Though it may seem unlikely that some companies still use entirely paper-based systems to conduct their accounts payable processes, this is still the case for some smaller businesses. The flowchart in Exhibit 1 shows the basic process flow for these organizations, with the minimum set of con­trols needed to ensure that it operates properly. The small black diamonds on the flowchart indicate the location of key control points in the process, with descriptions next to the diamonds.

The controls noted in the flowchart are described at greater length next, in sequence from the top of the flowchart to the bottom.

• Manually review for duplicate invoices. A noncomputerized accounting system has no way to utomatically verify a supplier’s invoice number of invoices previously paid. Consequently, the payables staff must compare each newly received supplier invoice against invoices in two files: both those in the unpaid invoices file and those in the paid invoices file.
  Exhibit 1 System of Controls for Paper-Based Accounts Payable
  
• Conduct three-way match. The payables staff must compare the pricing and quantities listed on the supplier invoice to the quantities actually received, as per receiving documents, and the price originally agreed to, as noted in the company’s purchase order.
• Store payables by due date. The company must pay its bills on time, which calls for proper filing of unpaid supplier invoices by payment due date. Otherwise, suppliers can give the company a lower credit score or charge late fees. This control assumes that unpaid invoices will be stored based on the dates when the company can take early-payment discounts.
• Check stock from locked cabinet. Unused check stock should always be kept in a locked storage cabinet. In addition, the range of check numbers used should be stored in a separate location and cross-checked against the check numbers on the stored checks, to verify that no checks have been removed from the locked location.
• Check signer compares voucher package to check. The check signer must compare the backup information attached to each check to the check itself, verifying the payee name, amount to be paid, and the due date. This review is intended to spot unauthorized purchases, payments to the wrong parties, or payments being made either too early or too late. This is a major control point for companies not using purchase or­ders, since the check signer represents the only supervisory-level review of purchases.
• Perforate voucher package. The voucher package can be reused as the basis for an additional payment unless the package is perforated with the word “Paid” or some other word that clearly indicates the status of the voucher package.

Though the preceding controls are the basic ones needed for a paper-only accounts payable system, the next controls can also be used to bolster the level of control over the process.

• Prenumber receiving reports. A key part of the three-way matching process is to ensure that the items being paid for have actually been received, and in the correct quantities. It is easier to ensure that all re­ceiving reports are being transferred to the accounts payable depart­ment by prenumbering the receiving reports and tracking down any reports whose numbers are missing.

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