Rarely do people think about the foundation for their accounts payable function. This is unfortunate, for just like a building built on swamp land, an accounts payable function without a strong foundation will not be able to support a robust accounts payment process. With all the change affecting the account payable function in recent years as well as expected change in upcoming years, a strong foundation is critical. Let’s take a look the implications of a robust underpinning as well as five issues every professional should consider when evaluation their accounts payable function.
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[Article] The Accounts Payable Function: Are There Cracks in Your Foundation?
1. The Accounts Payable
Function: Are There Cracks
in Your Foundation?
BY MARY S. SCHAEFFER, AP NOW’S PUBLISHER & EDITORIAL DIRECTOR
Rarely do people think about the foundation for their
accounts payable function. This is unfortunate, for
just like a building built on swamp land, an accounts
payable function without a strong foundation will
not be able to support a robust accounts payment
process. With all the change affecting the account
payable function in recent years as well as expected
change in upcoming years, a strong foundation is
critical. Let’s take a look the implications of a
robust underpinning as well as five issues every
professional should consider when evaluation their
accounts payable function.
Why Is A Strong Foundation So Important?
While the importance of a strong foundation is quite clear when it comes to a
building, it may not be as obvious why it’s critical to the accounts payable function.
For starters, the foundation of the department is the basis for everything else. It
supports the entire process. If it is weak, problems like duplicate payments, fraud
and segregation of duties issues can creep in.
A weak foundation also may result in an inefficient accounts payable process, which
results in additional expenses to run the accounts payable department. While these
are not easily identifiable, they insidiously eat into the bottom line profitability of the
organization. When extra time has to be spent manually checking work, the process
becomes more costly. It also makes it more difficult to earn those lucrative early
pay discounts.
A solid footing also translates into one that makes it as simple as possible to comply
with the myriad of regulatory issues facing every company. This is not to say that
it will be easy. Nothing could be further from the truth. There’s no avoiding these
requirements; they affect every organization. But if the accounts payable function is
structured properly, the process of extracting the needed data will be manageable.
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2. THE ACCOUNTS PAYABLE FUNCTION: ARE
THERE CRACKS IN YOUR FOUNDATION?
What Does A Strong Foundation Mean
A strong foundation in the accounts payable function is one that enables the staff to
process invoices and make payments as efficiently as possible. This involves keeping
operating costs to a minimum without sacrificing the controls that prevent fraud
and duplicate payments. And of course, it also means making the needed regulatory
information available for reporting in a timely manner.
Specifically, a sturdy base means your staff understands the basics of how the
accounts payable function should operate. This is something many people take for
granted and unfortunately, it is not always the case. Periodically reviewing the basics
to make sure everyone is on the same page is not a bad idea.
Clearly a solid base includes strong and appropriate internal controls as well as the
use of current best practices. Since practices are changing rapidly in the entire
procure-to-pay function, especially with the introduction of technology and
automation, it is critical that the best practices implemented be regularly evaluated
as they are changing. Inclusion of current best practices is one good way to ensure a
reliable footing.
Testing the Strength of Your Foundation
Most professionals assume their accounts payable function has a sturdy base, if they
even give it a moment’s thought. Typically what happens with any business function is
that it evolves over time. Some of the practices that are used are fine, but others are
weak to start with or as new processes are introduced, older controls are weakened.
What follows is a list of five issues every organization should consider when
evaluating the strength of their accounts payable function. After all, it’s all about your
organization’s lifeblood—its money. So, it should be handled correctly.
++ APPROPRIATE SEGREGATION OF DUTIES PROVIDES THE BONES OF A GOOD FOUNDATION.
For without taking segregation of duties into account, the likelihood is that the
organization will inadvertently set up a situation where one person will handle
more than one leg of the procure-to-pay function making fraud easier to
perpetrate. This is a big issue for smaller accounts payable departments now.
In the future even larger companies will face this dilemma as automation and
technology impact the function resulting in smaller staffs. And, smaller staffs
make it more difficult to incorporate appropriate checks and balances.
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1801 Pennsylvania Avenue, NW, Suite 700 | Washington, DC 20006 | W 202-682-6300 | F 202-833-2141
3. THE ACCOUNTS PAYABLE FUNCTION: ARE
THERE CRACKS IN YOUR FOUNDATION?
++ INADEQUATE TRAINING OF THE STAFF IS ANOTHER OVERSIGHT THAT WEAKENS
THE FOUNDATION OF THE FUNCTION. Well-meaning personnel handle a process
in the way they think it should be addressed not realizing they are doing something
wrong. That’s why it is imperative that not only are new employees thoroughly
trained but periodically, there is a review of the work of all processors. This ensures
no changes have crept in weakening your foundation. Very few organizations
regularly review their processors to make sure that no changes have been
inadvertently introduced into their processes. Sometimes staffers will find what
they think is a short cut not realizing they have created a problem elsewhere in
the process.
++ UNFORTUNATELY, NEW PAYMENT FRAUDS HAVE BECOME A WAY OF LIFE IN THE
BUSINESS WORLD TODAY. Keeping up with them is a critical part of the job for those
who manage the accounts payable function. Once the frauds have been identified,
it is crucial that processes are addressed to avoid and detect these problems. This
is an ongoing problem that needs to be dealt with on a very regular basis; not once
every year or two in a periodic review.
++ NOT MANY ORGANIZATIONS EVALUATE THEIR PROCESSES ONCE A YEAR TO MAKE
SURE THEY ARE USING THE LATEST BEST PRACTICES. This has become an important
part of building a strong foundation not only to deal with the frauds discussed
above but also to take advantage of the latest advances in technology. They are
revolutionizing the way accounts payable function is handled.
++ AS MENTIONED EARLIER IN THIS PAPER, TECHNOLOGY IS RADICALLY CHANGING
THE ACCOUNTS PAYABLE PROCESS AT COMPANIES OF ALL SIZES, NOT JUST THE
BIG CORPORATE ENTITIES. Any foundation can be strengthened by the inclusion
of automation. For whether we like it or not, computers are more accurate and
work more consistently than humans. The good news today is that the cost of
that technology has plummeted putting it within the reach of just about every
organization, regardless of size.
Hopefully we’ve convinced you not to take basis of your department for granted.
It needs attention and review if you don’t want to find it weakening to the point where
it is costly and inefficient. How strong is the foundation for your accounts payable
function? When was the last time you thoroughly examined all the issues affecting it?
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