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Key Accounts Payable best practices – Income Disbursements.

Policy: Internal controls are required to ensure that only valid and authorized payables are recorded and paid. Finance Department procedures should be implemented to ensure the accuracy of amounts, coding of General Ledger accounts and appropriate timing of payments.

Purpose: To explain the practices for documenting, recording and issuing payments for accounts payable transactions.

Scope: This procedure applies to all purchases including, merchandise and non merchandise purchases.

A Senior Accounts/Finance personnel must be responsible for reviewing Accounts Payable material and adding his/her signature.

Depending on the organizational structure, the Logistics or Office Manager is responsible for forwarding all paperwork to Finance Department for payment.

Finance Department is responsible for payment of invoices, but only after satisfactory completion or delivery of goods or services has been made and there is evidence of receipt i.e. Goods Received Note attached.

Background: Properly recording liabilities is generally a three-step process, particularly, for inventory purchases.

The first step is recording the liability upon receipt of inventory, using the purchase order estimates as a guideline. For accuracy and timeliness of data, a liability should be recorded as soon as the company receives the purchased items. By necessity, this initial recording is usually an estimate and can be finalized when the actual invoice arrives.

This is why a Purchase Order is so important for inventory purchases. It documents the company’s understanding of how much each item will cost, per the vendor’s terms. This includes estimates for freight and any other charges.

The second step takes place when the vendor’s invoice is received. At this point the actual liability is finalized, with any necessary adjustments to the item costs, freight, or other charges.

The third step involves the preparation, issuance of payment for the goods received, and subsequent filing of all paperwork for easy retrieval.

The following documents will be forwarded to Finance Department for temporary filing and subsequent matching to form an accounts payable voucher package:

Purchase Order with purchase requisition if applicable and all supporting documentation such as competitive bids, Goods Received Note with receiving report if applicable and
Vendor invoice.

Once the Finance department has received all of the above documents, the following steps will be performed to ensure proper authorization, validity of purchase, receipt of purchased items or services and accuracy of amounts.

The vendor invoice will be stapled on top of the Delivery Note (if any) and receiving report or Goods Received Note, followed by the purchase order forms.

The purchase order should be evaluated for proper authorization and the nature of the purchase and pricing as shown on the invoice reviewed for validity.

The quantities shown dispatched or delivered on the invoice will be compared to the Delivery Note and/ or Goods Received Note.

Any discrepancies must be followed-up and resolved prior to commencing with the payment voucher process.
Calculations on the invoice will be recomputed such as quantities received multiplied by unit price and totals.
Once inventory has been physically received, and all documentation has been reconciled with any discrepancies resolved, the Finance Department system must now be updated to record the received goods.

The matched documentation required consists of the original purchase order, receiving report and packing slips.

If the purchase orders for merchandise purchases originated in the Finance Department system, then the original purchase order is brought up on screen and the specific items and related quantities received are clicked off or recorded, based on the actual receiving report.

The immediate effect is that inventory is increased for the items received as the payable to the vendor is recorded.

Upon receipt, compare the actual vendor’s invoice to the “waiting for bill” invoice already recorded in the Finance Department system. This is the final comparison for Accounts Payable accuracy.

The vendor’s prices or discounts may vary from the Purchase Order, or the vendor’s quantities may vary from the actual quantity received per the receiving report, or other variances may exist in freight and other charges.

Resolve all discrepancies immediately, if possible, and record the correct amount owed in the Finance Department System.

Non merchandise expenditures like utilities, rent, insurance, taxes, repairs, professional fees, etc., are generally not recorded through the purchase order routine.

However, there may be other documentation, like contracts, requisitions, and other agreements. These should be filed in the applicable vendor file as documentary support.

Upon receipt of the invoice, the charges should be entered into the payable system and coded to the appropriate expense account.

Accounts payable systems generally provide an aged report and a bills to pay report. Examine the bills to pay report on a weekly basis. The personnel in charge of the department or unit, should select the current week’s bills to be paid based on the funds available and a projection of cash flow or receipts over the coming week.

Any vendor credits which are amounts owed to the company for returns, marketing, or price adjustments, should be applied to amounts currently owed to the vendor when determining payment.

These are normally received in the form of a credit memo or adjusting invoice. These should be entered into the system like any other invoice and applied to the next payment being made.
Immediately ensure that all checks signed and approved are correctly recorded in the Finance Department system.

Stamp the invoices paid to document they’ve been paid. Consider using checks that incorporate a two stub plus check form in order to attach one stub to the paid invoice and the other to the remittance copy of the Invoice.

If one check pays several Invoices then either photocopy the stub and attach a copy to each paid Invoice or consider attaching all paid Invoices to the one check stub.

The first element of control begins by using pre-numbered blank checks and storing them in a secured area. There should be a safe for vital documents and cash, with limited access.

Depending on the size of the organization, payments of expenses can be made in either cash or check according to the following criteria and authorities.
Single transactions of less than USD50 can be paid from the Petty Cash. Expenses that exceed this limit should be paid using the checking system.

Petty Cash Account(s):
A petty cash box must be established and maintained by the Organization with procedures and controls. All procurements in excess of the petty cash limit need to be centralized in the head office.

Budget Management
Depending on the organization, work planning will be done for the life of organization and revised annually into activity plans in accordance with the donor proposal(s) and Sales Income.

Typically this is an iterative, collaborative process between colleagues, partners and donors. The work plan or activity plan will have sufficient detail to prepare a budget, cash flow estimate and major organization activity calendar.

Operational working Budgets:

(1) Annual budgets are produced by organization yearly. These budgets reflect the estimated financial resources necessary to execute the annual work plans of the organization.

(2) Budgets will include the items that correspond to the tasks and activities established in the annual work plan. In addition to the tasks, the operationalized version of the budget will correspond to the organization’s line item categories (account code) such as salaries, consultants, operational expenses and travel.

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