NONEENTEREDGeneralUnderstandingofAccountsPayablesInternalControls,managementandgeneralknowledgeHamdyRashed,CMA6/13/2014 Accountspayableisimportantpartinaccounting/financedepartmentthatrequiregoodmanagementandseveralunderstandingandknowledgeofinternalcontrols,technicalinformation,laws,standardsandacceptablepracticestoenablestafftoperformtheirdutiesefficientlyandeffectivelyasitshouldtobeandwearetryingtoprovidethesummaryofinternalcontrols,managementandknowledgethatarerelatedtoaccountspayableinthesepapersTableofContentsIntroduction..................................................................................................................................................3UnderstandingAccountsPayableControls,management...........................................................................3UnderstandingOilandGasbusinessandIndustry...................................................................................3AccountsPayableRelationship.................................................................................................................4WithotherinternalfunctionalDepartment.........................................................................................4Withsupplier.........................................................................................................................................4WithManagement................................................................................................................................4WithInternalandExternalAuditor.......................................................................................................4WithGovernmentandfinancialinstitutions........................................................................................5AccountsPayableKnowledge...................................................................................................................6Contracts...............................................................................................................................................6PrevailingLawofhomeandhostgovernment.....................................................................................6CompanysCorporateGovernance.......................................................................................................7Standards..............................................................................................................................................8InternationalAgreements...................................................................................................................10OtherPracticesandtechnicalknowledge..........................................................................................10InternalControlComponents.................................................................................................................13ControlEnvironment...........................................................................................................................13RiskAssessment..................................................................................................................................13AccountingSystem..............................................................................................................................14Monitoring..........................................................................................................................................15DocumentsandRecordsinAccountsPayable........................................................................................15AccountsPayableDuties.........................................................................................................................16FunctionalProcesses...............................................................................................................................16InitialPurchase....................................................................................................................................16InvoiceLogging....................................................................................................................................17InvoiceDistributing/Locating..............................................................................................................18InvoiceandDocumentsChecking.......................................................................................................19InvoiceRoutingandprocessing..........................................................................................................20InvoiceLiabilityandPaymentRecording............................................................................................26AccountingControlMatrix......................................................................................................................28IntroductionIamwritingthesepaperstoenabletheaccountantandnonaccountingprofessionaltounderstandtherealrolesofaccountspayable.Manypeoplemayunderstandthattheaccountspayableisonlyresponsibleforjustprocessingtheinvoicesandshouldnothavetheminimumrequirementsofknowledgeorskillsandthisroleisnotforaccountantitisfordataentryemployee.AccountspayableshouldhaveseveralknowledgeandskillstoenabletheCompanytoprocessthepaymentefficientlyandeffectively.Therefore,Iintendtowritethispaperbasedonmyexperienceinauditingandaccountingfor10years.UnderstandingAccountsPayableControls,managementThis paper is not a policy or procedures for accounts payable, I am just trying to provide generalinformation of accounts payable management and internal controls in understandable mannerwhateverthespecializationandexperienceofthestaff.UnderstandingOilandGasbusinessandIndustryThe expenditures is considered a major part of oil and gas Companys transaction that representSeismic, drilling and acquisition expenditures. The accounts payable balances might be representedquite large in financial statements of some oil and gas companies but the number and the value oftransactionsareverylarge.Ifinternalcontrolsoveraccountspayableandexpendituretransactionsareweaker, the risks of misstatements will be significant. Therefore, accounts payable and its impact ismaterialforoilandgasCompanies.Severalaccountsmaybeeffectedbyaccountspayablesuchasdrillingmaterialsinventories,G&Gexpenditures,drillingexpenditures,productionexpense,productionanddevelopmentfacilitiesthatarematerialtothefinancialstatementsofOilandGasCompanies.TheassociatedriskstothesuchexpendituresandaccountspayablemaydifferfromCorporatetojointventureexpenditures.However,thefollowinginherentriskfactorsthatmaymotivatethemanagementtounderstatetheexpendituresandaccountspayablebalances,theremightbemotivationtooverstatejointventureexpenditurestorecoverthecostsfromoil.ManagementmightbeunderpressuretoachieveannouncedtargetprofitabilityandliquiditytomayleadthemtounderstatetheexpensesandaccountspayablebalancesHowever,thefactorsthatmayoverstatethejointventureexpendituresandliabilitiescouldbeinfavourofCompanybuttheoverstatedjointventureexpendituresmayleadtopersonalfavourratherthanCompanystoincreaseCorporatesprofitabilityoEstablishingthatmayleadtothatmaynotbeinfavourofCompany thatmaynotbeinfavourofCompany thatcouldbeinfavourofCompany.oTheassetsmightbemisappropriatedAccountsPayableRelationshipWithotherinternalfunctionalDepartmentIt is important to have ongoing communication with accounts payable and approving departments tofindefficientandpracticalsolutionsforanyissuesrelatedtoinvoicehandlinguntilrecordingandpayingtheinvoiceandtogetmanagementsupportfortheapproachofsolvingtheissue.Accountspayablestaffneedtohaveseveralknowledgeandskillstoenablethemtoexplaintheissuestodifferent staff that has different specialization and to enable them to understand other approach andattitudesforfindingsolutionsthatcouldbepracticalandacceptedbyallpartiesWithsupplierAccounts payable should work more closely with suppliers and communicate with supplier to let thesupplierknowandefficientlycooperatetomeet theaccountspayablerequirementsforprocessingtheinvoiceseasilyandsoftly,andthiscanbehappenedbyholdingameetingwithsuppliersaccountingandother related decision makers in conjunction with Companys approval department to get suppliersmanagementcommitmentandproperfeedbackoftheabilityoftheirsystemtobereconsideredintheplantosolvingtheproblemsoranytypeofissuesandholdameetingfordiscussingthepropersolutionsandobtainingagreedMemounderstandingverballytheninwritten.Also, accounts payable can contact directly with accounting department of supplier if supplier call theAP department for inquiring about status of its invoices. In this case, accounts payable should tell thesupplieriftheinvoicehasbeenprocessedandnotifythesupplieroftherejectedinvoiceswithinproperperiodoftimeiftheaccountspayablehasthereasonsofrejectingtheinvoice.WithManagementAccounts payables need to report to the managements of potential or actual risks and the controls tomitigatesuchrisks.Also,reportfrequentlytothemanagementofthependinginvoicesandtherequiredactions.WithInternalandExternalAuditorAlltheauditorscontacttheaccountingdepartmentsortheauditcoordinatorforanyinquiries.Accountspayable should receive from and responds to any audit inquiries (e.g. providing documents, providingexplanation of their findings) if the inquiries are placed under the scope, ability and knowledge ofaccounts payable. If not, the accounts payable needs to forward it to the appropriate personnel ordepartmenttoreplytotheirinquiries.WithGovernmentandfinancialinstitutionsObtaining acceptance from Ministry of Energy and other governmental agency for using the scanneddocuments and electronic approval on behalf of original documents and handwriting signature if thescanneddocumentsandelectronicapprovalistheadmissibleandreliabletoprovidebestevidencethatsupplierorCompanyadduceit.Communicatewithbanks regardingdelayinprocessingthepaymentsorstopprocessingthepaymentsuntilthebankgetadequateandcorrectinformationforremittance. AccountsPayableKnowledgeAccountspayablestaffshouldhaveseveralknowledgeandskillstohelpthemtoExplain the issue in the way that could be understandable for different specialists or differentdepartmentstaffUnderstand the practicablity ofapplyingthe solutions in viewof differentspecializationand tofindmiddlesolutionTomeetthestakeholdersrequirementssuchasGLaccounting,management,drilling/technicaldepartment,supplier,governmentsandpartnersandauditorsTheAccountspayablestaffneedtohavethebelowknowledge.Contracts35% of Accounts payable business is matching the invoice and ensuring the payments are made incompliancewithcontractssignedbetweenCompanyandsupplier.Therefore,accountspayableneedtothemainprovisionsthatarerelatedtothefollowingPaymenttermsPriceListScopeofworkDocumentsarerequiredtobeprovidedtoCompanyHowever, The Company may prefer to assign cost controller who has technical or engineeringexperience and qualification in addition to accounting and financial knowledge to be responsible forthreeway matching and check the validity of the invoice before complete the payment process,understanding the above contractual provision by the accounts payable does not conflict with roles ofcostcontrollersbutitcanhelpthecostcontrollerstodrawtheirattentionforsomethingthatcouldbenot unintentionally ignored by cost controllers and to enable the accounts payable to work with costcontrollertofindsolutionsforinvoiceprocessingissuesinconsiderationwiththecontractualprovision.PrevailingLawofhomeandhostgovernmentAccounts payable staff need to know the minimum legal requirements to allow the accountant toparticipate in establishing efficient invoice handling and payment process and the legal obligations ofaccountspayablepersonneltowardsseveralpartiesandhowdocuments,fileandrecordthepayments.Legalknowledgemayrepresent10%ofaccountspayableactivities.Electronic and documentary evidence is one of the more challenging cases that accountspayable may face. Either the accounts payable process the payments based on softcopy orhardcopy of invoice and supporting documents. If the electronic documents and electronicsignature or approval for payment process is considered valid evidence in court and for anylitigation or verification as long as it meets the admissibility rule of electronic evidence, theaccounts payable may avoid the manual approval to save time and increase the efficiency ofinvoiceprocessing.CommonwealthEvidenceActallowstoreplacetheoriginaldocumentswithelectronic documents as long as the electronic evidence is in compliance with rules ofadmissibility which is permitted by court and, Also Dubai issue electronic transactions andcommerce law which validates to use the electronic documents as evidence if it is admissibleandreliable.Tunisiaissuedelectronicexchangesandelectroniccommercebilllawin2000whichvalidate the electronic documents as written documents. Iraq has not officially issued law tovalidate the electronic documents and the requirements of its validity. However, Iraqi CivilEvidence Law of 1979 validates the official copy if the original document is not available inconditionofthefollowing:oOuterappearanceofofficialcopyisnotdoubtedtobeexactlyliketheoriginaldocumentoOfficialcopytakenhasthesamereliabilityandaccuracyoforiginaldocumentsoThescannedcopyofcopytakenfromoriginaldocumentsisnotconsideredasevidencebutmaybereadforinformation.,theelectronicdocumentsmightbecoveredbythislawtoowhenthelawvalidatetelegraphstobeasvalidevidencebutifitsoriginalcopydepositedintheissuingofficesignedbythesender.Otherwise,itwillnotbevalidevidenceanditwillbeconsideredforinformationonly.InYemen,thereisnogeneralelectronicevidenceorcommercelaw,thereiselectronictransactionlawthatis pertaining to banking and financial institutions transactions but the court may take theelectronicdocumentasevidenceandmaynot.In many regulations of countries in the world impose the minimum period for archivingdocumentsoftransactionsthatarerangedbetween57yearsifthereisnolitigationorclaimsare raised after this period, the Company is allowed to damage or shred the documents.Therefore,accountspayableneedtofiletheelectronicorhardcopyofdocumentsinthemannerthatenablethemtoextractiteasilyinfuture.Accounts payable staff should know that they will be under legal obligations or claims if theydiscloseanyconfidentialdocumentswithoutpermissionofsuppliersandCompanyornotundersubpoenaorauthorizationofgovernmentalagencies.PSCandJOA mightbe consideredaslawthat theCompanyshouldbe compliedwith.Accountspayable need to distinguish between recoverable and nonrecoverable costs and billable andnonbillable costs to help the authorized person to use the appropriate account code forchargingtheexpenditures.Accounts payable may need to have knowledge in taxation many countries impose VAT, salestax on each suppliers invoices for goods or services consumed inside the country. Therefore,accounts payable need to charge the tax to the withholding tax account and the remainingamount to the suppliers account and pay the supplier the net in condition of paying the taxfrequently.Theaccountspayableneedstohavecommunicationwithexternallegal,taxconsultancyforanyimportantissues.CompanysCorporateGovernance25%ofaccountspayableworksdependonCompanysframeworkofinternalcontrol.Accountspayableneed to follow the Corporate Governance principles such as principles that require the company toestablishandapplyeffectivecontrolenvironment,riskassessment,policiesandprocedures,accountingsystemandmonitoringforinitiating,processingandrecordingpaymenttransactions.Accountspayablesystemgovernanceshouldbeeffective by having relevant and clear framework of internal controls for developing, adoptingstrategicplanforaccountspayableandmanagingtherelatedrisks,accountablebybeingresponsibleforjustifyingmajordecisiontodifferentpartiestransparentbyenablinguserstoaccesstotheinformation.AccountspayablestaffshouldbeawareofcodeofconductthatispublishedbytheCompany,codeof ethical business, criminal act, Foreign Corruption Practice Act (FCPA) and transparencyrequirementsdoenabletheaccountspayabletoreportanyillegalpaymentstotheappropriatelevelofmanagementperofCompanyswhistleblowpolicyortoprovideappropriateconsultancytothemanagement. Also, to enable them to narrate the transactions appropriate to enable the GLaccountant, cost controller, internal information users to know the purpose of the payments andhow to use it for transparency requirements without wasting time to refer to the originaldocuments.Standards10% of accounts payable work with accounting standards, accounts payable should have someknowledgeofIFRS/GAAP/andISA/GAASoraccesstothosestandards.Understanding and knowing the disclosures and presentation that are required by eitherIFRS/GAAPwillhelptheaccountspayabletocodetheexpenditures,accruedexpenditures,andliabilitiestotheappropriateaccountsandnarratethetransactionsinmannerthathelptheGLorreporting department to get the adequate presentation and disclosure information from thenarration.The narration of transactions can be limited which could not contain more than 30characteristics which make the narration very short that could not provide adequate financialand managerial information. Therefore, accounts payable needs to discuss this issue withrelated department such as IT Department, General Ledger and Reporting Department toincreasethecharacteristicsofthenarrationfieldtobeabout6075characteristics.ForexampleifCompanypaidtheinsurancepremiumthatcovers12monthsinadvance.GLaccountantneedtoknowtheinsurancepurpose,insurancereferencenumber,theperiodwhichtheinsuranceiscovering by date. Therefore, the accounts payable needs to narrate the transactions as followPrepaid Medical Insurance Policy xx/HEIN/XXXX 2/1/20141/31/2015PV12500 This narrationcontains72characteristicsandcanhelptheGLaccountanttoknowthefollowing:oIt is prepaid Expenses. Therefore, it should be fully coded to prepaid expense which iscategorizedunderassetsoIt is medical health insurance not work incident compensation insurance or fireinsuranceorsecurityinsuranceoPolicy reference is required, GL accountant may need to know the insurance policyreference to prepare prepayment schedule that should be provided to the financialauditor for their examination/review and the Medical Insurance may contain maypoliciesfordifferentregionsanddifferentcoveringperiod,buteachpolicyhasdifferentreferencethatcanbeusedasuniquereferencefordifferentmedicalinsurancepolicy.oIt covers from period Feb 1, 2014 to Jan 31, 2015, and this information help the GLaccountanttoamortizetheprepaidexpensesoverthespecifiedperiod.oIt showsthe reference type and ID oftransaction documentsto enable the accountantortheauditortovouchfromtheGLtothedocumentseasily.Accounts payable may code the capital or finance lease to operation lease expense. Also, mayconsider the consignment as Companys inventory or expense them without consuming them.Charging the expense to the appropriate accounts can be under the roles of the PO approvingdepartmentorrequestingdepartmentbutifPO/CCOR/PRdoesnotidentifytheaccountswhichthe purchased items of materials or services should be coded to, accounts payable canpreliminary code the invoice and revised by the invoice approver and cost controller duringinvoiceprocessing.Accounts payable should understand the auditing concepts to help the accounts payable toknowhowtheauditorthinksandwhatistherequiredinformationanddocumentsthatmustbeprovided to the auditor to facilitate their work and get unqualified audit opinion. The auditorsfocus mainly on internal controls and audit procedures that ensure whether the financialassertionsarereasonablyachievedasfollow:oAll the liabilities and transactions are completely recorded. In other words, CompanydoesnotforgettorecordanytransactionsandliabilitiesthatarepertaintothefinancialperiodoAllliabilitiesareexistentandtransactionsareoccurredduringthefinancialperiodoAll the transactions are resulted from purchasing materials or services or payingroyalties and taxes And all the liabilities are obligation of the Company at the balancesheetdateoAlltheforeigncurrencyexpendituresarevaluedattheexchangeratewhichisstatedintheProductionSharingContractsoAlltheexpendituresandliabilitiesareproperlycodedtotheappropriateaccounts thataregatheredtopreparethefinancialstatements.The auditors need to verify the existence of liabilities and completeness of the liabilities andexpenditures by performing alternative substantive audit procedures which the auditor verifythepaymentsinthesubsequentperiodinvoicebyinvoice.Therefore,accountspayableneedtoprepare their outstanding reports and payment reports by suppliers and by invoices to enabletheaudittoperformtheirdutieseasilyandfornothavingpendingauditrequirementsanddelayinissuingcertifiedfinancialstatements.Theaccountspayableneedtoknowthepaymentsthathavenotbeendeliveredtothebankorsuppliersshouldnotbereflectedinthefinancialstatements.E.g.Ifthepaymentsarebycheck,andthechecksareplacedinCompanysofficeinDec31,20xxwhichhavenotbeendeliveredtosuppliers yet, the payment should not be reflected in Companys general ledger, and If thepaymentsaremade bywiretransferorbank transferrequest,andtherequestshavenot beensubmittedtothebankatDec31,20xx,thepaymentsshouldnotbereflectedinthecompanysgeneral ledger. But it may not practically to cancel the payment or reverse the payments, orverifythepaymentsdeliveryonmonthlybasisbuttheCompanymayneedtodothateitheronquarterlyorannuallybasis.InternationalAgreements5%ofaccountspayableworksneedtounderstandfewofinternationalagreements.FATFisstandforFinancialActionTaskForceforinternationalstandardsoncombatingmoneylaunderingandthefinancingofterrorism&proliferation.Suchstandardsshouldbeappliedforfinancial institutions, lawyers and stock brokers and few others. Accounts payable should notunderstand and apply those standards, accounts payable should be aware if the bank or anyfinancial institutions that has strong system may suspect on some transactions due to quitematchingnamesofthesuppliersandsuspiciousnames.Therefore,correspondent/intermediarybanksmaysendafeedbacktothesendersbankwhichrequiresmoreinformationofeitherthemoneysenderormoneyrecipients.Suchinformationmayincludethefollowing:oFullNameoftheSuppliersorSendersoDateofbirthifthesupplierisindividualordateofestablishmentifthesupplierisentityoThenationalityofthesupplierorsenderoFulladdressofsupplierorsendersTherefore,Accountspayableneedtohaveadequateinformationoftheirsuppliersandprovideittothebankatthepropertime.Office of Foreign Assets Control (OFAC) which is one of U.S Treasury Department administersandenforcessanctionsbasedonU.Sforeignpolicyandsecuritygoalsagainstcomecountriesororganizationsintheworld.AllU.SCompaniesshouldcomplywithOFACregulationsandensurethat they do not transfer or doing business with prohibited organizations and countries.Otherwise, the Company may face fines up to $10,000,000 and imprison up to 30 years forviolations.Tomitigateoravoidsuchrisk,theAccountspayablecancheckthevalidityofpayingtheinvoicestothesuppliers,OFACprovidesaprogramandlistsofrestrictedpeopleandentitiesand update them from time to time that can help U.S Companies to check the names of theirsuppliersiftheyhitthenamesofrestrictedentitiesorindividuals.Ifso,theyshouldinformthemanagementtotaketheproperactions.Ifnot,theycanprocessthepayments.InAustraliaandothercountriesmaynothavethesameregulationsbutitispreferableformostofCompaniestochecktowhomtheyshouldsendthemoneyto.AustralianBankAssociationcreatedguidelinesthat are limited to obligations of commonwealth autonomous sanction law which implementsUnitedNationsSecurityCouncil(UNSC)sanctionsthatareimposedbyCharterofUnitedNationsAct 1945 (COTUNA) which requires the banks to filter overseas payments against lists ofdesignatedpersonsorentitiesandrequestmoreinformationaboutsendersorrecipientsthenifthe information provided does not related to designated persons or entities, the bank canrelease the payments. The individual who offends Commonwealth Autonomous Sanctions Act2011willfaceupto10yearsimprisonmentandpenaltiesmayreachto3timesoftransactionsvalueorUS$425000andreachtoUS$1.7millionforCorporate.OtherPracticesandtechnicalknowledgeThe following practices and knowledge represent 10% of accounts payable work. Accounts payableshould not how the process and procedures and the requirements for making payments within localbanksoroverseapayments.Many suppliers are asking when they will receive their payments or why the payments havebeendelayedtobecreditedintotheirbankaccounts,however,manyaccountspayablemaynotprefertoanswertothosequestionsandtheyprefertoberesponsibleuntiltheynotifythebanktotransferthemoneyordeliveringthechecksbutitishelpfultohealthybusinessenvironmentand communication with suppliers, therefore, accounts payable need to know how the Localbank payments is processed and how long the typical period for receiving the transfer requestbythebankandcreditingsuppliersbankaccount.MostoftheSWIFTtransactionsthetransferbetweenlocalbanksisclearedwithincentralbankorFederalbankoftheCountrywhichneedsupto3daystobecompleted.Accounts payable need to know that there are some overseas payments should be madethroughcorrespondent/intermediarybankandthroughinternationalnetworksuchasSWIFTorIBAN. Accounts payable need to know how the international payment is processed and howlong the typical period for closing the payments. To enable the accounts payable to ask thesuppliersforprovidingtheadequatebankdetailsfortheirpayments.Accounts payable need to know what are the needs of management and other department toenable them to find ways to meet their needs and prepare the required reports such as theoutstandinginvoices.Should accounts payable investigate further on suppliers invoices? If the accounts payableresponsibility is to match between the PO, receiving report and invoice and get satisfied onsuppliersinvoicesbeforeprocessingtheinvoice,theanswerisYesbutifthisroleiscarriedbycost controller, the answer will be No except for significant error suspect, if the accountspayable or finance manager has professional doubt that supplier may not charge themappropriately, the accounts payable have the right to raise inquiry and get more clarificationfrom cost controller or supplier, if suppliers or cost controllers clarification is not satisfiedenough the accounts payable can investigate further on suppliers invoices in cooperation andsupportwithprojectmanagerandfinancemanager.Thebelowcanbeexamples:oIf the supplier monthly charges the Company $20,000 of diesel consumption forgenerator supplied by supplier and suddenly Company receive suppliers invoice byamount of $60,000. The accounts payable has the right to get clarification on suchinvoicesfromcostcontrollerorsupplier.oIf the supplier supply 200 kW generator for Companies to only supply 24hours/7 dayspowerforfieldcampandsuppliersubmitmonthlydieselconsumptionofthisgeneratorby amount of US$ 78,000. The accounts payable may feel doubt that the power whichmay consume in the field may not exceed 150 kw based on the equipments andresidencycontainersthatareavailableinfieldcamp.Means,thegeneratormaynotbe loaded. And such generator may consume about 12 gallon of diesel per hours atmaximumratebasedonthemanualofthegeneratorwhichisobtainedfrominternetoragent. Accounts payable may make simple computation based on the currentinformationandfindthedieselconsumptionshouldnotexceed US$26,200 permonth(12 gallon/hour * 24 hours * 30 days * 3.785 liters/gallon * US$ 0.80/liter). Therefore,accountspayablehastherighttohavereasonablejustificationforsuchcostsfromcostcontrollerorsupplier.oAccounts payable should be cautious before asking any questions that maymisunderstood and create conflicts with project management. Therefore, accountsshould have minimum technical information to enable them to raise the question,understandtheexplanationproperly. InternalControlComponentsAccounts payable staff needs to know the components of internal controls that could impact theirdepartmentControlEnvironmentManagement commitment to competence should be reflected in hiring and training the accountspayablestaffandinestablishingeffectivemanagementsassignmentofauthorityandresponsibilityovertransactionsthatarehandledbyaccountspayables.Allaccountspayablestaffneedtohaveanaccesstothecodeofconductpolicyandtraining.Managementneedstoestablishpolicythatdealingwithsuppliersandemployeesthatarebasedonhonestyandfairnesssuchassuppliersunderbillingshouldnotbeignored,employeesneedtonotifythesupplierevenifthemistakeisinfavorofcompany.DealingwithproblemexistssuchaspotentialdefectivematerialsorservicesreceivedDealingwithmaterialwrongpaymentstosuppliers.AnymanagementoverridingneedtobeappropriatelyandhonestlydocumentedEach accounts payable staff need to have job description that require the minimum knowledge, skillsand experience and qualification. More knowledgeable staff does not conflict with departments goalsbutitshouldbeusedforimprovingtheworknotformisunderstandingtheroles.Understandingtheriskand the roles of GL accounting, accounts payable, cash custody and payment authorization is veryimportantforsegregatingtheduties.RiskAssessmentAccountspayableneedtoassesstherisksthatsurroundtheirdepartmentandtheirroles.Assessingtherisk help the department to identify the proper controls that can reduce or void the risk and cost thecompanyless.CompanymayfaceproblemofmeetingthecashflowneedsforpurchasingtransactionsCost increases on Company due to missing the cash discount or losing good supplier due todelayinpaymentsDuplicate payments due to receiving the invoices twice or losing original and paying based oncopythenpayingoriginalagain,orreceivingfirstcopybyemailandreceivingtheoriginallater.If Companys management trust that their employees have high ethical and virtual standards,attitudes, behaviors and believes and their suppliers have the same standards, attitudes,behaviors and believes and management see there is no need to make antifraud controls inaccountspayableprocesses.Itdoesnotmeanthatweshouldnothaveanyantifraudcontrols,theaccountspayableshouldplacetheminimumantifraudcontrolsoverthesignificantprocess.ThebelowareexampleofsuchrisksRisk Committedby TypeofRiskPayingduplicatedinvoices Supplier ErrororFraudPayingduplicatedservices Supplier ErrororFraudPayingtowrongbankaccount SupplierorEmployee ErrororFraudPayingunauthorizedpurchases Employee ErrororFraudPayingnotreceivedgoods/services Employee&Supplier ErrororFraudPayingdefectivegoods/services Employee&Supplier ErrororFraudThelasttworiskscanbecommittedbybothemployeeandsupplierbyerrorduetotheuncleartermsofdeliveryandpaymentsinPOorcontractAccountingSystemAccounts payable need to maintain effective and efficient accounts payable system, accounts payableneedstoevaluatethetheirprocessesfrequentlyandestablishthecontrolsthatneedtobeexistedoveraccounts payable. Controls represent establishing policies and procedures. Accounts payable shouldthink the longterm system needs for not redesign the system radically on frequent basis. Accountspayableneedtoknowthatthesystemshouldabletoprovidesomeanalyticalinformationifitisneededby management to identify the problem and action to be taken. The analytical information whichaccountspayablecanprovideareasfollow:CurrentinvoicesprocessesduringthisperiodincomparisonofthelastperiodandbyoPaymentwithinduedateoPaymentafterduedateoAveragepaymentperiodoLossofpayinginvoicelatebymissingcashdiscountAccountspayableneedtoknowhowthesystemcanprovidereportsthatareneededbymanagementorauditorssuchasagingoutstandinginvoicesbyoSuppliersoInvoicesAccountspayableshouldensuretheinformationisprovidedontimelybasis,andbasedonpriorities,toensurethatmilestonestoachievefinancialreportingobjectivesAlso, Accounts payable need to know the mechanism in obtaining relevant external information onlegislationandeconomicchangesthatcanimpactthedepartmentandperformanceofdepartment.Accounts payable need to know how to design, establish or recommend to use the effective paymentsystem.CompanymayprefertouseIntegratedAccountingSystemsuchasSAP,OracleorJDEandtrytointegrate all the subsystems between each other. Means to run invoice and payment processing andaccounts payable, inventory and procurements, contracts/PO administration, petty cash, GeneralLedger, Project Management, budget and reporting from one software application. Other companiesmayprefertousetheaccountingsoftwareapplicationforspecificpurposeforgeneralledgerandsomereporting and other processes could be run by other software or spreadsheets. All those depend onCompanyssize,profitabilityandliquiditytobuyordesignveryeffectiveintegratedsystemorusecheapseparatesystemsandtrytofindwaytointegratebetweenthem.MonitoringMonitoring the results of operations and business of accounts payable could be achieved by thefollowingoAnalyzethetrendsofaccountspayableperformanceoCommunication with suppliers and obtaining frequent statement of accounts to becomparedwithCompanysrecords.oPreauditandpostauditactivitiesoEvaluationofinternalcontrolsandprocessoSupervisingtheaccountspayableoDeficiencyshouldbereportedontimelybasisandaccuratelyoInternalauditforaccountspayableprocessandtransactions.DocumentsandRecordsinAccountsPayableContractCallOutRequest(CCOR)PurchaseRequisition(PR)PurchaseOrder(PO)ContractReceivingReportSupplierInvoiceRoutingInvoice/PaymentVoucherInvoiceRegisterVendorMasterRecordsVoucherregister/BankRegisterDisbursementSheets AccountsPayableDutiesMatchSuppliersinvoicestoPOandReceivingReportTaketheopportunityofprovidingearlypaymentdiscountfromsuppliersObtaininternalapprovalsforsuppliersinvoicesPaysupplierinvoiceswhendueFollowupsupplierrequestsforpaymentCommunicate with suppliers to either provide adequate supporting documents or providejustificationindiscrepanciesfoundintheirinvoicesCommunicatewithsuppliersfortheirpaymentscallObtainingpriorjustificationforanyrushpaymentsFunctionalProcessesInitialPurchaseHowever typically the Purchase Requisition/Contract Call Out Request are the start oftransactiontrialbutoit may not be required for some services or items which the requestor/purchaser maystartwithissuingPO.TypicallythePOshouldbecentralizedbyLogisticsandMaterials(ProcurementDepartment)butitmaybedecentralizedamongthemainrequestingdepartmentsduetooTherequestormayhasfastcommunicationandgetbestpricesfromseveralvendorsoThe requested items may contain high specialized and technical characteristics whichtheprocurementdepartmentmaylackofknowledgeorexperiencetogetthebestitem.However, Typically, the purchase Requisition/Contract Call Out Request or PO needs to beprenumbered or automatically serialized and authorized by the appropriate personnel as pertheCompanyspolicywhatevertheoriginatingdepartments.The Purchase Order should contain precise information regarding the order such as thefollowing:oNameofsupplieroDateofissuingthePOoThepriceandtotalvalueoQuantitiesoDeliverytermsoAccountsthatshouldbechargedtooPaymenttermsThecontractcontainsmoretinyandcomplicateddetailsbetweenthesellerandbuyer.TypicallytheseveralcopiesofPOshouldbedistributedamongthefollowingoVendoroAccountsPayableoRequestingDepartmentoProcurementDepartmentBut if there is decentralization in purchasing the items or services, the first three copies arerequired.Notmerely,theaboveisusefulifthePOisentirelyandcorrectlyfilled,preparedandapproved before sending it to the vendor but practically most of PO is not properly filled andapproved.Therefore,theaccountspayablesmayeithertofollowuptherequestororpurchasortoprovidetherevisedoradditionalapprovedPO.SomeservicesrenderedoritemssuppliedispaidbywithoutPOorcontractduetothenatureofthoseitems orability toidentifythe priceandquantityneedsorabilitytoobtain thesignatureofthevendorsuchasthefollowingoPublicutilitiesconsumptionsuchaselectricity,phone,internetandwateroOfficecleaningandsuppliesIfthecompanyspaymentsystemorthereiscontractualconditionswithhostgovernmentthatinsistonpayinginvoicesbasedonPO,CompanymayrequiretouseopenPO(BlanketPO)whichdetermine its validation for 12 months or less and does not determine the price, quantities orbothbutCompanyneedstopreparePurchaseRequisitionthatispreparedonweaklyormonthybasisandgatherallthequantitiesreceivedduringthatperiodtopaytheinvoice.However. typically the Goods/Service Receipt Note is prepared internally and provided to thesupplier, Contractually, the vendor send daily/weekly/monthly reports for delivering items orservices which need to be signed by Companys authorized representative or Company orauthorizedpersonnelintheCompanymaysignonthevendorsinvoiceasgoods/servicereceipt.Supplier should provide adequate supporting documents as they are stated in the contract orPO along with supplier to save the time of accounts payable accountant to collect thosedocumentsfromseveralinternaldepartmentsInvoiceLoggingTypicallythesuppliersendtheinvoiceassoonasthegoodsorserviceisreceivedbutoSuppliermaypredatetheinvoicebeforetheserviceorgoodsreceivedtobepaidwithinnumberofdaysoftheinvoicedateorafterthereceiptofinvoice.oSuppliermaynotprovide morecareofproviding goodsorservicewhichlead todetectdefectiveafterpayingtheinvoiceandleaddifficultytoreimbursethedamagesTypicallythesuppliersendtheinvoicesdirectlytoaccountspayablesiftherearegoodcontrolsover purchase order or contract call out request process that is entirely completed and filledaccuratelybytherequestor/purchasorbutoThere are many problems with purchase orders, therefore, it goes to therequestor/purchasordirectlyforapprovalsuchpracticemakepriorordereditemsandinfactorderdifficulttobedistinguished.Receiving the invoices directly by requestor/purchasor may lead to miss theinvoice and when supplier call for not receiving the payment, the invoicesuddenly could not be allocated with no admitting to have the invoice bypersonnel whoreallyreceived, thensupplierisasked tosend the invoice againand loss the cash discount, after paying the second copy, the lost originalinvoicemaysuddenlyappearafterfewmonthsandendsupinaccountspayabletobepaidagain.oAllinvoicesshouldbedirectlyreceivedbyaccountspayableforloggingthem,thenifthePO/CCOR or any supporting documents are not properly provided by supplier. Theaccounts payable either to reject the invoice or forward the invoice to therequestor/purchaser to approve the appropriate PO/CCOR or providing adequatesupportingdocuments.Typically, Supplier should prenumbered his/her invoices but some suppliers send NonnumberedinvoicetotheCompanyinthiscase,oaccounts payable should communicate with approval department or requestingdepartmentandsuppliertoserializedhis/herinvoiceoif vendor invoice is manually prepared but if vendors accounts system could not addserialized invoice automatically or manually, The accounts payable needs to combinebetweenthefirstnameofsupplier,monthandyearoftheinvoicedate.oif the supplier issue monthly invoices but if the supplier issue invoices more frequent,the accounts payable should communicate with approval /requesting department andsuppliertogatherallthedeliverynoteandissuemonthlyinvoiceandcombinethefirstnameofsupplier,monthandyearofinvoicedateasinvoicenumberoIf all the above is not possible, accounts payable clerk needs to combine between thefirstnameandinvoicedate.The personnel whose duty is invoice logging and recording the invoices in register is notresponsibleforcheckingtheavailabilityofadequatesupportingdocuments.If AP clerk received the invoice and supporting docs by email, clerk should print them out(Pleaserefer totheaccountspayableknowledgeforprevailinglawonthevalidityofelectronicdocuments)AP clerk should stamp on the invoice as stamped received and identify the date of invoicereceipt.TheAccountsPayableClerkneedstorecordthefollowingdataintheinvoiceregisteroSupplierNameoInvoiceNumberoInvoiceDateoInvoiceCurrencyoInvoiceAmountoPurchase Order, contract Number, Purchase Requisition number or CCOR number andtheiramountsoTypeofcopy(Softcopyorhardcopy)oDateofreceivingtheinvoiceInvoiceDistributing/LocatingThenAPclerkshouldwritetheserializedjobnumberontheinvoiceanddelivertheinvoicestotheAccountsPayablestwiceeveryday.Thefirsttimeon10:00amandthesecondtimeon3:30am.APaccountantsshouldidentifywhichinvoicesthatneedtoberoutedinthesystemsandwhichshouldbepaidbybankandwhichshouldbepaidbypettycash.InvoiceandDocumentsCheckingAccountsPayableaccountantshoulddothefollowing:oTrytochecktheavailabilityofsupportingdocumentsbyreadingparticularprovisionsofthe contract or PO that explain what are the required documents that should beprovided to the Company, and the verifiability of receiving the items or services, andwhat are the necessary documents that should be provided along with invoice to beprocessedforpayments,thetermsofpaymentsandmayothers.IfitisdifficultfortheAP accountant to do that, he/she can ask for help from cost controller, approvaldepartment, purchasor/requestor or any person who is responsible for making threewaymatchingoranypersonwhoismorefamiliaraboutthecontractsandPO.Iftheinvoiceisnotproperlysupported,theAccountsPayableeitherFollow up the purchasor/requesting/Approval department to providethe adequate documents. Andthispracticewaste thetime of accountspayable and make the Accounts Payable be responsible for anotherCompanysslipshod.Reject the invoice and notify the supplier of rejecting the invoice untilthe appropriate supporting documents are provided along with invoicebut before doing that the accounts payable should communicate withapprovaldepartmentandcontractadministratortoeitheroAdd agreed provision in the PO or contract that only invoicesthat are supported by agreed documents along with invoiceswill be considered for payment process and the cash discountwill be due based on the receiving the agreed documents withinvoicesthataresubmittedtoaccountspayablesoCommunicate with contract administrator and approvaldepartment and supplier to agree and inform the appropriateemployees that any invoices received without adequatesupporting documents should not be processed for payments.And notify the supplier in written by sending either email orMemofortheaboveunderstanding.oCheckthemathematicalcalculationoftheinvoicesoConsider the priority of the processing the invoice, priority consideration is based onIdentifywhichtheinvoicesthatduecash(promptpayment)discount,nearduedateinvoice,urgentandveryimportantinvoiceTheinvoicethatmeetthetermsofpaymentsandtermsofdeliveryoScanthe hardcopyofthe invoice and thesupporting documentsandsavethesoftcopyinthesharedfolderintheserverandfilethehardcopyinthependingboxesInvoiceRoutingandprocessingAfter delivering the invoices to the appropriate person. Each accounts payable personnel need to gettheinvoicesandprocessthepaymentseitherbylocallyorinternationallybytheauthorizedpersonnelLocalPaymentsInvoice paymentslocallyshouldbe madeforallsuppliersinvoicesthatareincurrencyof hostcountrysuchasIraqiDinareitherbycheck,transferorcash.Somesuppliersinvoicesmayneedtobepaidlocallyeven if they are in international currency such as USD, CAD, AUD, GBP and EUR but Accounts payableshould establish policy to help them to identify the invoices that need to be paid locally and eitherthroughbankorcashsafeandinternationally.BankPaymentMany subsidiary maintain two local bank accounts in local currency (Iraqi Dinar) and USD any otherforeigncurrencypaymentssuchasGBPorEURshouldbepaidthroughUSDBankaccount.Accounts payable need to establish criteria that distinguish between the invoices that need to be paidby bank that are located in the overseas, local bank or cash. The following criteria could be helpful insomehow:Frequencyindealingwiththesamesupplier,andThevalueofeachinvoiceraisedbysupplier,andThevolumeofexpectedbillingbysuppliers,andThecurrencyofsuppliersinvoicesThebelowtableisnotrulebutisanexampleforthecriteriaofinvoicespaymentssourcesCriteria OverseasBank LocalBank PettyCashFrequency in dealingwiththesamesupplierMorefrequently OncetimeOrfrequentlyOncetimeorfrequentlyThevolumeofexpectedbillingbysuppliersMore than 12 invoicesintheyearLessthanorequalto12invoicesintheyearLessthanorequalto12invoicesintheyearThe value of eachinvoice raised bysupplierMorethan USD3500 orequivLess than or equal toUSD3,500orequivbutmore than USD 500 orequivLess than or equal toUSD500orequivThe currency ofsuppliersinvoicesInternationalCurrency Local Currency andInternationalCurrencyLocal Currency andInternationalCurrencyOffice supplies such as stationeries, mineral waters, fruits and others is more frequentpurchasesanditisnotlogictopayeverydaytwiceeveryweekforsuchconsumables.Therefore,itispreferabletoaskthesuppliertobilltheCompanyeverymonthandsendtheinvoicealongwith daily delivery notes. Approving department need to prepare purchase requisition onmonthlybasistoprocessthepaymentseitherbycashorbank.Paying the expenditures through check or transfer is processed through better controls thanpayingcash.Therefore,Companyneedsreduceitspaymentsfromcashtotheminimumlevel.Accounts payable account need to match the invoice with PO and delivery note or receivingreportbeforeprocessingtheinvoices.AccountspayableshouldstampontheinvoicewithAFEapprovalstamp,thensubmittingtheinvoicesfortheG&Sreceiptapprovalsontheinvoice.AccountspayableshouldsignontheinvoiceasT&CverifiedorsignonthepaymentvouchersaspreparerThe accounts payable should fill the required field of payment vouchers, and the paymentvouchernumbershouldbeserialized.Accounts payable should write the check or prepare bank transfer based on Suppliers officialletterorinstructionsoninvoice.The Payment Voucher, check or transfer document, invoices and supporting documents aredelivered to authorized DOA or General Manager to sign on the payment voucher as DOAapprovalandoncheckortransferasSignatoryA.FinanceManagerorhis/herdeputyshouldsignonthecheckortransferassignatoryBThepaymentvouchershouldbepostedtotheBankPaymentVoucherRegisterPettyCashPaymentsPayingtheexpendituresbycashmaynotsubjecttostrongcontrols.Therefore,Companyneedsreduceitspaymentsfromcashtotheminimumlevel.AccountspayableaccountneedtohavepolicywhichrequirestheinternaldocumentsforpayingincashTheapprovingdepartmentshouldfillandapprovethe pettycashpaymentvoucherandobtainFinance manager approval. The accounts payable need to check the authorization limit of theapprovers.Cashiershouldmanuallyserializevouchernumber.Cashier should either obtain recipient signature, fingerprint or money receipt note when themoneyreleasedfromthesafe.ThepaymentvouchershouldbepostedtothePettyCashPaymentVoucherRegisterInternationalPaymentsInternationalpaymentsisrequiredvendorsetupfromauthorizedCorporatefinancepersonnel.Accountspayableshouldfillbankdetailsformfornewsupplierandsignonform,thensendthescannedapprovedformalongwithinvoiceforvendorsetupinsystem.Accounts payable should receive confirmation feedback from Corporate finance team thatsupplierhasbeensetupinthesystemAccountspayablestaffneedtoprocesstheinvoicesbasedontheappropriateprioritybasisAccountspayableshouldroutetheinvoiceinthesystemWebInvoiceRoutingwhichisusedforthefollowingpurposes:oArchivingthescanneddocumentsoApprovaloEasilyandlesscostlytobeaccessedbyemployeesCommonproblemsinroutingandprocessingAccountspayablenormallyfacediscrepanciesinsuppliersinvoices,CompanymayprefertooRefuse the invoice with providing justification letter or debit/credit note. Issuing thedebit/creditnotehelpthecompanytotracktherefusedinvoicebecausesomesuppliersisnotifiedandreceived therejectedinvoice buthe/shesenditbackagainto Companywithoutrevisingitandafterlongperiodoftime.IftheCompanydoesnotkeeptrackonsuchrefusedinvoices,therewillbepossibilitytopaythediscrepancies.oThediscrepanciesininvoicescanbeminoranddoesnotneedtorevisedthePOorrejectandissuedebit/creditnotethenreceiveitagain.Therefore,itispreferableoraccountspayabletoestablishpolicyforinvoicetolerancelimitthatallowtheaccountspayableorcost controller to tolerate any discrepancies that is within the threshold limit incondition that this discrepancies should not be repeated more than 4 times a year foronesupplier(e.g.1%ofinvoiceamountorUSD200whicheverisless).Suchpracticecanhelptoincreasetheefficiencyofaccountspayable.oRefuse the full amount of invoice due to part of amount is disputed with supplier maynot be in compliance with contract, if the contract indicate that in case of disputedamountsinthesuppliersinvoice,theCompanyshouldpaytheundisputedamountandnotify the supplier for the disputed amounts to be solved later. In this case, Companymayrequiretopaytheinvoicepartiallyanddependingondebit/creditnotes.Untilthisissueissolvedlaterwithsupplier.ButCorporatemayprefertotakethedebitnoteifthesupplier issue credit note but this could not be happened if the supplier may not besatisfied yet or debiting his account by the disputed amounts and may need time toprovidejustification.Inthiscase,accountspayablemaycoordinatewithGeneralLedger,approvingdepartmentandcostcontrollerstoimmediatesuspendaccountsfordisputedamounts with suppliers which booked as liability that require the cost controller,accountspayabletofollowthemupwithsuppliertoeithertodropitdownaftertakingcredit note from supplier or paying them back by issuing credit note and gettingreasonablejustificationfromsuppliers.Wrong accounting codes, accounts payable or costs controller may use the different accountsdue to either the AFE may have not approved by majority, General Ledger may not setup theaccounts yet, account could not be pickup by the web invoicing application or by mistake.Accounts payable need to communicate with General Ledger department or systemadministratortosolvetheaboveissue.Payingbasedonscannedinvoiceanddocuments,asitwasindicatedaboveforthelegalviewforelectronicdocumentsinhostcountrye.g.Iraqorhomecountrye.g.Australia.Itisnecessarytoknowthatpaymentbasedonscannedinvoiceorcopyislegitimateornotinthehostandhomecountries.Also,IfCompanydecidedtopaybasedocopiesorscanneddocuments,theCompanyneedtoestablishstrongcontrolsoversuchprocessbecausetheriskofpayingbasedoncopyisduplicate payment when vendor claims for not receiving the payments and send another copyor send the original invoice later on. For eliminate or reduce the risk of duplicate payment forscannedcopy,CompanyneedtoestablishthefollowingcontroloSearch for invoice by number, supplier name and amount before or during invoiceloggingoThere web invoicing function could detect if the invoice number is duplicated byindicating the Duplicated invoice in the web invoicing and creating the link of thepreviousinvoice.oCompany should pay the invoice based on PO or CCOR. Otherwise, the company couldnot figure out the duplicated service or materials. Accounts payable need to improvethecontrolstoenablethemtodetecttheduplicatedPOwhentheinvoiceisloggingandwheninvoiceisuploadinginthewebinvoiceapplication.oCompanyneedtostateinthecontractsorPOthattheinvoicemustbeprovidedtothecompanywithin3090daysofdeliveringthegoodsorrenderingtheservice.Wronginvoicepayments,insomecases,theaccountspayablemayfacewronginvoicepaymentasfollowoInvoice may be paid to the wrong supplier, accounts payable may select the wrongsupplier name by mistake, therefore, supervision should be placed for each invoice isprocessedthatcheckthesuppliernameinthewebinvoicesystemorpaymentvoucherwiththeinvoice.oSupplier may change its bank details on the invoice. In this case, the accounts payableshould ask the supplier to provide the new bank details in official letter to change thebankdetailsinthevendormasterrecords.oAccounts payable may type wrong amount or select wrong currency by mistake whenthe invoice is processed for payment. In this case, Accounts payable need to improvethecontrolsbyestablishingtovendorssetupfordifferentcurrenciesifthesupplierbillsdifferent currencies, name Currency at the end o supplier name in the system toenable accounts payable to select the proper the supplier name, and making webinvoiceautomaticallyselectcurrencybydefault,andsupervisionisneededbycheckingtheinvoiceamountandcurrencyinpaymentvoucherorwebinvoicetoinvoice.oAccounts payable may pay the invoice. However, criteria of paying invoices have notbeenmet.Accountspayableshouldpreventtheriskofpayingdefectivegoodorservicesorpayingforgoodsorservicesthathavenotbeenreceivedyetexceptifthepaymentisdown payment. The cases of paying invoices that its payment criteria have not beenmedcanbehappenedinthebelowcasesCase Scenario DeliverytermsonPO/ContractTermsofpaymentsonPO/ContractDefectivematerialsClaimsonPO/ContractA The seller issued theinvoice and thematerials are stilllocated in their sellerswarehouseBased on Incoterms2000 which indicatethat the risk ofacquiring thematerialstransferred to thebuyers when thematerials arePayment should bemade within range oftime (e.g. 30 days) ofreceiving thegoods/servicesAny defectivematerials/servicesare found afterdelivery the buyershould notify thesellerwithinagreedperiod e.g 6working days ofCase Scenario DeliverytermsonPO/ContractTermsofpaymentsonPO/ContractDefectivematerialsClaimsonPO/Contractdelivered on boardif the delivery termsisCFR,CIF,FOBcapability of sellertoreasonablycheckthe condition ofmaterials/servicesB The seller issued theinvoice but afterpaying the invoicecompany discovereddefectivematerials/services.Based on Incoterms2000 which indicatethat the risk ofacquiring thematerialstransferred to thebuyers when thematerials aredelivered on boardif the delivery termsisCFR,CIF,FOBPayment should bemade within range oftime (e.g. 30 days) ofinvoicedateAny defectivematerials/servicesare found afterdelivery the buyershould notify thesellerwithinagreedperiod e.g 6working days ofcapability of sellertoreasonablycheckthe condition ofmaterials/servicesC The seller issued theinvoice but afterpaying the invoicecompany discovereddefectivematerials/services.Based on Incoterms2000 which indicatethat the risk ofacquiring thematerialstransferred to thebuyers when thematerials aredelivered on boardif the delivery termsis CFR, CIF, FOB butinconditionofsellercarries the risk untilthe materialsreceived in buyersport.Payment should bemade within range oftime (e.g. 30 days) ofinvoicedateThe PO or contractdoes not cover anythe appropriateprocedures fordetecting defectivematerials/servicesD The seller deliver thematerials and issuedthe invoice and thecompany discovereddefectivematerials/servicesbefore paying theinvoiceBased on Incoterms2000 which indicatethat the risk ofacquiring thematerialstransferred to thebuyers when thematerials aredelivered on boardif the delivery termsis CFR, CIF, FOB butinconditionofsellercarries the risk untilthe materialsreceived in buyersport.Payment should bemade within range oftime (e.g. 30 days) ofinvoice date and incondition that theinvoice should beissued within rangetime (e.g. 30 days) ofdelivering thematerials,orpayment should bemade within range oftime (e.g. 30 days) ofreceiving the invoiceor goods whichever islaterThe PO or contractdoes not cover anythe appropriateprocedures fordetecting defectivematerials/servicesInCaseAabove,theaccountspayableneedtoknowthatcriteriaofpayingtheinvoices have not been met and suppliers invoice need to be hold until thegoods are located on the vessel. Means, accounts payable need to pay theinvoice until they get bill of lading to ensure that the materials are located onthevessel.IncaseB,theaccountspayablewouldpaytheinvoicewithin30daysofinvoicedate,suchpaymentmayleadthecompanytopayathighrisk,accountspayablemayindicateitisnottheirresponsibilityandconfirmedthattheypaidbasedoncontract, but accounts payable need to provide advisory to the contractadministratororapprovingdepartmenttodrawtheirattentiontothepotentialrisk and they need to rephrase the provision of contracts through contractamendments and after the agreement with supplier. Company may facedifficultiestoreimbursethedefectivegoods/servicesafterpayingtheinvoiceaslong as the defective materials/services are not properly covered in PO orcontract.However case B is safer than case C due to contract/PO covers treatments ofthe defective materials/services found after delivery, there is residual risk thatcompany may ignore it. The residual risk is referring to the internal capabilityandefficiencyofcompanytodetectandreportthedefectivematerials/serviceson time. If the Company face less efficiency to detect and report the defectivematerials on time, the allowable period may past and Company may have nothave right to claim for the defective materials. Therefore, accounts payableneed to communicate and help other department to find way to improve theproceduresorimprovethewordingsofcontractorPO.Contract may require the supplier to deliver the materials/services first thenissue the invoice which helps the company to detect and report any defectivematerials/services at reasonable time and before paying the invoice, however,the PO or contract does not cover such defective materials/services. Companymayrefusetheinvoiceduetothediscrepancyandaskthesuppliertorevisetheinvoiceasitwasdiscussedabove.Bankmaystopprocessingthepaymentsuntiltheygetadequateinformationofeitherrecipientor payer per FATF requirements. The accounts payable need to sendthe informationeitherbyofficial letter or email to the bank. It is preferable if the accounts payable check whether theirnew suppliers names are matched with SDN lists or how far they are matched beforerequestingtosetuptheminthesystem.Ifthesupervisorormanagernoticedthatthesuppliersname is 60% matched with one of restricted name. Company need to get more informationaboutthesuppliertoprovidethemassoonasthebankrequeststheinformation.Bankmaystopprocessingthepaymentsduetolackinformationofintermediarybank.Accountspayableneedtounderstandtheprocessofoverseaspaymentswhichtheyareasfollow:oSending bank gives the receiving bank or direct beneficiary bank (Suppliers bank) the order to transfer the amount, through encrypted massage (either IBAN or SWIFT system). Encrypted massage containsa) IBAN or SWIFT code that helps the sending bank to know to where the money will be transferred to andb) The massage include settlement instructionsoCross-border fund transfer is recorded eithera) by reciprocal accounts between sending bank and receiving bank (Suppliers bank) if they have direct relationship/reciprocal accounts, or b) by correspondent (Intermediary) banks of sending bank and receiving bank that may have direct relationship or reciprocal accounts between them (between each of Intermediary banks or intermediary bank and beneficiary bank)oMany Banks have different correspondent (intermediary) banks for different foreign currencies payment or receipt due to correspondence/agency service agreement and regulatory requirements such as anti-money laundering and anti-terrorist financing regulations of each country for a) Managing the currency cash flow, andb) participating in monitoring the money transfers internationally that may require the banks to have correspondent banking relationship through nostro and vostro accounts i. Nostro is bank account (e.g. IBY Bank account) that is hold in foreign bank (e.g. J P Morgan in USA) usually in the currency of the same foreign country (e.g. USD). ii. Vostro, the intermediary bank (e.g. J P Morgan) that maintain nostro account of the foreign bank (IBY Bank)Accounts payable need to obtain the adequate bank details from suppliers to enable them topaytheirinvoicesaccuratelyandtimely.InvoiceLiabilityandPaymentRecordingAccountspayableneedto communicatewith GeneralLedger (GL) Accountants todeterminethe cutoffdateforbank,pettycashandroutinginvoicestohelptheGLaccountanttocloseearlyandwithoutrush.Cutoff date is the date which separate between current period from next period. For example, if theaccountspayable decided withGLaccountantstomake thecutoffdateis25th ofeach monthforpettycashpayments.Means,allthecashpaymentsthatoccurredfromFeb25toMar25willbeconsideredasMarchpaymentsandthepaymentsthatisoccurredafterMar25,willbeconsideredAprilpaymentsandsoon.Thiscanhelptheaccountspayabletoreviewthepayments,codesforclosingscheduleandhelptheGLaccountanttojournalizethepaymentsandpreparingthereconciliationontime.LocalPaymentsAfter the accounts payable issuing the check and approving the transfer letter for bankpayments or obtaining completely approved petty cash voucher and releasing the money, theaccountant should record thepayments into the Temporary Voucher Registers by codesatthesamedaythecheckandtransferismade.Attheendoftheyearandforclosingaccountsschedule,accountspayableneedtoocheckthevalidityandcorrectnessofaccountcodesinthevoucherregister,oPreparesBankmovementregister,pettycashregisters,disbursementsheets.oMakephysicalcountforpettycashinattendanceofoneortwooffinanceteamoPreparesoutstandinginvoicesReportNotify General Ledger accountant for completing the records and registers to prepare thejournalentriesInternationalPaymentsAftercompletingtheapprovalofinvoices,theWebInvoiceapplicationwillexportthedataintotheAccountPayableModuleinJDE,thenthepaymentwillbemadeandpostedfromAPModulebybatches.ThenthebatcheswillbepostedintheGeneralLedgersModuleinJDEIdentifythepropertiesofinvoicenumberasdateinsteadoftextwhenitisexportedtoaccountspayableandgeneralledgers,AccountingControlMatrixThebelowtableismorehelpfulforinternalandexternalauditorsuseforassigning,matchingtrackingthecontrolsenvironmenttocontrolproceduresanditsimpactonthefinancialassertionsanditsresponsetopotentialrisksRiskDescription RiskRating(S,H,M,L,VL)DescriptionofResponsiveControls TypeofControls(P/D/C)EffectedAccountsFinancialAssertions(CEVOP)1Is controlplaced?(Y/N)Tested(Y/N/NA)ResidualRiskRating(S,H,M,L,VL)CommentDuplicate payment due to scannedcopiesthenoriginalModerate When invoice is logging, search by invoicenumber, amount and supplier name if theinvoiceisalreadyreceivedpreviousornotWeb Invoicing detects the duplication in theinvoice number and provide the link of theduplicatedinvoicePreventiveAccounts PayableandExpendituresExistence/OccurrenceExistence/OccurrenceNoYes Low Duplicate payments due to supplierssendtheinvoicestwiceModerate When invoice is logging, search by invoicenumber, amount and supplier name if theinvoiceisalreadyreceivedpreviousornotWeb Invoicing detects the duplication in theinvoice number and provide the link of theduplicatedinvoicePreventiveAccounts PayableandExpendituresExistence/OccurrenceNoYes Low Duplicate payment due to the supplierbill the Company twice for oneservice/materialsdeliveredModerate When invoice is logging, the PO number andCCORandPOamountneedtoberecordedwithinvoice logging to detect any duplicated billingtheservicesWeb Invoicing page requires to insert the POnumber to track the status of PO whether it isclosed or still outstanding and waiting for newinvoicesPreventiveAccounts PayableandExpendituresExistence/OccurrenceExistence/OccurrenceNoNo Moderate Web invoice may need to be integrated withContract/PO System to enable the invoicerequestor to detect if the amounts of invoicesexceedtheamountofPOorcontractDelay in payments impact (e.g. losingcashdiscountorlosinggoodsupplier)Moderate Logistics or PO issuers are providing theaccounts payable with list of PO or contractsthatareincludepromptpaymentsdiscountandthecontractualduedateofinvoicesfrequentlytoenabletheaccountspayabletoprioritizetheinvoicesPreventive Accounts Payable,Expenditures No Moderate ScannedCopiesmaynotbeacceptedbythe auditors and may increase thedisputedrecoverablecostHigh Obtaining an approval from Ministry of Energyto pay based on scanned copies and obtainingthe approval of MNR for depending on theelectronic signatures or approvals of invoicesfor efficient payments and for not rejecting bycostrecoveryauditors.Followinguptheoriginaldocumentswhicharereasonably be provided by suppliers andattachedthemwiththepaidcopiesPreventive Accounts PayableandExpendituresExistence/Occurrence No Moderate Payingdefectiveservice/materials Moderate Amendcontracts/POprovisionstoconsiderthetime for verification of goods or servicesreceivedbeforepayingtheinvoices.Any defective materials or services arereported immediately to the appropriateperson and cost controller to consider thembeforeapprovingtheinvoicepayments.Preventive Accounts PayableandExpendituresExistence/OccurrenceExistence/OccurrenceNo Moderate 1FinancialAssertionsarestatedasfollow:CisstandforCompletenessEisstandforExistence/OccurrenceVisstandforValuation/AccuracyOisstandorOwnershipPisstandorPresentation/DisclosureRiskDescription RiskRating(S,H,M,L,VL)DescriptionofResponsiveControls TypeofControls(P/D/C)EffectedAccountsFinancialAssertions(CEVOP)1Is controlplaced?(Y/N)Tested(Y/N/NA)ResidualRiskRating(S,H,M,L,VL)CommentMissedinvoices Moderate Invoice logging keeps recording the invoicesthatarereceived.Maintainingdatabasethataretracktheinvoicelogging if they are paid or processed in IRS ornot and to generate the outstanding invoicereportsIf there is no database to track the invoices.Accounts payable should manually preparingthe outstanding invoice reports and track thesubsequent payments and compare the reportwith the previous period to detect the missedinvoiceDetectiveDetectiveAccounts PayableandExpendituresCompletenessCompletenessYesNoYes LowModerateManually outstanding invoices reports couldnotdetectthemissedinvoicesthataremissedinthefirsttime