5/14/2013

Internal Controls: Accounts

Payable and Purchasing
A Practical Approach
BRANDON CLINEFELTER
CCCS INTERNAL AUDIT MANAGER

Importance of Internal Controls

- Make sure we stay on track
- Safeguards against dishonesty and honest mistakes
- Keeps our assets safe and our accounting accurate
- Accounts Payable and Procurement are areas

subject to asset misappropriation.

-

Disbursements/misappropriation of assets
Inappropriate purchases

- No control is 100% effective all the time

- Controls should be linked with others to maximize

effectiveness

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Our Experience says

Every department is different, although the approach is

generally the same

Lack of resources can affect the ability to segregate all areas

Mitigating controls need to be carefully considered and

documented

All policies and procedures should be documented including

departmental roles for ease of review and consideration

One person has sole responsibility for an area because they

are trustworthy

Supervisors dont have time, or are unwilling to perform

appropriate reviews
We dont have enough people or resources to do all of that
stuff

Accounts Payable

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Segregation of Duties Accounts Payable

Authorization

Vendor Maintenance
Invoice/Pay Request Approval
Check Signing

Recording

Recording Invoices
Recording Credit Memos

Custody/Review

Vendor Change report review

Check Disbursement
Analytical Review

Aging review
Budget to Actual

Vendor Maintenance Key Controls

Should not also
Record/approve vendor invoices
Authorize/print checks
Authorize/execute wire transfers
Vendor File review
Duplicate addresses for multiple vendors
Employee addresses for a vendor
Multiple vendors with similar names
Vendors compared against the Suspension and Debarment list
Purge of non-active vendors

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Invoice / Pay Request Approval Key Controls

Should not also
Record vendor invoices
Authorize/print checks
Signature log
Hierarchy for who has approval authority
Spending limit delegation
Updated regularly
Signature considerations
Signed and dated for evidence of approval
If stamp used physical security
Is delegation appropriate
Approval obtained prior to P-Card purchase

Check Signing Key Controls

Should not also
Prepare bank reconciliations
Review and approve the bank reconciliations
Create the positive pay file for the bank
Responsibility for discrepancies with positive pay file
Vendor considerations
Familiar vendor
Appropriate/original support for payment
Review thresholds
Multiple payments on same invoice

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Recording Invoices Key Controls

Should not also

Distribute vendor checks

Prepare AP sub-ledger reconciliation
Authorize/print checks
Authorize/execute wire transfers

Supporting Documentation

Original support retained

No disbursements on statements
Three way match (PO/Invoice/Receipt)

Invoice charges compared with PO for accuracy

Receipt at entity determined, not shipped elsewhere

Sequential invoices

Recording Credit Memos Key Controls

Should not also
Process shipping/receiving
Authorize/record invoices
Disbursement of checks
Perform/review reconciliations
Supporting documentation
Should include comparison to original purchase order
Compare to return documentation
Receiving information

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Vendor Change Review Key Controls

Should not also
Have access to add, delete or modify vendor information
Authorize/record invoices
Change Log
Review by someone outside the AP/Disbursements process
Clear documentation for changes
New vendor validation process

Vendor Check Disbursements Key Controls

Should not also
Authorize/record invoices
Authorize/ print checks
Prepare the bank reconciliation

Check Disbursement to Vendors

Severely restrict manual checks
Compare against check register, or positive pay file

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Analytical Review Key Controls

Should not also
Prepare reconciliation
Authorize/prepare invoices
Aging Analysis
Invoices paid timely, earning allowed discounts
No unexplained delays of payment
Budget to Actual
Prevents extra payments in an area

Miscellaneous AP Controls
Void/cancelled check controls
Fraud hotline
Mandatory vacations
Cross Training
Management Override
Year End Cutoff

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Procurement

Segregation of Duties Procurement

Authorization
Approval of Purchase Requisition
Bid Process
Recording
Initiation of Purchase Order
Custody / Review
Receipt and Evaluation of Goods and Services

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Approval of Purchase Requisition Key Controls

Should not also
Initiate Purchase Requests
Initiate Purchase Orders
Total Purchases review
Budget to Actual
Report of all purchases
Purchases above a threshold for new vendors
Delegation of Authority
Approval from purchasing delegate only
Limit set at an appropriate amount (Supervisor review)
Authority Matrix
Resource for Purchasing department for approvals

Bid Process Key Controls

Red Flags to Consider
Repeated awards to same entity
Competitive bidder complaints / protests
Complaints about quality/quantity
Multiple contracts awarded below threshold

Established thresholds invite split purchases

Abnormal bid patterns

Agent fees

Documentation

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Bid Process Key Controls

Red Flags to Consider
Questionable bidder
Awards to non-lowest bidder
Contract scope changes
Post-award contract change orders
Urgent need / sole source
Documentation

Initiation of Purchase Order Key Controls

Should not also

Initiate Purchase Requests

Approve Purchase Requests
Vendor Master file maintenance
Record Vendor invoices

Total Purchase Order review

Review by supervisor level of total Purchase Orders by vendor

Are sole source transactions clearly documented?

Original Documentation

Copies should not be used to prevent duplication

Purchase Orders should be cancelled upon fulfillment

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Receipt and Evaluation Key Controls

Should not also

Initiate Purchase Requests

Approve Purchase Requests
Record Vendor invoices

Receipt of Goods / Services

Receiving should be done at one centralized location

Should have sufficient knowledge to understand items being received
Fixed Asset tracking requirements (grant specific)
Physical Security Access by appropriate staff

Evaluation of Corrections / Adjustments

Rejection of Goods/Services that do not conform to agreed standards

Miscellaneous Procurement Controls

Written Policies and Procedures / Functioning

Process

A scattered process can lead to pressure for quick procurement

actions which will require shortcuts
Emergency procurement actions should be considered and
documented in advance for all forms of procurement

Periodic rotation of Procurement employees

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5/14/2013

Questions?

Contact Information

Brandon Clinefelter
Internal Audit Manager, CCCS
720-858-2885
Brandon.clinefelter@cccs.edu

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