The central problem with the accounts payable system is that the primary control point-supervisory review of the purchase-occurs after the service or product has already been delivered, so a company typically is obligated to pay for whatever was purchased, even if it has no need for it or manage­ment did not initially authorize it. In essence, a lack of up-front control over the purchasing process results in an excessively late approval process just before payment is due to be made to the supplier.

This problem is exacerbated if supervisors are not asked to approve supplier invoices, so that the sole control point becomes the check signer. This person is now obligated to sort through the voucher package that ac­companies all unsigned checks and investigate any suspicious payments. In reality, this person is usually a senior-level manager who has many other ac­tivities to accomplish and so conducts no more than a cursory review of the accompanying voucher packages and then signs the checks. The result is the almost total lack of any real control over the purchases that a company makes.

Many larger companies have recognized the futility of the control rep­resented by the check signer and have eliminated this control through the use of a signature stamp, signature plate, electronic signature image, or some similar device. However, by doing so, they must ensure that a suffi­cient level of control has been added earlier in the purchasing and payables process to compensate for this loss of control. As shown in the flowchart in Exhibit 1, the check signer control point has been cancelled, while a new control has been added at the top of the flowchart for purchase order au­thorization, as well as another that rejects any materials received at the receiving dock if there is no authorizing purchase order. The use of a pur­chase order is a better control point than a check signer, since purchases must now be approved in advance, rather than after receipt, thereby giving the company greater control over what materials are allowed to be received at the receiving dock.

The new controls noted in the flowchart that are specific to automated check signing are described in the bullet points that follow, in sequence from the top of the flowchart to the bottom.

• Mandatory purchase order authorization. The key control point for au­tomated check signing is requiring the purchasing staff to issue a pur­chase order for every purchase made by the company. This means that the purchasing staff must also forward a copy of each purchase order to the receiving dock, where it is used to verify the purchasing authoriza­tion for each item received (see next item).

Exhibit 1 System of Controls for Automated Check Signing

• Rejection at receiving dock if no authorizing purchase order. Requiring a purchase order for every purchase does not represent much of a con­trol if the receiving department accepts all arriving deliveries. Instead, the receiving staff must ensure that an authorizing purchase order is on file for every item that arrives at the dock. If there is no purchase order for a delivery, the receiving staff must reject it. This control can be quite time-consuming for the receiving department, which must research pur­chase order information for every delivery. To ease the workload, sup­pliers should be asked to prominently tag their deliveries with the authorizing purchase order number.
• Restrict access to signature stamp. This control actually applies to any form of automated check-signing equipment, not just the signature stamp. This is a critical control, since anyone gaining access to both check stock and the check-signing equipment could create authorized checks in any amount with impunity.

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