• Lock up blank receiving reports. If three-way matching is used, then the re­ceiving report is considered evidence that the quantity of an item con­tracted for has arrived at a company location. If someone were to steal a blank receiving report, he or she could take the goods and still submit a completed receiving report, resulting in undetected theft. Consequently, it may be useful to lock up unused receiving reports.
• Prenumber purchase orders. The purchase order is a key part of many accounts payable systems, since it provides the central authorization to pay. Consequently, if the purchasing system is paper-based, it makes sense to keep track of the stock of purchase orders by prenumbering them.
• Lock up blank purchase orders. The purchase order represents a com­pany’s official authorization to acquire goods and services. If someone could obtain blank purchase orders and fraudulently affix a company officer’s signature to it, that person could obligate the company to a va­riety of purchases with relative impunity. Consequently, in cases where purchase orders are printed in advance, they should be stored in a locked cabinet.
• Maintain a register of unapproved supplier invoices. If a company is­sues new supplier invoices to those empowered to authorize the invoices, then there is a significant chance that some invoices will be lost outside of the accounting department and will not be paid. To avoid this, up­date a register of unapproved supplier invoices on a daily basis, adding invoices to the register as they are sent out for approval and crossing them off the list upon their return. Any items remaining on the list after a predetermined time limit must be located.
• Conduct a daily review of unmatched documents. The three-way matching process rarely results in a perfect match of all three documents (purchase order, receiving report, and supplier invoice), so these docu­ments tend to pile up in a pending file. To keep the associated supplier payments from extending past early-payment discount dates or from incurring late-payment penalties, there should be a daily review of the pending file as well as ongoing, active measures taken to locate miss­ing documents.

• Reconcile supplier credit memos to shipping documentation. If a com­pany negotiates the return of goods to a supplier, then it should deduct the amount of this return from any obligation owed to the supplier. To do so, it should maintain a register of returned goods and match it against supplier credits. If no credits arrive, then use the register to con­tinually remind suppliers to issue credit memos.
• Only fund the checking account sufficiently to match outstanding checks. If someone were to fraudulently issue a check or modify an ex­isting check, a company could lose a large part of the funds in its bank account. To avoid this, only transfer into the checking account an amount sufficient to cover the total amount of all checks already issued.
• Destroy or perforate and lock up cancelled checks. Once a check is created, even if it is cancelled on the in-house accounting records, there is still a chance that someone can steal and cash it. To avoid this prob­lem, either perforate it with the word “cancelled” and store it in a locked cabinet or shred it with a cross-cut shredder.
• Add security features to check stock. A wide array of security features are available for check stock, such as watermarks and “Void” pan­tographs, that make it exceedingly difficult for a forger to alter a check. Since the cost of these features is low, it makes sense to add as many se­curity features as possible.
• Verify that all check stock ordered has been received. It is possible for both inside and outside parties to intercept an incoming delivery of check stock and to remove some checks for later, fraudulent use. To de­tect such activity, always compare the number of checks ordered to the number that has arrived. Also, verify that the first check number in the new delivery is in direct numerical sequence from the last check num­ber in the last delivery. In addition, flip through the check stock deliv­ery to see if any check numbers are missing. Further, if the check stock is of the continuous feed variety, see if there are any breaks in the deliv­ered set, indicating that some checks were removed.
• Limit the number of check signers. If there are many check signers, it is possible that unsigned checks will be routed to the person least likely to conduct a thorough review of the accompanying voucher package, thereby rendering this control point invalid. Consequently, it is best to have only two check signers-one designated as the primary signer to whom all checks are routed and a backup who is used only when the primary check signer is not available for a lengthy period of time.

• Restrict check signer access to accounting records, cash receipts, and bank reconciliations. The check signer is intended to be a reviewer of a nearly complete disbursement transaction, which requires indepen­dence from all the payables activities leading up to the check signing for which this person is responsible. Consequently, the check signer should not have access to cash receipts, should not perform bank rec­onciliations, and should not have access to any accounting records. It is best if the check signer is not even a member of the accounting depart­ment and is not associated with it in any way.
• Never sign blank checks. Though an obvious control, this should be set up as a standard corporate policy, and reiterated with all check signers.
• Separate disbursement and bank account reconciliation duties. If a person involved in the disbursement process were to have responsibility for bank reconciliations, that person could improperly issue checks and then hide the returned checks. Consequently, always separate the dis­bursement function from the reconciliation function.

[tags]basic accounts payable[/tags]

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