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The Accounts Payable Best Practices Seminar by Jim Frazier(c) Copyright MMIXI The Gadwall Group, Ltd. All Rights ReservedYou may use this for an internal presentation within the companythat sponsored attendance at this seminar.

Presented by:Jim FrazierTake Charge Seminars, a division of The Gadwall Group, Ltd.PO Box 925Batavia, IL 60510

630-406-5861630-578-0798 (fax)jim@TakeChargeSeminars.com (put ### in subject line)

www.TakeChargeSeminars.com

This presentation provides general information to familiarize you with certain issues and may not apply to your situation. You should not rely on this presentation for your specific needs. Users should always consult with an attorney, CPA or tax advisor and/or do their own research in authoritative publications before applying the principles or suggestions mentioned here.

If you would like to purchase resources mentioned at the seminar, please email or fax Jim Frazier (see addresses on previous slide).

Organizing Accounts Payable

Rockhurst University Continuing Education Center, Inc.

Jim FrazierSeminar Leader

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The AP Mission

Funds disbursement control Contract complianceRecord keepingVendor relationsLegal complianceImproved profitability

AgendaAP missionAP managementAccounting knowledgeWorkflow improvement

Invoice receiptMatching and editInvoice processingDuplicate paymentsStreamlining paymentsVendor files, master records, record keeping

Agenda

Sales and Use TaxTravel and EntertainmentInternal control / Fraud PreventionRecord Keeping1099’sAudits

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AdministriviaRestroomsBreaksLunch Today’s Seminar Number is…

What Kinda Seminar is This?It’s a SEMINARNot regulatoryNot lectureBest practicesNo wrong answersShare your experiencesJim’ll give you “perfect world” ideasWon’t all apply to you“Idea Engine”

WorkbookGreat ideasExtra, important information and “best practices”Lists and forms

Some Questions for You

Big dogsControllersManagersAP has more than one personThree Way Matching

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Form Groups PleaseUse to network and get ideasGet away from your own groupIdeal group between 4 and 7Introduce yourselves

Companies and businessPositionsExperienceProblems and objectivesDiscuss questions on page 7

What Problems Do You Have?

What are your objectives?

What do you want to learn?

“How can we help you today?”

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Authority and Responsibility Q-1

What’s the difference between authority and responsibility?

Anyone have too much authority?

Authority and Responsibility Q-2

What would you do if you discovered an employee padded an expense report?

What if it’s the president?

Authority and Responsibility Q-3

What are roadblocks to getting invoices approved?

Ol’Whatzisname

Email

jfrazier@natsem.comFast response?Multi-page questions?Web

www.jimfrazier.com/apPresentation handouts

www.jimfrazier.com/ap/cnn

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Test Your Accounting KnowledgeTake a few moments and complete the “quiz”on page 9. Then we’ll discuss.

Assets ?Liabilities

What does GAAP stand for?

Generally Accepted Accounting Principles

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What is the difference between accounts payable and notes payable?

NOT short term vs. long term

Accounts PayableTrade Accounts Payable

Debt incurred in the normaltrade of the organization.

Notes Payable

Formal debt incurred to finance the operations of the organization.

What is the difference between cash basis and accrual basis accounting? Which system is GAAP?

Buy the Batmobilein November

Sell the Batmobilefor cash in December.

Pay for it in January

2003 StatementRevenue $500,000Expenses $0Net Inc. $500,000

Cash Basis

2004 StatementRevenue $0Expenses $400,000Net Inc. -$400,000

Cash Basis

2003 StatementRevenue $500,000Expenses $400,000Net Inc. $100,000

Accrual Basis

GAAP

Within what time period are current liabilities due?

Less than one year

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What impact does an increase in accounts payable have on the organization’s cash flow?

The Three Way Match

Purchase OrderReceivingInvoice

Pre-existing authorization

Pre-Existing AuthorizationPurchase orderLimited POShort form PO Check requestOrder confirmationReceiptEmailWhat data to be included?

Post Billing Approvals Not Useful

Invoices are accumulated by approverNot enough care

Approved too fastSupport not sufficiently reviewed

Mistakes in Approval

Orders and proposalsPacking listsDuplicate invoicesCredit memosContract NOT complied with

Fraud

Directory listingsOrder formsToner cartridgesOvercharged products…Copier rental

Establish a policy…

Never release information about personnel, equipment or the facility .

Handling Need-Approval Items

Send copy (marked as dupe)Require higher authorization levelsMaintain pending list

Pending File ListKeep copy in file (marked)Maintain list

Approver, vendor, number, date, PO, amount, date sent, date cleared

System produced listPublish list (measurement)

AwardsKeep stats

Check for dupes / inquiries

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“Guerrilla” ImagingBuy a scannerScan the invoiceEmail to the approverUse detailed subject line

Vendor, invoice number, po number, invoice date

Email approval

“Guerrilla” ImagingAudit trailEasier follow upOriginal still in your filesNo disappearing paperworkEmails will follow approver

Making It Work

Work with ITEmail attachments OKMake images low quality

Less storage spaceBetter for low speed linesLess chance of paper copy

Email approval OK

Control Receipt of InvoicesHave all invoices (paper or “E”) sent to APStamp “Received by AP xx/xx/xx”Inform vendors of AP proceduresControl and track pending approvals

Less researchLess lost invoicesLess duplicate paymentsFaster paymentsMore discountsMore efficient AP

In order to help our vendors receive payments faster and more efficiently, please follow these procedures when billing us:

1. Please address all invoices to Accounts Payable at this address. If you send invoices to other parties in our company, we will not be able to answer your inquiries.

2. Attached is a listing of our debit memo codes. If we charge you back, you can use this list to determine the nature of the item.

3. Please provide our PO number, or requisitioner’s name on the invoice. If this is not provided, we will not be able to process the invoice for payment and will return it to you unpaid.

4. Please use our voice mail system to call with inquiries (please leave a detailed message so we can research the problem). We will respond within 24 hours.

5. If you charge us sales/use tax, please fax us your registration permit for the ship-to location. Otherwise, we will not pay the tax.

6. We will use the date of receipt of goods or services by us in determining early payment discounts.

7. All vendors will receive 1099’s. We will require a signed W-9 form from you (enclosed) prior to payment.

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Setting Up New Vendors

Only one person can set up vendorsEdit report

Purge Vendor Master File

Every one or two yearsReduce potential for fraudReduce chance of miscodingReduce duplicate vendors Filing

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File by Vendor Number

Use system numbersFollow system sequenceLess accessibleto OPF

File by BatchRequires good system

IndexingDetails to avoid looking in file

Eliminates filing backlogEliminates OPFConsider archival scanning

Other Filing Suggestions

Move old year out of officeUse out cards (and clear daily)LOCK YOUR FILES!

Maintain Confidentiality

Expense reportsGarnishmentsW-9’s Page 17 Invoice Edit

Problems?

Don’t short pay invoice…Request new invoiceUse debit memos Meaningful DM numbersReference policiesReduces vendor queries

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Streamlining Approvals & Processing

Pay from Statements

Small invoices onlyInvoice monthly via statementOne “invoice” per monthAvoid duplicate payments

Weekly Signing MeetingsEstablishes a predictable time frameApprover is prepared for meetingThey can ask questionsYou can make ensure reasonable careFace time with big dogsBuilds trust

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Eliminating Dupe Payments

Duplicate Invoice Number Checking?

Duplicate vendorsData entry

Ignoring of warningsLeading zerosTransposition errorsSpaces and dashesUpper/lower case lettersToo long invoice numbersVendor starts from 1 every yearOne’s, l’s and I’sZeros and “o’s” 0 O

0 O

1 I l

Other Problems

No invoice numbersCreate oneBe consistent

First three letters of vendor name (or number)Date (shipping or invoice)ROC041021

Subscriptions and membershipsRepeated billingsMultiple accounts

Paying from a Copy

Beware duplicate invoice policyVendors know how to overcomeReview system to see if paid

Pending filesReports

Paying from a Copy

Look forSimilar amounts / nearby dates

Higher authorization levelHold payment on approved invoices

Work with vendorMaintain list to check later

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Request Statements from Vendors

Larger vendorsDemand that credits be shownReconcileAfter the fact

Use Profit Recovery Audit Firms

No cost to youWill find stuff you’ve missedWill highlight system problemsBetter for YOU to suggest Page 19

Preventing Fraud / Internal Control

Avoid Problems

Force time offSeparate duties

Force Time Off

Enforce vacationsReplace while offRotation of duties

Separation of DutiesMichael requests productJudy orders itMary sets up vendorBob opens mail and routes invoiceLeslie processes invoicePhil prints checksNicky signs checks Wanda mails checks

Check ControlsAP personnel shouldn’t issue checksSecure check signing equipmentSecure check storageLog use of checksNever hand to employeeAlways mailInvestigate new vendors

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Manual Checks

Problems with Manual ChecksDisrupts routineSpecial matching processAuthorization Creation of checkFinding check-signerSpecial data entryWhat is your cost per check? Duplicate payments

No Manual Checks!

Get extra approvalsKeep statisticsBill back to requesterCommunicate cut-offs Use “special” person

Mail All Checks

Avoid notification callsAvoid pickup interruptionsAvoid pulling special checksAvoid check fraudInclude employee AP checks

Boss Signs ALL Checks

No need if proper PEAOnly sign large checksConsider 80/20 ruleConsider less review by APBuild trustMay not be solvable

Reduce Check Runs

Once a weekTwice a month?Communicate cut-offs

Page 38EscheatAbandoned PropertyUnclaimed Property

Abandoned PropertyWritten off checksCredit balancesYou don’t get to keepEvery state demands you remitSearch on “unclaimed property”and your stateAccurate records of re-issuesTalk to tax advisorAP/AR/PR

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Page 43 P-Cards

Purchasing Card Advantages

Reduce paperwork, labor and costsFewer invoicesFewer checksMore electronic dataEliminate dupe paymentsPotential rebates

P-Card ControlsDollar limit for transactionsMonthly limitSIC code restrictionsTime of day and day of weekInvoice matching by user (online)Monthly management approvalBudgets helpful

Other P-Card IssuesSales tax?

Get level 2 statementsDuplicate invoices.

Pay no invoices from P-card vendorBeware of 1099 vendors

Don’t pay for services with P-card

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1099’s

Who Decides about Contractors?

Human ResourcesPurchasingPayrollAccounts Payable

What Makes a Contractor

Behavioral controlFinancial controlRelationship

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Alerts Situations for APEmployees

Any non-legit T and E reimbursementsWorking on the sideFormer employees

“One man bands”Unprofessional invoices

Time cardsCheck requests

Not a business? No DBANo inc, co, ltd.No FEIN

“What’s this W-9 form for?”

1099’s

Payments of > $600For servicesNot to corporations (with proof – W-9)Even IF corporation

LawyersMedical and health services

Unless non profit hospital

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Travel, Expense and Entertainment Reimbursement

Expense Reports and Accounts

Cash AdvancesDon’t give advancesIRS rules

Can’t issue advance > 30 days Substantiate within 60 daysMust return advance within 120 daysIf fail, add to W2 and tax

Use credit cards (p-cards, company or employee)

ReportingUse formUse envelopes with form outsideUse spreadsheets and emailAutomated systemsTake as long to get your check as …Consider per diems

Sales and Use Taxes

AP and SUTNo sales tax charged, then use tax due.The rules that apply are where delivery takes place, NOT where the seller is.Sales of TPP are usually taxable.Sales of services are usually NOT taxable, but often are – beware!Every state is differentGet it in writing.

When You Get Audited

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Types of AuditsInternal auditCPA firm auditFederal / State income tax auditSales tax auditWorkers CompUnemployment auditGrant auditGovernment contractor auditBank auditsGaming audits

When You Get Audited

And keep them awayfrom your executives!

Two Words of Advice

Other Actions

Isolate, but be niceAnswer questions, don’t volunteerEstablish audit contactDon’t accept their judgments as gospelGet it in writing!