The Accounts Payable

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The Accounts Payable/ Cash Disbursement (AP/CD)
Process
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Learning Objectives

• Know definitions and basic functions of the AP/CD
  process
• Understand relationship between the AP/CD process
  and its environment
• Achieve a reasonable level of understanding of
  the logical and physical characteristics of
  typical AP/CD process
• Become familiar with various technologies used to
  implement the AP/CD process
• Know core process goals and the plans used to
  control a typical AP/CD process

AP/CD
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AP/CD on the AIS Wheel

• In this chapter, we spotlight one business
  process, the accounts payable/cash disbursements
  (AP/CD) process and explore the processes,
  systems, and controls that should be in place to
  ensure that the accounts payable/cash
  disbursement process operates efficiently and
  effectively.
• Additionally, we will examine specific process
  control procedures that help ensure all accounts
  payable are paid in a timely fashion.

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Process Definitions and Functions

• The accounts payable/cash disbursements (AP/CD)
  process is an interacting structure of people,
  equipment, methods, and controls that is designed
  to accomplish the following primary functions
• Handle the repetitive work routines of the
  accounts payable department and the cashier
• Support the decision needs of those who manage
  the accounts payable department and cashier
• Assist in the preparation of internal and
  external reports

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AP/CD Horizontal Perspective
1. Invoice Received from vendor
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AP/CD Horizontal Perspective
2. Approved voucher sent to cashier
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AP/CD Horizontal Perspective
3. Accounts payable notification sent to general
ledger process
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AP/CD Horizontal Perspective
4. Check sent from cashier to vendor
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AP/CD Horizontal Perspective
5. Paid voucher returned to the AP department
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AP/CD Horizontal Perspective
6. Notification of the cash disbursement sent
from the cashier to the general ledger process
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Vertical perspective-AP/CD
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The AP/CD ProcessLevel 0 Diagram
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AP/CD Process Level 1 DFD Validate Invoice
(Assumes non-voucher systema formal voucher
would have space for formal approval and account
distribution)
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AP/CD Process Level 1 DFD Make Payment
(Triggered by due date of invoice)
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Purchase Returns and Allowances

• In some cases defective goods may be returned or
  an allowance made for non-conforming items
• This exception routine usually begins at the
  point of inspecting and counting the goods or at
  the point of validating vendor invoices
• Purchaser transmits a debit memo to the vendor
  requesting the account adjustment
• The vendor responds with a credit memo indicating
  the authorized account adjustment

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Processing Non-Invoiced Disbursements

• In some cases disbursements are not invoiced,
  e.g., freight bills, rent, payroll, etc.
• The handling of non-invoiced disbursements
  depends on whether or not a voucher system is
  used
• A voucher system prepares a voucher for every
  expenditure from payroll to purchases of raw
  materials

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Processing Non-Invoiced Disbursements
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Logical Data Descriptions for the AP/CD Process

• Accounts payable master data. This data store is
  a repository of all unpaid vendor invoices
• The data design should consider how the data will
  be processed when the cash manager is deciding
  what payments to make
• For example, the manager may want to merge vendor
  invoices so that the total amount due each vendor
  can be accumulated
• Alternatively, the manager might want to select
  specific invoices for payment
• Cash disbursements data. The purpose of this data
  is to show, in chronological sequence, the
  details of each cash payment made.
• Each record in this data normally shows the date
  the payment is recorded, vendor identification,
  disbursement voucher number (if a voucher process
  is used), vendor invoice number and gross invoice
  amount, cash discount taken on each invoice, net
  invoice amount, check amount, and check number.

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Entity-Relationship (E-R) Diagram (Partial) for
the AP/CD Process
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Technology Trends and Developments

• The AP/CD process is the primary candidate for
  EDI in major organizations (as it is in the OE/S,
  B/AR/CR, and purchasing processes as well)
• Several major companies have implemented EDI
  systems into the AP/CD process, resulting in
  significant cost savings
• An increasing trend among some of these major
  companies is to require all vendors to use EDI in
  their transactions with the company
• If the vendor does not implement EDI
  technologies, the major companies simply find a
  new supplier
• In the last few years, several alternatives to
  EDI have been deployed
• These new technologies, based, for example, on
  XML or IP-based EDI (Internet EDI), have not
  replaced EDI
• Services provided by the value-added networks
  (VANs) and the high degree of EDI standardization
  make EDI attractive for fully digital B2B
  collaboration among trading partners for years to
  come
• Many organizations are using Web-based payment
  systems

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AP/CD Process Systems Flowchart
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AP/CD Fraud

• AP fraud usually involve fictitious vendors and
  false invoices
• A dishonest employee who has access to the vendor
  file and authorizes payment
• May embezzle amounts refunded by vendors
• Human error is still a leading cause of loss

• CD fraud is less sophisticated
• Usually involves check fraud
• Check fraud takes many forms from stealing and
  passing stolen checks to changing amounts on
  legitimate checks or check forgery
• CD fraud is becoming easier and more common with
  computer duplication technology

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Exposure to Loss and Destruction of Resources

• Although the subject of fraud and embezzlement is
  seductively interesting, resource losses due to
  unintentional mistakes and inadvertent errors are
  as costly as, or more costly than those caused by
  intentional acts of malfeasance
• Making payments for incorrect or larger amounts
• Paying the wrong vendor
• Paying the same invoice twice

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AP/CD Fraud

• AP fraud usually involve fictitious vendors and
  false invoices
• A dishonest employee who has access to the vendor
  file and authorizes payment
• May embezzle amounts refunded by vendors
• Human error is still a leading cause of loss

• CD fraud is less sophisticated
• Usually involves check fraud
• Check fraud takes many forms from stealing and
  passing stolen checks to changing amounts on
  legitimate checks
• CD fraud is becoming easier and more common with
  computer duplication technology

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AP/CD Control Matrix