item, so this control can be modified to require a call from the receiv­ing staff directly to the supplier’s shipping department to clear up the problem. This control is handled automatically by the computer system.

• Automatic rejection if purchase order unit balance is less than delivered quantity. The receiving staff should reject a delivery if the authorized quantity is less than the delivered quantity. However, this rejection is subject to the percentage variation in delivered quantities, as specified in the master item number file. For example, if the delivered quantity is 9 percent higher than the authorized limit and the predetermined deliv­ery variance is 10 percent for this item, then the computer system will accept the delivery. Also, depending on the circumstances, the receiving staff may be authorized to break down any deliveries to extract the max­imum authorized quantity and return the remainder to the supplier. This control is handled automatically by the computer system.
• Automated comparison of packing slip units of measure to purchase order units of measure. There are rare situations when the supplier specifies a different unit of measure on its packing slip from what was specified in the purchase order, which can result in payment disputes. This usually is caused by a supplier error in creating the packing slip, so it is customary to accept the delivery but to route the problem to the purchasing staff, who notify the supplier of the problem. The receiving staff may also be assigned this chore. This comparison task is handled automatically by the computer system.

The preceding set of controls relate only to the step-by-step process of evaluating the packing slip that accompanies a delivery, and does not ad­dress such issues as control over the purchase order system, manual reviews of delivered quantities, how to handle supplier invoices, and so on. The next controls address these additional issues.

• Restrict access to the purchase order database. The evaluated receipts settlement process is driven entirely by issued purchase orders, so it is critical to maintain a high level of control over access to the purchase order database. Controls should include password-only access, fre­quent password changes, and a procedure to cancel system access if a purchasing person leaves the company.
• Audit purchase orders issued by the MRP system. The evaluated re­ceipts system relies heavily on the ability of the MRP system to accu­rately and reliably issue purchase orders without human intervention. Though a possible control over the risk of incorrect orders is to have the purchasing staff manually monitor all purchase orders generated by the MRP system, this imposes inefficiency on a system that is supposed to be fully automated. An alternative is to have the system flag the pur­chasing staff if orders are generated for excessively high dollar values or quantities. A third alternative is to have the internal audit staff peri­odically examine issued purchase orders to see if errors in the support­ing production schedule, bills of material, and inventory records are causing incorrect purchase orders to be issued.
• Audit all manually issued purchase orders. The primary control over evaluated receipts settlement is tight control over who is allowed to issue purchase orders, but what if even the authorized purchasing staff is tempted to commit fraud by entering manual purchase orders into the system? A reasonable control is to schedule periodic internal audits that look for improper orders being placed by the purchasing staff. These audits can focus on orders being placed for unusual quantities, items not normally purchased, and orders placed outside of business hours (all indicators of problematic orders).
• Report on suppliers not sending packing slips in bar-coded format. It is not an outright control weakness if suppliers issue handwritten packing slips. However, the receiving staff must enter this packing slip infor­mation into the computer system by hand, which introduces the risk of incorrect data entry (especially since the receiving staff is not typically trained in this function). Consequently, it makes sense to track which suppliers are not using bar-coded packing slips and to contact them reg­ularly to encourage them to do so.
• Audit supplier reporting of quantities shipped. Because of the high level of automation used in an evaluated receipts settlement system, the assumption is that the corporate industrial engineering staff has already approved suppliers to send shipments without any need for a review of quantities shipped. However, there is always a risk that delivered quan­tities do not match the quantities listed on the packing slip, so the in­ternal audit staff should periodically compare actual delivered quantities to reported quantities and inform the engineering department of signif­icant discrepancies.

• Issue updates to suppliers regarding changes in reporting requirements. The evaluated receipts settlement process is a difficult one to set up, because the payment process is radically different from what suppliers are accustomed to seeing. Consequently, any subsequent changes to the process require a very high level of communication with the supplier base to ensure that suppliers can issue the information to the company that is needed to ensure that they are paid correctly and on time.
• Automatically reject all supplier invoices referencing a purchase order number. Even if every part of the evaluated receipts settlement process operates properly, what if a supplier mistakenly mails the company an invoice when it is no longer supposed to do so? Few companies are willing to throw away all incoming invoices, on the grounds that not all items received are ordered with a purchase order. Consequently, there must be a system for sorting through the remain­ing invoices arriving in the payables department to see which ones should be paid through the old payables system. The easiest approach is to immediately reject all supplier invoices that reference a purchase order number, since the deliveries addressed by these invoices obvi­ously should have been paid through the evaluated receipts settlement system. Another approach is noted in the next bullet point.
• Enter an evaluated receipts flag in the vendor master file for all desig­nated suppliers. As just noted in the last bullet point, companies some­times still receive invoices from suppliers, even though the payables system does not require them anymore. To keep the payables staff from double paying based on these invoices, it is very useful to create a flag in the vendor master file that indicates which suppliers are paid solely through the evaluated receipts settlement system. If this flag is turned on, then any invoices received from these suppliers will be automati­cally rejected by the computer system.

In general, the evaluated receipts settlement process is designed to be a highly efficient one that can strip massive quantities of labor from the ac­counts payable process. However, if control points that require manual inter­vention are added to the process flow, the high level of process efficiency will be lessened, making the entire process less cost-effective. Consequently, the best controls are those that can be completed automatically by the computer system, with occasional audits to ensure that information accuracy is suffi­ciently high to keep significant losses from occurring.

[tags]evaluated receipt, settlement[/tags]

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