For accounts payable, your accounting manual should include your process for purchasing and paying bills. What steps does your accounts payable clerk or bookkeeper take to review bills and process payment? Here are some things to include, broken out by steps in the process.
Approvals:
- Does a department manager need to approve purchases before they are made, whether for goods or services, to make sure they are needed? Are multiple approvals needed for large or unusual purchases, e.g. by a higher level manager or CFO?
- Do you have an approved vendor list that staff need to use?
- Do you require purchase orders when you buy products, or contracts when you hire a consultant?
- Do you require competitive bids or quotes?
- Does an invoice need to be approved by a department manager before being paid? This could be to make sure goods or services have been received before sending payment, and/or to authorize charging an expense to a specific budget. Are multiple approvals needed for large or unusual purchases, e.g. by a higher level manager or CFO?
- If you have restricted funds, e.g. a government contract that doesn’t allow for certain expenses, how do you ensure compliance with the terms?
Payment processing:
- How do you ensure you don’t mistakenly pay an invoice twice?
- What’s your schedule for paying bills, e.g. weekly or twice a month?
- Do you pay bills as they come in, or on a schedule like net 30 terms?
- Does the controller or CFO need to review invoices being paid before checks are written?
- Who signs checks? Are dual signatures required for checks above a certain dollar amount?
- Where are invoices filed after they’re paid?
- Do you use a positive pay system with your bank? These systems give your bank a list of checks you’ve written or voided, and alert you if someone tries to cash a check that’s not on the list, has been voided, or if someone attempts to cash a check twice.
Payment methods:
- Do you make all payments by check, or do you use petty cash, credit cards, ACH payments, or wires for anything?
- If you use petty cash, how is it safeguarded, e.g. is it kept in a locked drawer? Who has access to it? Is it reconciled on a regular basis?
- If you use corporate credit cards, who is allowed to have a card? What’s the process for documenting purchases, getting receipts, and coding expenses for your accounting system? What expenses do you allow people to use the cards for? How do you handle non-compliance, whether for people not documenting expenses in a timely manner, or using their card for an unallowable expense?
- If you use ACH payments or wires, what’s the processing for initiating and approving them?
- Do you ever advance money to employees, e.g. for an upcoming trip? What’s the process for making the advance, and ensuring expenses are documented and any excess advance is returned?
Check here for additional topics to cover in your accounting manual.