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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Wiley Corporate F&A
- Sprache: Englisch
THE NEW ACCOUNTS PAYABLE TOOLKIT
In The New Accounts Payable Toolkit, accomplished entrepreneur, consultant, and finance expert Christine H. Doxey delivers a unique and powerful approach to the accounts payable process and discusses the impact of the automation of the Procure to Pay (P2P) process. The toolkit explores all aspects of the accounts payable process, from the establishment of the contract and the purchase order to the supplier validation process, invoice processing and payment, accounting, and fiscal close.
You’ll learn the key metrics and analytics needed for the accounts payable process. This comprehensive toolkit provides the best practices, tools, and internal controls that can help safeguard your company’s cash and other assets. You’ll obtain a variety of tools to create the foundation required for current internal controls and compliance to ensure that suppliers are correctly validated in the supplier master file to maintain regulatory compliance.
Avoid paying fraudulent or inaccurate invoices and avoid paying a supplier’s invoice more than once. Be certain that all supplier invoices are properly accounted for to ensure an accurate fiscal close. Finally, stay up to date with all current and coming trends in the accounts payable process, including eInvoicing, ePayment, Robotic Process Automation (RPA), Artificial Intelligence (AI), Machine Learning, and eAccounting.
The New Accounts Payable Toolkit provides guidance for the implementation of AP automation solutions that can streamline and modernize your own systems and processes to take advantage of new digital developments.
Perfect for controllers, chief financial officers, and finance managers, The New Accounts Payable Toolkit will also earn a place in the libraries of students and professionals who seek to better understand the components of an optimal accounts payable.
UNCOVER A UNIQUE AND POWERFUL NEW APPROACH TO ACCOUNTS PAYABLE PROCESSES
The New Accounts Payable Toolkit offers readers a comprehensive and timely new way of handling their accounts payable systems and processes. You’ll discover how to implement new digital technologies in every aspect of the accounts payable process, from the establishment of the initial contract and purchase order to the supplier validation process, invoice processing and payment, accounting, and fiscal close.
You’ll learn to validate suppliers in the master list to ensure regulatory compliance, prevent multiple payments for a single invoice, keep from paying fraudulent, inaccurate, or incomplete invoices, and apply best practices to help safeguard your company’s assets. You’ll also discover how to measure and record key metrics and analytics to maintain an effective accounts payable process. Finally, you’ll read about new and upcoming trends in accounts payable, like artificial intelligence, machine learning, and robotic process automation that you can implement today to realize new efficiencies and savings.
Ideal for chief financial officers, finance managers, and controllers, The New Accounts Payable Toolkit is an invaluable guide to modernizing and optimizing your own company’s accounts payable processes and systems.
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Veröffentlichungsjahr: 2021
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Table of Contents
Cover
Title Page
Copyright
SECTION 1: Introduction
CHAPTER 1: About This Toolkit
INDEX OF AP TOOLS
SECTION 2: The New AP Department
CHAPTER 2: The New AP Department
INTRODUCTION
CASE STUDY: JOURNEY TO EXCELLENCE
FOCUS ON CORPORATE PRODUCTIVITY
ACCOUNTS PAYABLE AND PROCURE-TO-PAY (P2P) PROCESS IMPROVEMENTS
AP TOOL 1: AP PROCESS IMPROVEMENT AND AUTOMATION CHECKLIST
P2P REPORTING, UNDERSTANDING, AND PERSPECTIVE
AP TOOL 2: PROCUREMENT SPEND ANALYSIS
STRATEGIC SOURCING
OTHER PROCURE-TO-PAY BEST PRACTICES
AP PROCESS IMPROVEMENT IMPACTS ON WORKING CAPITAL
AVERAGE PAYABLE PERIOD
MEASURING AVERAGE PAYABLE PERIOD
WHEN TO TAKE A TRADE DISCOUNT
NEGOTIATING PAYMENT TERMS
OVERVIEW OF THE REQUIREMENTS OF THE SARBANES-OXLEY ACT OF 2002
ACCOUNTS PAYABLE, RISK, AND FRAUD
FRAUD STATISTICS
INTRODUCTION TO INTERNAL CONTROLS
STANDARDS OF INTERNAL CONTROL
AP TOOL 3: TYPES OF INTERNAL CONTROLS
DEFINING CONTROL ACTIVITIES
THE THREE CRITICAL CORPORATE CONTROLS
AP TOOL 4: THE BENEFITS OF SEGREGATION OF DUTIES (SOD) CONTROLS
AP TOOL 5: MITIGATING RISK WITH INTERNAL CONTROLS
AP TOOL 6: COMPENSATING CONTROLS TO MITIGATE RISK
AP TOOL 7: YOUR ROADMAP FOR IMPLEMENTING AN INTERNAL CONTROLS PROGRAM
AP TOOL 8: THE TOP TWENTY CONTROLS FOR THE AP PROCESS
BENEFITS OF A PAYMENT AUDIT PROCESS
AP TOOL 9: INTERNAL CONTROLS CHECKLIST
AP TOOL 10: SAMPLE INTERNAL CONTROLS PROGRAM FOR ACCOUNTS PAYABLE FOR COMPANIES USING THE SAP ERP
AP TOOL 11: METRICS TO DRIVE PROCESS IMPROVEMENTS
Notes
CHAPTER 3: Automating the AP Process
INTRODUCTION
BENEFITS OF AP AUTOMATION
A SUMMARY OF AP AUTOMATION FUNCTIONALITY CONSIDERATIONS
EXAMPLES OF AP AUTOMATION SOLUTIONS
OTHER TYPES OF AP AUTOMATION
IMAGING AND WORKFLOW AUTOMATION (IWA)
DIFFERENT FLAVORS OF IMAGING AND WORKFLOW AUTOMATION
ELECTRONIC INVOICING
DIFFERENT FLAVORS OF ELECTRONIC INVOICING
CONVERGENCE OF ELECTRONIC INVOICING AND IWA
IMPLEMENTATION OF YOUR P2P AUTOMATION SOLUTION
DEVELOPING THE BUSINESS CASE
SOFTWARE SOLUTIONS, SOFTWARE-AS-A-SERVICE, OR OUTSOURCING?
SECTION 3: Dissecting the P2P Process
CHAPTER 4: What Is the P2P Process?
INTRODUCTION
P2P BUSINESS PARTNERSHIPS, DEPENDENCIES, AND INTERDEPENDENCIES FOR SUCCESS
AP TOOL 12: DEPENDENCIES AND INTERDEPENDENCIES WITHIN THE P2P PROCESS
CHAPTER 5: Transforming the P2P Process
INTRODUCTION
AP TOOL 13: CURRENT STATE ANALYSIS
VISIONING AND TRANSFORMATION ROADMAP
AP TOOL 14: P2P TRANSFORMATION ROADMAP
AP TOOL 15: OTHER RECOMMENDATIONS FOR P2P TRANSFORMATION
AP TOOL 16: MANAGING CHANGE
AP TOOL 17: P2P TRANSFORMATION METRICS
AP TOOL 18: STREAMLINING YOUR P2P PROCESS WITHOUT AUTOMATION
AP TOOL 19: HOW TO BEGIN YOUR P2P AUTOMATION JOURNEY
Note
CHAPTER 6: Structuring the AP Organization
INTRODUCTION
THE FINANCE AND ACCOUNTING ORGANIZATION
THE FINANCE AND ACCOUNTING ORGANIZATIONAL CHART (EXAMPLE)
ORGANIZATIONAL CHART FOR AN AP DEPARTMENT (EXAMPLE)
HISTORY OF THE TRANSITION
ABOUT SHARED SERVICES
ORGANIZATIONAL CHART FOR A SHARED SERVICES STRUCTURE (EXAMPLE)
SHARED SERVICES AND SERVICE-LEVEL AGREEMENTS (SLAS)
SECTION 4: How Procurement and Receiving Impact AP
CHAPTER 7: Supplier Selection and Management
INTRODUCTION
SUPPLIER SELECTION AND MANAGEMENT PROCESS INSIGHTS
AP TOOL 20: THE TOP TEN BEST PRACTICES IN THE SUPPLIER MANAGEMENT LIFECYCLE
AP TOOL 21: FIVE STEPS TO USE WHEN “FINE-TUNING” YOUR SUPPLIER MASTER FILE
ANOTHER LOOK AT SUPPLIER MASTER FILE MANAGEMENT BEST PRACTICES
AP TOOL 22: SUPPLIER DIVERSITY
AP TOOL 23: EIGHT CRITICAL SUPPLIER MASTER PRACTICES
AP TOOL 24: MANAGING THE SUPPLIER MASTER FILE
STANDARDS OF INTERNAL CONTROL: SUPPLIER SELECTION AND MANAGEMENT
Notes
CHAPTER 8: Contract Management
INTRODUCTION
CONTRACT MANAGEMENT PROCESS INSIGHTS
AP TOOL 25: DEFINING THE TYPES OF CONTRACTS
AP TOOL 26: TEN RECOMMENDATIONS FOR ESTABLISHING CONTRACTS
STANDARDS OF INTERNAL CONTROL: CONTRACT MANAGEMENT
CHAPTER 9: Purchasing and Ordering
INTRODUCTION
AP TOOL 27: FIVE STEPS IN AN ELECTRONIC PROCUREMENT PROCESS
PURCHASING AND ORDERING PROCESS INSIGHTS
AP TOOL 28: FOUR BEST PRACTICES TO CONSIDER FOR THE PURCHASE REQUISITION PROCESS
THE CATALOG PROCUREMENT MODEL
STANDARDS OF INTERNAL CONTROL: PURCHASING AND ORDERING PROCESS
CHAPTER 10: Receiving
INTRODUCTION
RECEIVING PROCESS INSIGHTS
STANDARDS OF INTERNAL CONTROLS: RECEIVING PROCESS
SECTION 5: A Laser Focus on AP
CHAPTER 11: The Supplier Master File
INTRODUCTION
AP TOOL 29: SUPPLIER MASTER FILE PROCESS BEST PRACTICES
AP TOOL 30: SUPPLIER MASTER FILE CODING STANDARDS
STANDARDS OF INTERNAL CONTROL: SUPPLIER MASTER
Note
CHAPTER 12: Invoice Processing
INTRODUCTION
INVOICE PROCESSING INSIGHTS
TYPES OF MATCHING PROCESSES
AUTOMATING THE MATCHING PROCESS
AP TOOL 31: ESTABLISHING TOLERANCES
AP TOOL 32: FIVE FACTORS DRIVING THE AUTOMATION OF INVOICE PROCESSING
THE BENEFITS OF SENDING AND RECEIVING ELECTRONIC INVOICES
AP TOOL 33: THE MOST COMMON FORMS OF INVOICE AUTOMATION
AP TOOL 34: SIX BEST PRACTICES FOR INVOICE PROCESSING
AP TOOL 35: THREE COMPONENTS OF IMAGING AND WORKFLOW
AP TOOL 36: NINE PERFORMANCE INDICATORS FOR INVOICE PROCESSING
AP TOOL 37: THE TWENTY-FIVE TOP REASONS FOR PROBLEM INVOICES
STANDARDS OF INTERNAL CONTROLS: INVOICE PROCESSING
CHAPTER 13: P-Cards
INTRODUCTION
TYPES OF PAYMENT CARDS
P-CARD DEFINITIONS
AP TOOL 39: P-CARD PROGRAM IMPLEMENTATION BEST PRACTICES
AP TOOL 41: THE P-CARD SCORECARD
Note
CHAPTER 14: Travel and Entertainment
INTRODUCTION
AP TOOL 42: RED FLAGS FOR THE T&E PROCESS
Notes
CHAPTER 15: The Payment Process
INTRODUCTION
AP TOOL 43: EFFECTIVELY MANAGING YOUR PAYMENT PROCESS
AP TOOL 44: FIVE ACH CONTROLS
AP TOOL 45: PREVENTING DUPLICATE PAYMENTS
AP TOOL 47: TACKLING PAYMENTS FRAUD
Note
CHAPTER 16: Accounting, Reconciliation Processes, Self-Audit Tools, and Internal Controls
INTRODUCTION
AP TOOL 48: THE FINANCIAL CLOSE CHECKLIST FOR ACCOUNTS PAYABLE
STANDARDS OF INTERNAL CONTROLS: ACCOUNTING, RECONCILIATION PROCESSES, SELF-AUDITS, AND INTERNAL CONTROLS
CHAPTER 17: Customer Service
INTRODUCTION
STANDARDS OF INTERNAL CONTROLS: CUSTOMER SERVICE PROCESS
CHAPTER 18: Reporting, Analytics, and Benchmarking
INTRODUCTION
SECTION 6: Other AP Business Processes
CHAPTER 19: Supply Chain Financing (SCF)
INTRODUCTION
UNLOCKING SUPPLY CHAIN VALUE
AP TOOL 50: DEFINING WHO BENEFITS FROM AN SCF SOLUTION
Note
CHAPTER 20: Escheatment
INTRODUCTION
UNIFORM UNCLAIMED PROPERTY ACT (THE 2016 ACT)
TRENDS IN UNCLAIMED PROPERTY AUDIT AND COMPLIANCE ISSUES
THE THREE OBJECTIVES OF UNCLAIMED PROPERTY LAWS
AP TOOL 52: BASIC PROCEDURES FOR MANAGING YOUR COMPANY'S ESCHEATMENT OBLIGATIONS
AP TOOL 53: UNCLAIMED PROPERTY CHECKLIST
Notes
CHAPTER 21: Sales and Use Tax
INTRODUCTION
WHAT THE WAYFAIR DECISION MEANS FOR OUT-OF-STATE SELLERS
Notes
CHAPTER 22: Independent Contractors and the 1099 Process
TIN MATCHING AND 1099 FILERS
AP TOOL 54: IDENTIFYING YOUR PAYEE
AP TOOL 55: COMPLIANCE CHECKLIST AND YEAR-END REVIEW
Notes
CHAPTER 23: Business Continuity Planning
INTRODUCTION
HOW COVID-19 IS IMPACTING TODAY'S BUSINESS ENVIRONMENT
BUSINESS CONTINUITY BASICS
THE DIFFERENCE BETWEEN DISASTER RECOVERY AND BUSINESS CONTINUITY
OTHER DEFINITIONS AND TERMS
MANAGING A CRISIS
ASSESSING THE RISK AND DEVELOPING A STRATEGY
TAKING BUSINESS CONTINUITY TO THE CLOUD
HOW TO ENSURE CONTINUOUS BUSINESS CONTINUITY
AP TOOL 56: SIX BCP BEST PRACTICES
AP TOOL 57: A ROADMAP FOR DEVELOPING YOUR BCP
AP TOOL 58: FIVE RECOMMENDED BCP INTERNAL CONTROLS
Notes
SECTION 7: Addendum
Accounts Payable: Quarterly Controls Self-Assessment Questionnaire
ACCOUNTS PAYABLE CONTROLS QUESTIONNAIRE
PROCESS BACKGROUND INFORMATION
INTERNAL CONTROL ASSESSMENT
REMEDIATION PLAN
Glossary
Notes
Index
End User License Agreement
Guide
Cover Page
Table of Contents
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Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Asia, and Australia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.
The Wiley Corporate F&A series provides information, tools, and insights to corporate professionals responsible for issues affecting the profitability of their company, from accounting and finance to internal controls and performance management.
The New Accounts Payable Toolkit
Christine H. Doxey
Copyright © 2021 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.
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Library of Congress Cataloging-in-Publication Data
Names: Doxey, Christine H., 1955- author. | John Wiley & Sons, Inc., publisher.
Title: The new accounts payable toolkit / Christine H. Doxey.
Description: Hoboken, New Jersey : Wiley, [2021]
Identifiers: LCCN 2020055859 (print) | LCCN 2020055860 (ebook) | ISBN 9781119700500 (hardback) | ISBN 9781119700531 (adobe pdf) | ISBN 9781119700524 (epub)
Subjects: LCSH: Accounts payable. | Invoices.
Classification: LCC HF5681.A27 D69 2021 (print) | LCC HF5681.A27 (ebook) | DDC 658.15/26—dc23
LC record available at https://lccn.loc.gov/2020055859
LC ebook record available at https://lccn.loc.gov/2020055860
Cover Design: Wiley
Cover Image: yewkeo/Getty Images
SECTION 1Introduction
Welcome to The New Accounts Payable Toolkit! This toolkit is a guide for “everything AP.” As we look at all the processes that impact AP and procure to pay (P2P), the author will present best practices and current trends. As we drill down into the pertinent process details, an overview will be provided, followed by a process flow diagram with additional insights. Standards of internal controls are also presented for the AP and P2P processes explored in this toolkit.
CHAPTER 1About This Toolkit
The New AP Toolkit is an excellent reference book for anyone new to the AP or P2P space. It can be used to evaluate current processes and identify improvements. This book also serves as a reference for AP managers and directors, P2P managers and directors, shared services managers and directors, external and internal auditors, internal control professionals, CPOs, controllers, and CFOs. Here's how the book is organized.
How This Toolkit Is Organized
Section Number
Title
Chapter Number
Chapters
1
Introduction
1
About This Toolkit
2
The New AP Department
2
The New AP Department
3
Automating the AP Process
3
Dissecting the P2P Process
4
What is the P2P Process?
5
Transforming the P2P Process
6
Structuring the AP Process
4
How Procurement and Receiving Impact AP
7
Supplier Selection and Management
8
Contract Management
9
Purchasing and Ordering
10
Receiving
5
A Laser Focus on AP
11
The Supplier Master File
12
Invoice Processing
13
P-Cards
14
Travel and Entertainment
15
The Payment Process
16
Accounting, Reconciliation Processes, Self-Audit Tools, and Internal Controls
17
Customer Service
18
Reporting, Analytics, and Benchmarking
6
Other AP Business Processes
19
Supply Chain Financing (SCF)
20
Escheatment
21
Sales and Use Tax
22
Independent Contracts and the 1099 Process
23
Business Continuity Planning
7
Addendum
Accounts Payable: Quarterly Controls Self-Assessment Questionnaire
Glossary
INDEX OF AP TOOLS
As an additional bonus, AP Tools are provided within each applicable section. Each AP Tool is numbered for your reference and cross-referenced to a chapter. Every AP Tool includes an introduction titled “About This Tool” which serves as an overview of the tool. Each type of tool is classified as a checklist, template, or best practice.
This index provides the listing of all the tools for controllers that are included in this book and provides a quick glance of an inventory of all the helpful tools provided. The index is organized by: (1) Section Number, (2) Section Title, (3) Chapter Number, (4) Chapter Title, and (5) AP Tool Title and Number.
Index of AP Tools
(1) Section Number
(2) Section
Title
(3) Chapter Number
(4) Chapter Title
(5) AP Tool Title and Number
1
Introduction
1
About This Toolkit
2
The New AP Department
2
The New AP Department
AP Process Improvement and Automation Checklist
Procurement Spend Analysis
Types of Internal Controls
The Benefits of Segregation of Duties (SoD) Controls
Mitigating Risk with Internal Controls
Compensating Controls to Mitigate Risk
Your Roadmap for Implementing an Internal Controls Program
The Top Twenty Controls for the AP Process
Internal Controls Checklist
Sample Internal Controls Program for Accounts Payable for Companies Using the SAP ERP
Metrics to Drive Process Improvements
3
Automating the AP Process
3
Dissecting the P2P Process
4
What Is the P2P Process?
Dependencies and Interdependencies within the P2P Process
5
Transforming the P2P Process
Current State Analysis
P2P Transformation Roadmap
Other Recommendations for P2P Transformation
Managing Change
P2P Transformation Metrics
Streamlining Your P2P Process Without Automation
How to Begin Your P2P Automation Journey
6
Structuring the AP Process
4
How Procurement and Receiving Impact AP
7
Supplier Selection and Management
The Top Ten Best Practices in the Supplier Management Lifecycle
Five Steps to Use When “Fine Tuning” Your Supplier Master File
Supplier Diversity
Eight Critical Supplier Master Practices
Managing the Supplier Master File
8
Contract Management
Defining the Types of Contracts
Ten Recommendations for Establishing Contracts
9
Purchasing and Ordering
Five Steps in an Electronic Procurement Process
Four Best Practices to Consider for the Purchase Requisition Process
10
Receiving
5
A Laser Focus on AP
11
The Supplier Master File
Supplier Master File Process Best Practices
Supplier Master File Coding Standards
12
Invoice Processing
Establishing Tolerances
Five Factors Driving the Automation of Invoice Processing
The Most Common Forms of Invoice Automation
Six Best Practices for Invoice Processing
Three Components of Imaging and Workflow
Nine Performance Indicators for Invoice Processing
The Twenty-Five Top Reasons for Problem Invoices
13
P-Cards
P-Card Program Best Practices
P-Card Program Implementation Best Practices
The P-Card Holder Agreement
The P-Card Scorecard
14
Travel and Entertainment
Red Flags for the T&E Process
15
The Payment Process
Effectively Managing Your Payment Process
Five ACH Controls
Preventing Duplicate Payments
Eight Best Payment Practices
Tackling Payments Fraud
16
Accounting, Reconciliation Processes, Self-Audit Tools, and Internal Controls
The Financial Close Checklist for Accounts Payable
17
Customer Service
18
Reporting, Analytics, and Benchmarking
How to Implement a Successful Metrics Process
6
Other AP Business Processes
19
Supply ChainFinancing (SCF)
Defining Who Benefits from an SCF Solution
20
Escheatment
Action Plan for the Holder of Unclaimed Property
Basic Procedures for Managing your Company's Escheatment Obligations
Unclaimed Property Checklist
21
Sales andUse Tax
22
IndependentContractors and the 1099 Process
Identifying Your Payee
Compliance Checklist and Year-End Review
23
BusinessContinuityPlanning
Six BCP Best Practices
A Roadmap for Developing Your BCP
Five Recommended BCP Internal Controls
7
Addendum
Accounts Payable: Quarterly Controls Self-Assessment Questionnaire
Glossary
SECTION 2The New AP Department
The accounts payable (AP) department plays a critical role within an organization as it is a last point of control before a payment is made and sent to a supplier. The function of accounts payable provides several benefits: performing due diligence related to supplier setup and timely invoice processing; assuring that payments are processed based on terms; and providing a high level of customer service.
AP are “an entity's short-term obligation to pay suppliers for products and services, which the entity purchased on credit.” If accounts payable are not paid within the payment terms agreed to with the supplier, the payables are considered to be in default, which may trigger a penalty or interest.
The integrity of AP results is directly influenced by the functions of securing and qualifying sources of supply; initiating requests for materials, equipment, merchandise, supplies, or services; obtaining information as to availability and pricing from approved suppliers; placing orders for goods or services; receiving and inspecting or otherwise accepting the material or merchandise; accounting for the proper amounts due to suppliers; and processing payments in a controlled and efficient manner.
AP departments are responsible for the traditional tasks of setting up suppliers, invoice processing, creating manual checks, and expense reporting. In about half of the larger organizations, they are also involved in sales and use tax, electronic funds transfers (EFT), foreign currency payments, and petty cash management. They also occasionally perform bank reconciliation and P-Card issuance and management. However, in larger organizations, they are less likely to print checks, make tax payments, or issue travel advances.
CHAPTER 2The New AP Department
INTRODUCTION
Improving the financial transaction processes has been the focus of most organizations since the 1980s. Financial transaction processing includes those traditional “back office” processes such as procure to pay (P2P), payroll, travel and entertainment (T&E), fixed asset accounting, and accounts receivable. There has been an evolution of transitioning financial transaction processes to financial management centers, then to shared service centers, and finally to an outsourced model. In today's economy, organizations are now focused on process improvements and automation initiatives to garner additional efficiencies and cost reduction opportunities. It's not just about transitioning processes to shared service centers any more.
CASE STUDY: JOURNEY TO EXCELLENCE
In 1987, Digital Equipment Corporation took a futuristic approach to improving the productivity of their financial transaction processes. Prior to 1987, Digital established several manufacturing plants across the United States. Each plant was supported by a separate general ledger and stand-alone accounts payable, and T&E processes. Some plants even had their own payroll processes.
The inefficiencies and cost of these disparate ledgers and processes was recognized. As a result, a project was initiated to consolidate twenty-eight general ledgers and financial transaction processes into four financial management centers. The financial management centers were eventually transited to a single US shared service center in the mid 1990s before Digital was acquired by Compaq Computer Corporation in 1998. Compaq was then acquired by Hewlett Packard (HP) in 2002.
HP's journey to excellence can be attributed to the company's drive for value and innovation. “HP was an early adopter of the shared services model when it began this journey over 15 years ago. In the early 1990s, the company set a strategic goal to reduce operating costs by 30% within three years. At that time, the outsourcing market had not yet come into being for F&A. The only viable means of achieving the type of savings HP had targeted was to build captive shared services operations. As part of that effort HP wanted to integrate the back-end work of individual business units and countries, and reap the benefits of consistency in process, operating efficiency, and first time quality.”1
FOCUS ON CORPORATE PRODUCTIVITY
Many organizations have not had the opportunity to realize the tremendous cost savings that HP did with the acquisition of Compaq and the transition to a shared service center organization. So they continue to focus on productivity improvements in financial transaction processing and are spotlighting the P2P cycle.
Additionally, many organizations have found the hidden value that the accounts payable process, as a key component of the P2P cycle, can bring to an organization in cost saving opportunities and process improvements. These cost saving opportunities and improvements can be recognized by process efficiencies and automation. This continues to be a critical focus in today's difficult economy. Recommendations and best practices for improving the P2P process are included in the following section.
The New AP Professional
The new AP professional understands the importance of eliminating the silos within the process and has a good understanding of all the components that impact the cost, accuracy, and controls of the accounts payable process. The AP process flow provides an overview of the end-to-end accounts payable process.
The new AP professional is not just focused on transaction process, but on automation and process improvements that can reduce cost and improve internal controls. The new AP professional has moved from a clerical role to financial and business analyst role that looks into new metrics, analysts, and automation solutions. With a continued focus on internal controls and risk management, the new AP professional will look into self-audit tools, payment audit processes, and implementing automated controls solutions. Today's savvy AP professional is able to link all AP processes together and understands the linkage with their company's P2P process. The new professional is able to break down the silos and make recommendations that will benefit the entire organization.
ACCOUNTS PAYABLE AND PROCURE-TO-PAY (P2P) PROCESS IMPROVEMENTS
AP represents an organization's obligation to pay off a short-term debt to its creditors. AP also refers to short-term debt payments to suppliers and banks.
Many organizations no longer look at accounts payable as a stand-alone entity. The integrity of AP results are directly influenced by the functions of securing and qualifying sources of supply; initiating requests for materials, equipment, merchandise, supplies, or services; obtaining information as to availability and pricing from approved suppliers; placing orders for goods or services; receiving and inspecting or otherwise accepting the material or merchandise; accounting for the proper amounts due to suppliers; and processing payments in a controlled and efficient manner.
“Shared services” is a term defining an operational philosophy that involves centralizing those administrative functions of a company that were once performed in separate divisions or locations as noted in the Case Study: Journey to Excellence section. The focus of shared service organizations is not only on financial transaction processing, but on procurement, inventory accounting, payroll, human resources, and information technology.
Moving the AP process to a shared service center can generate significant cost savings, but all its processes should be understood. Any process weaknesses, control issues, and risk should be defined and mitigated. To ensure the success of any AP transition, all process improvements should be realized before centralizing or moving accounts payable to a shared service organization.
AP TOOL 1: AP PROCESS IMPROVEMENT AND AUTOMATION CHECKLIST
About This Tool: The “touchless” AP process isn't too difficult to achieve. A savvy AP leader should have the strategy in place to move to a paperless environment. It all starts with implementing some best practices including electronic payments, the automated clearing house (ACH) remittance, and the automated workflow process. Best practices establish the foundation for accounts automation and the achievement of your “touchless” process. The success of your new “touchless” process can be measured not only by improvements in metrics, but by the results of your automated self-assessment process. Lastly, dynamic discounting is a “win-win” option for both buyers and suppliers in the “touchless” accounts payable process.
Examples of AP best practices include delegation of authority via workflow. Many leading practice companies are already paying their suppliers electronically, but are now utilizing the ACH remittance process to reduce paper. And to ensure that your “touchless” environment is working properly, I suggest using an automated self-assessment process that validates the accuracy of your payment process. Lastly, leading practice accounts payable companies also consider dynamic discounting solutions. We'll now explore the components of the “touchless” accounts payable process in detail as listed in the following table.
Automated PO Requisition Process:
Upon approval, POs can be electronically invoiced from suppliers directly for a paperless process in which automated matching occurs between the PO and the invoice when it arrives to validate price, quantity, line amount, and items ordered. All invoices matched can be tracked against the PO until the PO is closed to account for blanket POs or partial payment against an open PO.
eInvoicing:
eInvoicing is the exchange of the invoice document between a supplier and a buyer in an integrated and agreed-upon electronic format with the goal of reducing paper and cost. Imagine no more paper invoices!
Automated Approval Process:
In an automated approval process, the invoice approval process is linked to your company's delegation of authority (DoA) policy. The invoice approval process is completely automated based on defined rules via workflow. The workflow determines if an invoice needs approval; who the appropriate approvers are; and in what order approvers should approve payment of the invoice. The workflow then sequentially asks each approver in the approval list to approve invoices online. For example, you can define a rule so invoices over $100,000 (or a specific amount designated in your DoA policy) require CFO approval and then CEO approval.
Link Approvals to Job Levels:
Most leading practice companies link the DoA policy to the job levels within the employee master file. A DoA table is then established as the driver of the approval workflow. If an approver moves to a different position or department, or leaves the company, the approval tables are automatically updated.
Automated ACH Remittance:
As companies increase their electronic payments to suppliers, many are moving toward sending the automated remittance advice as confirmation indicating that the invoice has been paid. This best practice helps reduce paper and moves closer to a “touchless” process.
Supplier Portal:
As supplier portals move beyond invoice status tools, many solutions are now delivered as a shared buyer service which accommodate eInvoicing and provide many additional benefits. Supplier portals provide:
Reduction in paper invoices as suppliers send their invoices electronically;
Faster transactions with integration to ERP software;
Stronger supplier relationships with a well-defined onboarding process and real-time invoice status;
Digital signatures to guarantee authenticity and security;
Flip purchase orders for easy invoicing;
The ability to correct errors on the spot to prevent payment delays further down the line;
The ability to begin using sales catalogs for greater accuracy.
Accounts Payable Self-Assessment Process:
The goal of any accounts payable department is to pay a supplier “once and only once.” Rather than have a third party or external audit firm identify a control weakness, many companies have worked with a solution provider to implement a self-assessment process that identifies a possible duplicate payment before the payment is initiated. This software considers “fuzzy” logic algorithms that flag a potential duplicate or erroneous payment. This self-assessment process can often be included in a company's internal control program.
Dynamic Payables Discounting:
Dynamic discounting is a solution that gives buyers more flexibility to choose how and when to pay their suppliers in exchange for a lower price or discount for the goods and services purchased. The “dynamic” component refers to the option to provide discounts based on the dates of payment to suppliers. Solution providers help both buyers and suppliers optimize their working capital positions by: providing a collaborative platform where buyers, suppliers, and third-party financing providers can negotiate and execute early payment offers.
P2P REPORTING, UNDERSTANDING, AND PERSPECTIVE
Purchasing Insight notes that, “P2P is all about helping to optimize the processes associated with purchasing and recognizing that the process does not end at the purchase order but extends to include accounts payable and payment processes.”2
Purchasing Insight noted that the P2P process extends even into the future. The process includes the strategies and technologies that are drivers of the procurement process. These strategies and technologies apply to the procurement spend analysis process as defined in the next section.
AP TOOL 2: PROCUREMENT SPEND ANALYSIS
About This Tool: This tool provides insight on how to achieve accurate and timely spend analysis that is often driven by the procurement process.
Identify Leverage with Existing Suppliers:
Determine the “parent-child relationships” within the supplier master file and determine if multiple contracts can be consolidated or leveraged.
Supplier Rationalization:
This is a straightforward analysis commonly using the Pareto principle (80/20) that highlights how many suppliers comprise 80% of the spend for each category. Using this type of analysis we can quickly identify the categories where there are too many suppliers comprising the bulk of the spending.
Perform a Spending Stratification Analysis:
This analysis will highlight the volume of low dollar invoices processed by accounts payable. The results will indicate if these transactions can be moved to a P-Card or to an automated process.
Preferred Supplier Spend:
Many organizations have a preferred supplier list. Including this information in the spend analysis application will provide visibility into two areas: (1) categories where preferred suppliers are in place but not used, and (2) categories where no preferred supplier exists.
Spend by Buying Channel:
One of the benefits of spend analysis is that it helps to identify process inefficiencies. Companies with procurement systems in place can quickly identify business units and individuals that are circumventing existing processes. Driving spends toward approved buying channels will improve overall controls, yield better compliance, improve data quality, lead to faster sourcing cycles, and provide term discount opportunities. This will also reduce accounts payable costs associated with check requests.
Purchase Price Variance:
This step in the process highlights that different prices may be paid for the same good or service.
Sourcing Compliance:
The final step includes a review of key contracts to determine if there are significant variances from the contract's terms and conditions.
Quarterly Spend Analysis:
Implement a process to track supplier spending on a quarterly basis. This process can be used to track the results of the implementation of a strategic sourcing initiative.
STRATEGIC SOURCING
Strategic sourcing was first established by General Motors in the 1980s and is now a common tool in the procurement toolkit. Strategic sourcing is dependent upon the results of the spend analysis process described in the previous section.
Strategic sourcing is often used as a procurement best practice to source high-value goods and services used in the production process along with large volume, and low-value non-production goods and service. The steps in the strategic sourcing process include:
Review the results of the spend analysis and determine the suppliers to focus on.
Review the pricing differences offered for the same goods and services. Also, review the terms and conditions of the contracts currently in place.
Determine the cost benefit analysis of moving to a single supplier.
Schedule discussions with targeted suppliers.
As noted in the previous section, review the results on a quarterly basis and update the strategic sourcing plans.
OTHER PROCURE-TO-PAY BEST PRACTICES
Here are some additional best practices that should be considered to improve efficiencies within the P2P process that include:
Perform an annual “clean-up” of the supplier master file which includes either purging or blocking suppliers that have not had any activity for eighteen months.
Establish a process to designate P-Card suppliers within your organization's supplier master.
Review the supplier master file on a quarterly basis to combine multiple suppliers and multiple remit to addresses.
Implement a company-wide procurement policy which specifies that purchase orders are required for all purchases over a specified dollar limit which is depending on the size of the organization. The procurement policy supports the requirement that a purchase order is needed for every obligation. The procurement policy also stipulates a P-Card will be used for any purchases below the specified dollar amount. An example of recommended best practices for implementing and expanding a P-Card program are included in the next section.
AP PROCESS IMPROVEMENT IMPACTS ON WORKING CAPITAL
Working capital is an important measure of an organization's efficiency, its short-term financial health and operating liquidity. Positive working capital means that the organization is able to pay off its short-term liabilities without increasing debt. Negative working capital means that an organization currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable, and inventory).
AVERAGE PAYABLE PERIOD
Each time a purchase is made from a supplier without paying for it at the time of the purchase, an account payable is created (a payable) for the business. Accounts payable are amounts owed to suppliers that are payable sometime within the near future – “near” meaning 30 to 90 days.
The average payable period is the best indicator of success in managing cash outflows.
Using the payable period to slow down outflows can significantly improve cash flow.
The accounts payable aging schedule is an important tool for keeping track of payables on a monthly or weekly basis.
MEASURING AVERAGE PAYABLE PERIOD
The average payable period measures the average amount of time each dollar of trade credit is used. That is, it measures how long a company uses their trade credit before paying the obligations to those businesses or individuals who extended credit to the company. This measurement gauges the relationship between trade credit and cash flow. A longer average payable period allows trade credit to be maximized. Maximizing trade credit means delaying cash outflows and taking full advantage of each dollar in the company's own cash flow.
The average payable period is calculated by dividing accounts payable by the average daily purchases on account:
The average daily purchases on account are computed by dividing total purchases on account by 360:
The accounts payable balance and the total purchases on account from the prior year are usually accurate enough for analyzing and managing cash flow. However, if more recent information is available, such as the previous month's accounts payable information, then use that instead. Be sure to compute the average daily purchases on account correctly using the number of days actually reflected in the purchases on account figure. For example, use 30 if one month's accounts payable information is used.
WHEN TO TAKE A TRADE DISCOUNT
How do you know if it's worth taking the discount? First the general rule on trade discounts: a company should always take advantage of trade discounts of 1% or more if the supplier requires full payment within 30 days. If suppliers offer payment terms beyond 30 days, it may be more advantageous to skip the trade discount and delay paying the supplier until the full payment is due.
For situations outside the scope of the general rule, or to test the general rule, a company can determine if taking a trade discount is advantageous. The following will help the company make that determination:
In order to determine if a trade discount is advantageous, consider the annualized interest rate you earn by taking the trade discount. If this annualized interest rate is greater than the interest rate charged to borrow the money from a bank, for example, then the discount is definitely worth taking. On the other hand, if the interest rate charged to borrow the money from a bank is greater than the annualized interest rate earned by taking the discount, then you shouldn't take the trade discount.
When taking a trade discount, consider the early payment a loan to the supplier.
Take, for example, a supplier that offers a discount if their invoice is paid within 10 days, or accepts full payment within 30 days. When a company pays this supplier in 10 days, instead of waiting the full 30 days, this supplier is actually borrowing money from the company for 20 days. The amount of the discount is the interest the company earns on the loan to the supplier. If the company views the early payment as a loan to suppliers, a company can then determine the annualized interest rate they are actually earning. Once the company knows the annualized interest rate, they can then compare it to the cost of borrowing money and determine if taking the discount is worthwhile.
The annualized interest rate is calculated as follows:
NEGOTIATING PAYMENT TERMS
Negotiating payment terms with suppliers and suppliers, or deferring expenses, are two more methods of delaying cash outflows. Negotiating extended payment terms with suppliers is a technique that can be used to delay cash outflows and improve overall cash flow. Most suppliers will require payment within 20 or 30 days after a company receives their bill. Some suppliers may be willing to negotiate longer credit terms. Their willingness to offer better credit terms may be based on one of the following factors included in the following list:
The company's past and present business relationship with them
The company's past payment history and perceived credit worthiness
The option to secure a large order or a company's continued business
This is one of those situations where it can't hurt to ask. But be prepared to justify the request. Suppliers will likely extend payment terms if presented with a strong case.
Dynamic Discounting
So why is dynamic discounting so compelling? Just consider what a 2% discount means for early payment in terms of return on capital. If, instead of earning interest on your cash you invest cash for 20 days to get a 2% return – that's over 36% return on capita
Dynamic discounting solutions provide suppliers the flexibility to discount their approved invoices at any point up to the maturity date and pass on a portion of the finance charges to buyers. This functionality has gained acceptance and popularity as it offers financing to suppliers at attractive rates while delivering an additional income stream to buyers. Solution providers and banks facilitate the transactions through a simple, intuitive Web interface that provides visibility to all parties, including the ability to change rates and terms in real time, thus the term dynamic.
Many buyer companies are not nimble enough to take advantage of valuable discounts, while others do not have the required spend that will allow for discounts. Some have investment alternatives so attractive that they outweigh the opportunity cost of missing a discount. And for most buyers, extending payment terms is generally more beneficial for working capital management than capturing a few discounts from participating suppliers. On the other side, suppliers too often find themselves financing sales by factoring their accounts receivables or through asset-based lending, both expensive sources of capital. Some suppliers, particularly smaller companies, do not have access to either option and are frequently strapped for cash.
Dynamic discounting serves the cash management needs of buyers and suppliers alike. Solution providers create the technological framework to facilitate this process. The transaction can be self-funded by the buyer or a bank can stand in as a short-term lender. Through Web-based buyer-supplier networks, buyers are able to project compressed settlement terms through supplier discounts. Suppliers are able to pick and choose among an array of payment options for each outstanding invoice. Banks pay the bill and collect from the buyer the full original price minus a percentage of the discount savings; an arrangement often referred to as “revenue sharing.”
There are a number of good reasons why dynamic discounting is gaining popularity as a best practice. Two related developments are the advent of the Internet and solution providers' willingness to harness its capabilities and apply them to cash management. Two other related developments are the attention being paid to what's now called the financial supply chain and the willingness of banks to look at the disparity between the cash management needs of buyers and suppliers in a new, innovative light.
However you characterize the reason these changes have come about, the results are the same. Buyers are enjoying improved working capital requirements and suppliers have more control over their cash-flow prospects. These results foster improved relations between buyers and suppliers, all made possible by visionary technologists and treasurers who are interested in tapping into new sources of income.
Dynamic discounting is an arrangement between a buyer and supplier whereby payment for goods or services is made early in return for a reduced price or discount. The arrangement includes the ability to vary the discount according to the date of early payment – the earlier the payment, the greater the discount. The supplier offers a discount for early payment. It's not always been easy to achieve arrangements that work for both supplier and buyer and, because of practical problems, it hasn't always been easy for buyers to actually pay early.
But with the increased use of P2P technologies and methods there is now no reason why a supplier cannot pay promptly – or late, for that matter – depending on how the collaborative arrangements with the supplier have been agreed.
OVERVIEW OF THE REQUIREMENTS OF THE SARBANES-OXLEY ACT OF 2002
Impact to the Overall Company
The primary objectives of the Sarbanes-Oxley Act of 2002 were to: prevent accounting and reporting problems from recurring; rebuild public trust in corporate practices and reporting; define a higher level of responsibility, accountability, and financial reporting transparency; and provide new or enhanced standards for corporate accountability and penalties for wrongdoings.
The Sarbanes-Oxley Act of 2002, specifically Section 404, had a significant impact on all publicly traded companies. As part of the certification related to periodic reporting requirements, the CEO and CFO are certifying that: they are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”), have designed DC&P to ensure specified information is made known to them, as well as evaluated and reported on the effectiveness of those controls and procedures as of a date within 90 days of the report filing. Additionally, on an annual basis, to be included with the annual report, management must state their responsibility for establishing and maintaining an adequate internal control structure and procedures over financial reporting and their assessment as of the end of the fiscal year of the effectiveness of such internal control structure and procedures. In addition, the Company's external auditor is to attest to and report on management's assessment of internal controls.
Sarbanes-Oxley Section 302
The requirements of Section 302 focus on management's responsibilities.
CEOs and CFOs must personally certify that they are responsible for disclosure controls and procedures.
Each quarterly filing must contain an evaluation of the design and effectiveness of these controls.
The certifying executives must state that they have disclosed to their audit committee and independent auditor any significant control deficiencies, material weaknesses, and acts of fraud.
An expanded certification requirement that includes internal controls and procedures for financial reporting may also be included when the SEC issues its final rules.
Sarbanes-Oxley Section 404
Section 404 mandates an annual evaluation of internal controls and procedures for financial reporting.
It also requires the company's independent auditor to issue a separate report that attests to management's assertion on the effectiveness of internal controls and procedures for financial reporting.
In order to properly represent an assessment of internal controls, management accepts responsibility (written assertion) for the effectiveness of control. It is important that controls are suitably designed to achieve the objective (reliability of financial reporting) using established criteria and control objectives, and related controls need to be appropriately documented. Finally, management assesses the effectiveness of internal control over financial reporting and reports thereon (both design and operating effectiveness).
Section 404 is focused on a 100% controls-based approach. The company must evaluate and test controls across business and functional areas to opine on effectiveness (broad and deep); and the lack of errors, historically, in financial statements is not de-facto evidence unto itself, of an appropriate internal control structure.
Preparing for Section 404 is very different than a financial statement audit. The overall objective is the rendering of an opinion on the financial statements, not to opine on internal controls. Internal control reports have been very rare in practice and are the subject of different auditing standards.
Summary of Section 404 vs. Section 302
Section 404:
Annual assertion by management
Responsible for effectiveness of controls over reliable financial reporting – e.g. a deep view of internal control procedures and practices
Focus on both design and operational effectiveness of financial reporting controls
External auditor to render opinion (“attestation”) on management's internal control assertion
Section 302:
Quarterly certification by CEO and CO
Responsible for “Disclosure Control Procedures” (DCP) – a broad range of information (financial and non-financial)
Certify to effectiveness of DCPs based on evaluation within 90 days
Disclose to audit committee and external auditor any significant deficiencies/material weakness or fraud (material or not)
ACCOUNTS PAYABLE, RISK, AND FRAUD
According to Accenture, the corporate payments market is at a critical juncture in today's banking landscape. Improved customer experience in the retail payments segment – driven by mobility, cashless transactions, easy accessibility, and cost-effectiveness – has increased expectations in the corporate payments system considerably. For example, it takes a few minutes to browse, select, and purchase grocery items through an online app, whereas it takes days, or even weeks, and loads of paperwork to procure stationery items for the office through the traditional corporate payments system. In such a scenario, there is a growing demand to usher in substantial change in the corporate payments landscape on both sides of the bank-client relationship.
Additionally, unlike consumer payments where the consumer is usually protected by the bank or company against fraudulent activity, companies and banks share responsibilities for fraud prevention. In situations of conflict regarding which party bears responsibility for an act of fraud, many times legal action is required. Court cases generally determine that the responsible party is the one that had the best chance of preventing the fraud. Therefore, companies must ensure that their internal policies, practices, and controls are adequate, updated based on new market experiences, documented, and enforced.
To achieve these objectives, the corporate payments sector has to first overcome several challenges, such as fragmented banking products and relationships, rigid and paper-based processes, lack of transparency in payments, costs of complying with new regulations, and problems related to cross-border transactions.
FRAUD STATISTICS
Payment and Business Process Fraud Statistics
Organization
Report
Key Findings
Source of Information
Associationof CertifiedFraudExaminers(ACFE)
2020 Report to theNations
Consistent with the findings in prior years, it is estimated that organizations lose 5% of revenue to fraud each year. A lack of internal controls contributed to nearly one-third of the frauds reported.
https://www.acfeinsights.com/acfe-insights/announcing-the-2020-report-to-the-nations
Median losses per case were $125,000, while the average loss per case was $1,509,000.
Fraud schemes were detected by a tip 43% of the time, and half of those tips came from employees.
A lack of internal controls contributed to nearly one-third of the frauds reported.
Based on information in the report, small businesses are more likely to experience billing fraud, payroll fraud, and check and payment tampering fraud than large organizations.
The report notes, the typical fraud lasts 14 months before detection and causes $8,300 per month in losses, and there is correlation between the length of the fraud and the median loss.
Asset misappropriation is the most common form of occupational fraud, in terms of frequency, representing 86% of cases in the ACFE's study. However, the median loss related to asset misappropriation cases was only $100,000, which is significantly less than the other two types. Corruption schemes fell in the middle, representing 38% of cases and a median loss of $250,000. However, corruption was identified as the most common scheme in every global region. Financial statement fraud was seen in only 10% of the cases investigated; however, it was certainly the most expensive type of fraud with a reported median loss of $945,000.
Association of Finance Professional(AFP)
2020 AFP Payments Fraud and Control Survey Report
According to the survey, 81% of companies were targets of payments fraud last year, once again proving that no industry is immune.
https://www.afponline.org/docs/default-source/registered/2020paymentsfraudandcontrolreport-highlights-final.pdf
75% of organizations experienced Business E-mail Compromise (BEC).
54% of organizations reported financial losses as a result of BEC.
42% of BEC scams targeted wires, followed by ACH credits at 37%.
74% of organizations experienced check fraud in 2019 – up from 70% in 2018.
Nearly one-third of organizations indicated that they have not received advice from their banking partners about mitigating potential risks associated with same-day ACH credit and debit transactions.
Kroll
Global Fraud & Risk Report 11th Annual Edition 2019–2020
Only 58% of respondents deemed both their anti–money laundering controls and their whistleblowing functions effective in detecting incidents compared to global averages of 69% and 66% for anti–money laundering and whistleblowing functions, respectively.
https://kroll.com/en-ca/about-us/news/global-fraud-and-risk-report-2019
The digital threat is compounded by emerging technologies such as cryptocurrency. Nearly all (91%) of the global business leaders surveyed are investigating or have already adopted distributed ledger technology, while 81% are considering or already using cryptocurrencies.
More than one in three (35%) global businesses cited risk of fraud or theft as the primary concern when considering investing in such areas, followed by lack of clear regulatory oversight (29%), untested technology (19%), and potential involvement with bad actors (16%).
Data theft and reputational damage caused by third-party relationships was next on the list of significant incidents reported by global business leaders, with 29% of respondents affected.
Experian
The 2020 Global Fraud and Identity Report
57% of businesses are reporting higher losses associated with account opening and account takeover fraud in the past 12 months, compared to 55% in 2018 and 51% in 2017.
http://images.go.experian.com/Ib/ExperianInformationSolutionsInc/Percent7B4c9cc02b-353a-4f07-9abe-2449234853ddPercent7D_global-identity-and-fraud-report-2020.pdf
Experian's research found that 86% of businesses claim advanced analytics is a strategic priority. Surprisingly, only 67% of businesses consider the use of advanced analytics, like artificial intelligence, to be important for fraud prevention and only 57% for identifying customers.
84% of businesses believe if they can better identify customers, then they will more easily spot a fraud instance.
INTRODUCTION TO INTERNAL CONTROLS
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission issued a report in 1992 entitled “Internal Control – Integrated Framework.” This brought together widely differing views about internal control into what has now become generally recognized as a best practice approach to internal control.
Within an internal controls program, controls are defined within a process area. As an example, within the accounts payable function, examples of process areas are supplier maintenance and invoice processing. More information will be provided for these specific process areas throughout this book.
As controls are defined, the first step is to define the control objective. A control objective is aimed at ensuring the accuracy, completeness, and timeliness of reporting of financial statements.
STANDARDS OF INTERNAL CONTROL
The standards define a series of internal controls that address the risks associated with key business processes, sub-processes and entity level processes. The standards are the product resulting from over 30 years of experience in the finance, accounting, and internal controls field.
The standards are a body of work that leverages experience at large technology companies. The standards for each sub-process within the P2P process are included in this toolkit for your reference. The standards include the internal control for each specific process, the type of control using the definitions provided in the following tool, and the risks mitigated. The standards are numbered by applicable chapter and are included in Chapters 7–18 of the toolkit.
AP TOOL 3: TYPES OF INTERNAL CONTROLS
About This Tool: After the control objective is defined, a specific control activity is established to support the control objective. A control activity is a task or action reflected in a policy or procedure with the intent to mitigate identified risks allowing the achievement of control objectives. A control should be evaluated based on its effectiveness to mitigate risk. Control activities are the policies and procedures that help ensure that the necessary actions are taken to address risks related to the achievement of the organization's objectives. There are specific types of control activities as depicted in the following table.
Control Type
Examples
Compensating
Effective compensating controls can improve the design of a process that has inadequate segregations of duties and ultimately provide reasonable assurance to managers that the anticipated objective(s) of a process or a department will be achieved. However, compensating controls are less desirable than the segregation of duties internal control because compensating controls generally occur after the transaction is complete. Also, it takes more resources to investigate and correct errors and to recover losses than it does to prevent an error.
Corrective
Designed to correct errors or irregularities that have been detected.
Detective
Designed to detect errors or irregularities that may have occurred. Examples are reconciliations, authorized signatures, credit checks and approvals.
Manual
Manual reconciliations, authorized signatures, credit checks and approvals that are not executed systematically.
Management Review
Requirements from the Public Company Accounting Oversight Board are causing auditors to require a level of precision and specificity for management review controls beyond prior years. Auditors are also reviewing far more documentation than they used to. At the same time, there is a lack of clarity on what exactly is sufficient in management review controls and how precise they need to be. This is troubling, since MRCs are crucial to the financial reporting process. Management review controls (MRCs) are the reviews conducted by management of estimates and other kinds of financial information for reasonableness. They require significant judgment, knowledge, and experience. These reviews typically involve comparing recorded amounts with expectations of the reviewers based on their knowledge and experience. The reviewer's knowledge is, in part, based on history and, in part, may depend upon examining reports and underlying documents. MRCs are an essential aspect of effective internal control. Examples of MRCs include:
Any review of analyses involving an estimate or judgment (examples: estimating a litigation reserve or estimating the percentage of completion for long-term construction projects);
Reviews of financial results for components of a group;
Comparisons of budget to actual; and
Reviews of impairment analyses.
Organizational
Organizational controls should cover all aspects of the company's business processes without overlap, and be clearly assigned and communicated.
Responsibility should be delegated down to the level at which the necessary expertise and time exists.
