Fraud Prevention – Accounts Payable

Systems and processes are necessary functions in order for any business to operate efficiently and effectively. Accounts payable is one of the processes that generates heavy paperwork, heavy labor hours, and a high risk of fraud and error. For these reasons, it is important to establish a definitive procedure for processing accounts payable. I will discuss one model that proves to limit the risk of error and fraud.

Requesting Goods

Before ordering a single item, the employee or department requiring a purchase of goods should submit a purchase requisition to the purchasing department. The purchasing department creates a purchase order and submits the purchase order for approval from the manager. Each company will have different employee positions for approving purchase orders. Regardless of who is in charge of approving PO’s, the most important rule is to maintain separation of duties. In other words, the employee in charge of approving purchase orders should not be the person who also receives the goods or pays for the goods. Proper segregation of duties serves as a protection against fraud. By having several people involved with the purchase process, we reduce the chance for fraud and error.

Ordering/Receiving Goods

Once the purchase order is approved, it is sent back to the purchasing department where the goods are ordered. Copy the PO with the amount ordered blacked out. Send it to the receiving department and another copy to accounting. The receiving department receives a “blacked out” purchase order so that they will be forced to complete a blind count and verify the number of goods received. A blind count minimizes the risk that employees will just sign for goods without verifying the goods received. The receiving department will then submit the blind count and bill of lading to the accounting department.

Recording/Paying Invoices

The accounting department will need to match the purchase order, blind count, bill of lading, and vendor invoice together in order to book the invoice as a bill into the accounting software system. Once the bill has been entered, all documents should be stamped complete and manually filed alphabetically. Accounting will cut a check and match all of the supporting documents together with the unsigned check. The A/P clerk should stamp the invoice and all supporting documents as paid. This helps ensue the bill is not double paid. The final step for the A/P clerk is to submit to the entire voucher package to the authorized check endorser for signature. Once signed, the entire package should go to the mail clerk where they will mail the check, attach the bottom check stub to the supporting documents, and file the entire voucher package into the vendor files by date.

If this process is followed, the risk of unauthorized purchases, wasteful purchases, theft, and error will be greatly reduced. Fraud is one of the most costly expenses a business can experience. For help implementing this kind of process, call TGG Accounting. We have helped many businesses create clear separation of duties and reduce the risk of fraud.

Written by:
Jake Cavanagh
TGG Accounting

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