Weak internal controls lead to myriad of problems starting with duplicate payments and fraud. They also build inefficient accounts payable processes, creating unnecessary work for your staff. Take this short quiz to pinpoint exactly where your organization could make changes to tighten controls. Tally your results and then read on for an explanation of the correct responses.
- Does your organization issue Rush (ASAP) payments without backup? __ Yes __ No
- Does your organization permit the return of checks to requisitioners? __ Yes __ No
- Does your organization allow the same person to sign checks and approve invoices? __ Yes __ No
- Does your organization allow the same person to process invoices and sign checks? __ Yes __ No
- Does your organization allow the same person to print checks and sign them? __ Yes __ No
- Does your organization have the same person conduct bank reconciliations and unclaimed property reporting? __ Yes __ No
- Does your organization have a petty cash box? __ Yes __ No
- Does your organization allow numerous people access to the master vendor file for the purposes of setting up new vendors or changing information about existing vendors? __ Yes __ No
- After promoting an internal employee, does your organization forget to turn off their access to your system for their responsibilities for the former position? __ Yes __ No
- Does your organization neglect to de-activate vendors in the master vendor file that have had no activity for the last 12 months? __ Yes __ No
Total Yes ______ Total No ________
And the Correct Answers Are ...
Hopefully it is obvious that the best response to all these questions is No. Here’s why each of these issues create a problem.
- Issuing Rush (ASAP) payments without backup is an invitation to disaster in the form of duplicate payments and fraud. Yet, when a vendor screams or there is some other emergency, the number of organizations that rush the payment through without backup is mindboggling.
- Returning checks to requisitioners is one of the leading ways employees steal from their employers. While it is only the occasional employee who will dupe their employer this way, it is critical that this practice be eliminated. Additionally, a larger number than you might imagine of checks returned to requisitioners are misplaced.
- Allowing the same person to sign checks and approve invoices does not employ requisite segregation of duties principles.
- Allowing the same person to process invoices and sign checks does not employ correct segregation of duties principles.
- Allowing the same person to print and sign checks does not employ necessary segregation of duties principles.
- Having the same person conduct bank reconciliations and unclaimed property reporting does not employ vital segregation of duties principles.
- Petty-cash boxes are an invitation to fraud and an inefficient way to handle small-dollar payments.
- Not limiting access to the master vendor file for the purposes of setting up new vendors or changing information opens the door for an internal employee to set up a phony vendor.
- Not turning off access when promoting someone can completely undo your appropriate segregation of duties. If this employee is promoted numerous times they could theoretically have access to the entire system.
- Not deactivating vendors in the master vendor file that have had no activity for the last 12 months makes it easier for employees to mistakenly use the wrong vendor and to play games. Please note, for some companies, 14 months or 18 months might make more sense. The important issue is that you have a formal policy for deactivating vendors on a regular basis.
So how’d you do? Very few organizations will end up with a completely clean bill of health when it comes to their internal controls so don’t be overly concerned if you’ve identified two or three areas that need some revision. However, if you have more than a few of these less-than-stellar practices in your organization, you might want to take a serious look at revamping your procedures quickly.
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Mary S. Schaeffer is the author of over a dozen business books including Controller & CFO’s Guide to Accounts Payable and Fraud in Accounts Payable: How to Prevent It. She writes a free weekly ezine, e-AP News and is a frequent speaker at accounts payable webinars, seminars and conferences and directs the organization’s consulting practice.