Mary Schaeffer

Time to Reexamine Controls in Light of Expanding Payment Options

Six best practices divulged.

February 7, 2008
by Mary Schaeffer

The one thing that is crystal clear about today’s organizational payment data is that firms are expanding their payment methodologies to take advantage of improved efficiencies and reduced costs. While just a few years ago, checks were virtually the only mode of payment, p-cards (purchase cards) and ACH (Automated Clearing House) payments have become increasingly popular with businesses and other organizations. In the next few years, ACH usage will explode and those using p-cards will continue to expand their use.

Here’s a look at the implications of these new trends, especially as they relate to internal controls and duplicate payments at your organization. Of course, with these implications come some recommendations.

Ramifications When Multiple Methods Are Used

When reviewing data, it should be clear that multiple departments make payments when p-cards, wire transfers and ACH are used. When check payments are made in accounts payable only, it is relatively easy to ensure that appropriate controls are put in place and used uniformly. When you have payments made across several departments, it is difficult to ensure uniform compliance.

When others initiate a payment to you, the same controls may not be used as are used in accounts payable. Concepts as simple as vendor-naming conventions and invoice-coding standards are often alien to those who don’t live with these issues every day. Using any of these techniques is crucial when addressing duplicate payment issues. Unless the appropriate controls are built in across the organization and used by everyone making payments, problems will increase.

Duplicate payments are often created when an organization pays for something with a p-card and the vendor still issues an invoice. Sometimes this happens simply because the vendor cannot suppress their payment system’s automated printing and mailing of invoices. Even if a firm notes that it has already paid an invoice after receiving it, it often ends up paying the same invoice again.

Best Practice Controls When Using Multiple Payment Options

With the introduction of differing payment options, two issues arise. First, you must be careful not to make the same payment twice using different payment options. And, second, when employees in more than one department make payments to the same payee — as is increasingly common with both p-cards and ACH — you must take steps to ensure that only one department pays for a particular item.

Use the following tips to keep the issue under control in your firm:
  1. Limit payment type for each vendor, using either p-card, check, ACH or wire. This is a great control if you can do it.
  2. Make sure POs (purchase orders) are extinguished whenever a payment is made. Your accounts payable associates do this automatically when processing invoices. Those not accustomed to the three-way match may neglect this step.
  3. Make sure the invoice number is entered using the company’s coding standard whenever payments are made. This is something that professionals outside accounts payable often do not know about.
  4. Make sure the same coding standards are used. This is of concern especially when entering an invoice number longer than the field in the accounting software as well as for vendor names.
  5. Establish a payment timing policy adhered to by everyone.
  6. Make sure everyone who initiates a payment knows how to create an invoice number for those invoices that do not have them.

New technologies present new problems and the payment world is no exception. With the continued use of payment options described above, set standards will help prevent duplicate payments. However, without having controls in place, your savings from the new options will be overshadowed by your losses due to duplicate payments.

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Mary S. Schaeffer is the author of more than a dozen business books including Controller and CFO’s Guide to Accounts Payable. She is currently working on a book about fraud. She is the president of CRYSTALLUS, Inc. a publishing, training and consulting firm focused on payment issues. A knowledgeable speaker, she will be part of the team that discusses Cash Leakage in the Procure-to-Pay process at seminars next spring.