasing Cardholder Responsibility Agreement... 35 How P-cards Got A Bad Reputation: Fixing the Problem... 36 Bad P-card Practices the Policy Should Ban... 38 Review Questions... 39 Review Answers... 40 Chapter 6 Electronic Payments: The Most Efficient Payment Process... 41 Learning Objectives... 41 Introduction... 41 ACH Primer: Credits, Debits... 41 The Basics: ACH Credits... 41 The Basics: ACH Debits... 41 FAQs about ACH... 42 Starting an ACH Payment Program... 43 Start with the Bank... 43 Crawling before You Walk... 43 The Cash Flow Impact... 43 Getting Vendor Information... 44 Other Considerations... 44 Critical Issues to Evaluate when Considering a Move/or an Expansion of an ACH... 44 The Hidden Benefits... 44 Operational Issues... 44 Same Day ACH in the US... 45 What the New ACH Will Look Like... 46 A Phased in Approach... 46 Some Additional Questions... 46 ii

Concluding Thoughts... 47 The Changes from the Original Proposal... 47 Avoid These ACH Gotchas for ACH Success... 47 Extinguishing POs and Receivers... 47 Setup Time Involved... 48 Cash Flow Implications... 48 The Cash App Issue... 48 Review Questions... 49 Review Answers... 50 Chapter 7 Operational Issues: Invoice Handling and Processing... 51 Learning Objectives... 51 Introduction... 51 Weeding out Duplicate Invoices... 51 The Problem Gets Worse... 51 The Game Plan... 51 Invoices without Identifiers: No Name, No Purchase Order Number... 52 Put the Monkey Back on the Suppliers Back... 52 A Strong Mail Policy... 53 Systems Help... 53 Education... 53 A Plan to Ensure Discrepant Invoices Don t Create a Financial Debacle for Your Company... 53 The Game Plan... 54 Data to Include... 54 Other Invoice Challenges in a Paper World... 54 Review Questions... 57 Review Answers... 58 Chapter 8 Operational Issues: Payments... 59 Learning Objectives... 59 Introduction... 59 Early Payment Discounts... 59 Earning Every Discount... 59 Finding More Discounts... 59 A Five-Step Plan to Get Rid of Rush Checks... 60 Why the Fuss?... 60 The Action Plan... 60 Some Simple Ways to Reduce the Number of Rush Check Requests... 61 Talk to the Requester... 61 Insist on Mailing the Payment... 61 Better Yet, Insist on ACH... 61 Why Returning Checks Can Be a Problem... 62 An End Run around the Problem... 62 Need Checks Returned: Here s a Policy You Can Use... 62 Voided Checks: To Save or Not to Save... 63 The Voided Check Headache... 63 Best Practice... 63 Late Fees... 63 Review Questions... 64 Review Answers... 65 Chapter 9 Inaccurate Payments and Payment Auditing... 67 Learning Objectives... 67 Introduction... 67 Duplicate Payment Avoidance Best Practices... 67 Recover the Easy Overpayments Yourself before Hiring a Payment Auditor... 68 The States... 69 iii

Deposits... 69 Vendor Credits... 69 Benefits of an Overpayment Audit: It s Not Only about the Money... 70 Questions to Ask when Hiring a Payment Recovery Audit Firm... 70 References... 70 The Hourly Rate vs. Contingency fee Debate... 70 The Consultants Report... 71 20 Questions to Help You Select the Perfect Recovery Firm... 71 Review Questions... 73 Review Answers... 74 Chapter 10 Expense Reimbursement (Travel and Entertainment)... 75 Learning Objectives... 75 Introduction... 75 The Travel and Entertainment (T&E) Policy Manual... 75 Policy Enforcement... 76 The IRS and the Accountable Plan Status... 76 Accountable Plan Status... 76 Receipts... 77 Overall Conclusions... 77 Does This Mean More Work?... 77 Is Getting All Receipts Overkill?... 78 Change in T&E Receipt Requirements when Asking for Expense... 78 Changes Being Considered for T&E Receipts... 78 The Ugly Issue... 79 The Even Uglier Issue... 79 Why Some Companies Are Starting to Get Meal Receipts... 79 The Rationale... 79 Monitoring These Receipts... 80 Checking/Auditing T&E Reports... 80 Reimbursement Practices... 80 Recommended Approach... 81 Second Best Approach... 81 Per Diems... 81 IRS Optional Standard Mileage Reimbursement Rate... 81 Review Questions... 82 Review Answers... 83 Chapter 11 Check and Corporate Card Fraud: Detection and Prevention... 85 Learning Objectives... 85 Introduction... 85 Check Fraud... 85 Common Methods Used to Commit Check Fraud... 85 Who Is Responsible for the Losses?... 85 Reasonable Care: Preprinted Check Stock... 86 Examples of Not Exercising Ordinary Care... 86 Best Protection against Check Fraud: Positive Pay... 86 Positive Pay and Its Cousins... 87 Warning: Not Using Positive Pay??... 87 Practices that Enable Internal Check Fraud... 87 P-card Fraud... 88 Types of P-card Fraud... 89 Simple Approach to Limit P-card Fraud Losses... 89 A 20-Step P-card Fraud Prevention Plan... 89 Review Questions... 91 Review Answers... 92 iv

Chapter 12 Electronic Payment Fraud Prevention and Detection... 93 Learning Objectives... 93 Introduction... 93 Electronic Payment Misconceptions... 93 Electronic Payment (ACH) Fraud... 94 The 48-Hour Rule... 94 Types of ACH Fraud... 94 Prevention... 94 Detection... 95 Wire Transfer Fraud... 95 Wire Transfer Information Requests... 95 Wire Transfer Fraud Prevention... 96 The BYOD Issue... 96 The Security Issue... 96 The Corporate Stance... 97 The Future for BYOD... 97 Developing Related Issues... 97 Review Questions... 99 Review Answers... 100 Chapter 13 Other Types of Fraud Affecting the Accounts Payable Function... 101 Learning Objectives... 101 Introduction... 101 Internal Fraud... 101 External Fraud... 101 An Ugly Issue: Employee Fraud Prevention... 102 The Big Problem... 102 Overriding Fraud Prevention/Detection Guidelines... 102 What Else... 103 The Role of Expense Reimbursement Fraud... 103 If You Suspect Fraud... 103 Tactics to Stop Travel & Entertainment Expense Shenanigans... 103 A Strong Travel & Entertainment Policy Prevents Trouble... 105 The Plan... 105 What Else... 106 Phony Billing Scheme Shenanigans... 106 How to Avoid Check Request Fraud and the Resulting Duplicate Payments... 107 Background... 107 Where Check Requests Cause Problems... 107 Recommended Check Request Practices... 108 Reducing the Number of Check Request Forms... 108 Review Questions... 110 Review Answers... 111 Chapter 14 The Accounts Payable Policy and Procedures Manual... 113 Learning Objectives... 113 Introduction... 113 Overview... 113 The Rationale for a Policy & Procedures Manual... 113 A Process to Keep It Updated... 114 Updating the Accounts Payable Policy & Procedures Manual... 114 When the Policy Needs to Be Changed... 115 Using the Manual... 115 Alternatives for Those Who Don t Have a Policy and Procedures Manual... 116 Is A Manual Really Necessary?... 116 A Word about the Travel Policy... 117 Review Questions... 118 Review Answers... 119 v

Chapter 15 Regulatory Issues Affecting the Accounts Payable Function... 121 Learning Objectives... 121 Introduction... 121 Tax Information Reporting... 121 When 1099s Are Handled Incorrectly... 122 Best TIN Solicitation Practices... 122 Unclaimed Property: The Basics of Escheat Reporting and Remitting... 122 Minimizing Unclaimed Property... 123 The Dilemma for Those Currently Not in Compliance... 123 A Word about the No-Cost Option... 123 Sales and Use Tax Basics... 123 Definition of Sales and Use Tax... 124 Nexus... 124 Foreign Corrupt Practices Act Compliance... 124 Background... 124 Basics of FCPA... 125 What Constitutes a Violation?... 125 One Last Caveat... 125 Bribery under FCPA... 126 Exceptions... 126 What This Means for AP... 126 The Basics of OFAC Checking... 126 Impact on the Payment Function... 126 Silly Regulatory Mistakes Every Organization Should Avoid... 127 Review Questions... 129 Review Answers... 130 Chapter 16 Using Technology to Run a More Efficient Accounts Payable Function... 131 Learning Objectives... 131 Introduction... 131 Avoid These Pitfalls when Implementing an AP Technology Project... 131 Electronic Accounts Payable: Simple Tactics Any Company Can Use... 132 An Internal Control Plan to Help You Use Technology to Run an Efficient AP Operation... 133 Using Technology to Minimize Duplicate Payments... 135 Excel Tactics to Improve AP Efficiency... 136 Review Questions... 137 Review Answers... 138 Chapter 17 Internal Controls: The Glue That Holds the AP Function Together... 139 Learning Objectives... 139 Introduction... 139 Why Internal Controls Are So Important... 139 Fraud... 139 Duplicate Payments... 140 Regulatory Non-compliance... 140 Segregation of Duties: The Backbone of a Strong Internal Control Process... 140 The Common Problem... 141 Sample Segregation of Duties Chart... 141 It Matters So Much... 141 Implications for Accounts Payable... 141 What Gets Moved... 142 The Future... 142 Wakeup Call: Basic Controls Still Provide Much-Needed Protection... 142 Separation of Duties... 142 Consistent Enforcement... 143 Policies and Procedures... 143 Management Oversight... 143 vi

Internal Training... 143 Concluding Thoughts... 143 Control Breakdowns Created by Inappropriate Segregation of Duties... 144 Dissecting the Procure-to-Pay Process... 144 Where Controls Break Down... 144 New Best Practices that Tighten Controls and Reduce the Risk of External Fraud... 145 What Else Can You Do?... 146 Concluding Thoughts... 147 Review Questions... 148 Review Answers... 149 Chapter 18 Enhancing Productivity in Accounts Payable: The Ongoing Challenge... 151 Learning Objectives... 151 Introduction... 151 Productivity Tips: Simple Ways to a More Efficient AP... 151 Simple No-Cost Accounts Payable Productivity Enhancers... 153 Process Improvement Quick Tips that Make an Impact on the Bottom Line... 154 Going Paperless without a Budget Productivity Tips... 155 Enhancing Productivity: The Often-Overlooked Human Factor... 155 Review Questions... 157 Review Answers... 158 Chapter 19 Enhancing Payment Productivity: The Electronic Payment Challenge... 159 Learning Objectives... 159 Introduction... 159 Starting an Electronic Payment Program... 159 Laying the Groundwork... 159 The First Date... 160 The Big Rollout... 160 The Hardcore Holdouts... 160 The Remittance Information... 161 Don t Rest on Your Laurels... 161 How to Convince More Suppliers to Sign up for ACH Payments... 161 The Payment Frequency Issue... 161 The Benefits Approach... 161 The Lost Checks Opportunity... 162 A Helping Hand from Purchasing... 162 Addressing the Remittance Information Issue... 162 Additional Strategies... 162 Expanding Your Electronic Payment Program... 163 Overcoming Problems: Anticipate These ACH Gotchas for Electronic Payment Success... 163 Extinguishing POs and Receivers... 163 Setup Time Involved... 164 Cash Flow Implications... 164 The Cash App Issue... 164 Concluding Thoughts... 164 Review Questions... 165 Review Answers... 166 Chapter 20 Enhancing the Bottom Line: Where AP Can Bring in Cash... 167 Learning Objectives... 167 Introduction... 167 Early Payment Discounts... 167 Background... 167 The Timing Problem... 167 Making the Most of Your Discounts... 168 Earn All of Them while Finding Additional Opportunities... 168 vii

Earning Every Discount... 168 Finding More Discounts... 168 Recovering Unclaimed Property: When It Will Help and When It Will Hurt... 169 When to Recover Your Funds... 169 When to NOT Recover Your Funds... 169 Best Practice Approach... 170 A Plan for Ensuring the Recovery of all Open Vendor Credits... 170 What s The Problem?... 170 The Unclaimed Property Issue... 170 Recovering All Your Open Credits... 171 Concluding Thoughts... 171 Review Questions... 172 Review Answers... 173 Chapter 21 Vendor Relations: An Often Overlooked Issue in AP... 175 Learning Objectives... 175 Introduction... 175 New Vendors... 175 The Vendor Welcome Letter... 175 The Welcome Kit... 175 Handling Existing Vendors: The Periodic Update... 176 Handling Key Vendors... 176 Planning Ahead: Gathering Information... 176 Planning Ahead: Using the Data... 177 Where Should the Responsibility Lie?... 177 Vendor Calls into Accounts Payable... 177 Improving Vendor Relations... 178 When a Caller to AP Flips Out: Uncovering the Real Cause... 179 Taking a Customer-Service Approach to The AP Function... 180 Who are AP s Customers?... 180 Don t Become a Doormat... 180 Benefits of a Customer-Service Approach... 180 Review Questions... 182 Review Answers... 183 Chapter 22 The Future of the Accounts Payable Function... 185 Learning Objectives... 185 Introduction... 185 Granular-Level Changes in The Last Few Years... 185 The Regulatory Component... 185 The Fraud Component... 185 Implications of These Changes... 186 A Very Different Future of Accounts Payable... 186 The Role of Technology in AP Today and Tomorrow... 187 Review Questions... 190 Review Answers... 191 Glossary... 193 Index... 195 viii