ACCOUNTS PAYABLE POLICY/PROCEDURES FRAMEWORK
Standard Operating Procedure for Payment Verification &
Accounts Payable
I. Introduction:
The purpose & objective of this document is to design a framework to facilitate
payment verification.
Payments of goods & services are done through a
Three way matching
Two way matching
In addition payments are made to employees as part of the perquisites or reimubrsement of expenses as per the company policy.
I - Three Way Matching System Payments
Generally for goods purchased by the company for production or reprocessing
for further sales; a three way matching system is done in which the Purchase
Order, Goods Received & Inspection Note (GRIR) & Supplier invoice are
matched. If all three documents match then payments can be released. Modern
ERPs which have Purchase Order, GRIR & Invoice data in the system can
automatically process the payments with little human intervention.
Supplier invoices are stored either because of online connectivity with supplier
through the B2B arrangement or through Scanned Images mechanism. In
Pakistan most suppliers do not have such sophisticated ERS so invoices are
generally issued manually.
Hence manually the verification takes place of matching the three documents &
making payments. Where the three documents do not match the payment should
be withheld for further verification.
Companies should endeavour to ensure that for large payments
Two Way Matching System Payments
Objectives/purpose
Sections of policy
List of annexures(reference to annexure)
List of abbreviations used(reference to annexure)
ACCOUNTS PAYABLE POLICY/PROCEDURES FRAMEWORK
II. Important Definitions
A brief description of major terms used in the policy
III. Responsibilities
Role of custodian i.e. Accounts Payable(AP) department
Role of Indenting departments concerned
Role of treasury department
IV. Limits of Authority Manual (LAM)
Reference to the manual that all payments will be made after approval from
management as per LAM.
V. Control Environment
General Controls:
-
AP should institute specific procedures that strengthen the overall control
environment. Advising the departments to approve their expense budgets
under various routine cost heads. This will speed up the payment process and
would facilitate the requesting departments. Since requests from budget
holders be processed quickly till they are under the approved budget
Requests beyond the approved expense budget be routed through LAM and
subject to detailed scrutiny
Performing variance analysis of all expense accounts to check any exceptions
and discrepancies
Circularizing cost centre wise expense payment reports to respective
departmental heads for their info. It will strengthen the control function
Reviewing every six months the controls effectiveness and updating/changing
the controls as the changing circumstances warrant
Mandatory rotation of AP persons after three years and forced annual leave
conditions be instituted
All payments disbursements whether online or not be made through Treasury.
AP should have no access to Companys Bank accounts or online transfers
authorizations
ACCOUNTS PAYABLE POLICY/PROCEDURES FRAMEWORK
Information System & Technology
- Software and technology currently being used by AP to perform its day to day
procedures & its effectiveness
- Validation and access controls in place
- Specific procedure for changing the passwords on periodic basis
- Physical access controls be in place to avoid any vandalism or theft instances
- Strict human based control procedures be instituted if use of information
system is very low in discharging the day to day duties of AP. Otherwise if
System is used for better part of transactions then system based controls be
strengthened
VI. Detailed Procedures
Payments on account of capital expenditure
-
FX (foreign currency) payments
-
Flow of bills amongst authorized persons in respective departments
Supporting documents(purchase order, goods acknowledgement slip,
agreement, budget allocation sheet, vendor invoice e.t.c)
Responsibilities for Parking/ posting of bills
Logging of comments/ objections highlighted and responses from concerned
departments
Approving authorities as per LAM based on monetary value/ nature of
payments
Responsibilities for cheque printing/ distribution of cheques
Proper segregation of duties should be ensured in bill processing procedure
followed at AP department to ensure effective controls.
Payments be released after ensuring that all State Banks regulations
governing foreign exchange outflows has been complied
Proper rate of Withholding tax deducted on foreign payments be confirmed with
Tax department and intimated to foreign vendor before issuance of payment to
avoid any dispute. Payment be released only after the consent of foreign
vendor. Countries having tax treaty with Pakistan have different tax treatment
then countries having no tax treaty
Payments on account of operating expenses
Payments on account of product procurement
Employee related disbursements
Maintenance of petty cash fund and related payments
Payments on account of taxes and duties (withholding tax, sales tax e.t.c)
Payments on account of interest/ bank charges
Payments to Shareholders on account of dividends
Other miscellaneous payments
VII. E-Logging of bills
Roles and responsibilities of a centralized bill receiving unit
Procedure of logging of bills amongst departments from submission of a bill
to its payment
System based controls
ACCOUNTS PAYABLE POLICY/PROCEDURES FRAMEWORK
VIII. E-transfer of funds
Role of banks involved
Procedure for compilation and processing of batch
Approval by authorized signatories
Transfer of batch to bank
Controls over batch transfer to bank and payments to vendors
Online confirmation to vendors at the time of payment
IX. Ageing of bills
Setting of bills processing time based on nature of bills
Periodical reporting on ageing of bills pending
Feedback from departments for delay in payments of overdue bills
X. Booking of accruals/ reversals
Responsibility of AP/ concerned departments for booking/ reversal of
accruals
Timeline for submission of details to AP department for booking of
outstanding bills
Procedure of reversal of bills outstanding for > 3 years old
XI. Cheques lost in transit
Procedure for issuance of duplicate cheque
Undertakings
Approvals as per LAM
XII. Vendor duplicate bills
Procedure in case of bill is lost in transit or during processing
Acknowledgement by person from whom bill is lost
Approval by management
XIII. Effective Date and renewal
Effective date of policy
Procedure for amendments to policy
Approval by management
