Controls for Accounts Payable (#13)

In this episode, we discuss the controls associated with accounts payable. There are many possible controls that may be used, but the accountant needs to be aware that employing all of them could seriously reduce the overall efficiency of the department. Key points made in the podcast are noted within the following general classifications:

Manual controls:

  • Install three-way matching for larger expenditures

  • Institute a duplicate invoice search

  • Store unpaid invoices by date, to ensure that those items to which early payment discounts apply will be paid on time

  • Roll out negative approvals, to streamline the invoice approval process

  • Store blank check stock in a locked location, to prevent theft

  • Restrict access to the signature plate

  • Maintain a log of all checks that have already been used, to spot illicit removals

  • Review supporting documents before signing checks

  • Limit the number of check signers to a small number of rigorous signers

  • Never sign blank checks

  • Perforate cancelled checks, to keep them from being submitted for payment

Computerized controls:

  • Conduct automated three-way matching

  • Automatically scan for duplicate invoices

  • Lock down access to the supplier master file, so that no one can alter pay-to addresses

  • Track changes that have been made to the supplier master file

  • Adopt a standard naming convention for suppliers in the supplier master file, to prevent the creation of duplicate supplier records

  • Scan the supplier master file for duplicate supplier records

  • Compare supplier to employee addresses to see if there are any matches

  • Install the positive pay system

Electronic payments:

  • Install an ACH debit filter to restrict deductions from a bank account

  • Minimize the amount of cash in the checking account to cover just current liabilities, to minimize the risk of large additional charges being made against the account

  • Install password access to the electronic payment software

  • Have the bank call the CFO or controller for verbal approval of large electronic payments

  • Review repetitive payments on a regular basis, to ensure that they are still valid

Related Courses

Accounting Controls Guidebook
Accounting Information Systems
Optimal Accounting for Payables
Payables Management