Chapter 13: The Accounts Payable/ Cash Disbursement (AP/CD) Process Accounting Information Systems, 9e Gelinas ►Dull ► Wheeler © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives Describe the relationship between the AP/CD process and its business environment. Summarize how various technologies, including e-invoicing and e-payments, can improve the effectiveness of the AP/CD process. Depict the logical and physical characteristics of a typical AP/CD process. 2 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives (cont’d) Prepare a control matrix for a typical AP/CD process including an explanation of how business process control plans can accomplish operations and information process control goals. 3 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Process Definitions and Functions The accounts payable/cash disbursements (AP/CD) process is an interacting structure of people, equipment, activities, and controls that is designed to accomplish the following: 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. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Horizontal Perspective of the AP/CD Process © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Description of Information Flows © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Vertical Perspective of the Purchasing and AP/CD Processes © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The AP/CD Process—Level 0 Diagram © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

AP/CD Process—Diagram 1 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Process 1.1: Validate Invoice Vendor invoice: business document—or electronic transmission—that notifies the purchaser of an obligation to pay the vendor for goods (or services) that were ordered by and shipped (or provided) to the purchaser. Match invoice to vendor master data. Match invoice to PO and receiving report (i.e., the three-way match). Update vendor mater data with purchase history. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Sample SAP Purchase Order Data Screen © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

AP/CD Process—Diagram 2 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Non-Invoiced Disbursements In some cases disbursements are not invoiced, e.g., freight bills, rent, payroll. 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. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Processing Non-invoiced Disbursements © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Logical Data Descriptions for the AP/CD Process Purchasing events data: contains, in chronological sequence, the details of each invoice that is recorded. Accounts payable master data: repository of all unpaid vendor invoices. Cash disbursements event data: contains, in chronological sequence, the details of each cash payment made. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Entity-Relationship (E-R) Diagram (Partial) for the AP/CD Process © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Selected Relational Tables (Partial) for the AP/CD Process © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Selected Relational Tables (Partial) for the AP/CD Process (cont’d) © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Selected Relational Tables (Partial) for the AP/CD Process (cont’d) © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Technology Trends and Developments E-invoicing: processing of invoices in electronic form: Scan documents. Use purchasing cards (p-cards). Invoices can be submitted electronically. E-payments: electronic submission of payments: EDI and XML-based technologies. Settled through the ACH network, wire transfer or debit or credit card. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Technology Trends and Developments (cont’d) Evaluated receipt settlement (ERS): a process by which an organization pays for a purchase on the basis of the goods receipt. EDI is employed in the purchase-to-pay process, including the PO (processed in the OE/S process of the vendor), advanced shipping notice (ASN), invoice, and payment. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Technology Trends and Developments (cont’d) Electronic invoice presentment and payment (EIPP) systems: B2B systems that combine e-invoicing and e-payment processes to send invoices to customers via a Web portal or secure network using a third-party service provider and to receive electronic payments that are initiated by the payer, processed by the third party, and settled by the ACH network, wire transfer, or debit or credit card company. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

AP/CD Process—Systems Flowchart © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Purchase Returns and Allowances Sometimes defective goods are returned or an allowance is 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. Vendor responds with a credit memo indicating the authorized account adjustment. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

AP Fraud AP fraud usually involve phony vendors and fictitious invoices: Create bogus vendor record to direct fraudulent payments to that vendor. Control: Segregate creation of vendor records from AP/CD. Control: When vendor records are created, compare vendor phone number, address, etc. to employee records. Embezzle vendor refunds. Control: segregate AP from cashier who receives vendor refunds. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

CD Fraud CD fraud includes check forgery and fraudulent wire transfers: Stealing and passing stolen checks; changing amounts on legitimate checks; check forgery. Control: Segregate check preparation from check signing. Control: Segregate disbursements from bank reconciliation. Capture online banking credentials with spear phishing and key logging. Controls: Firewalls, anti-virus software, educate employees regarding phishing. Control: Computers used for wire transfers should be used for no other purpose such as e-mail and Internet access. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exposure to Loss and Destruction of Resources Resource losses due to unintentional mistakes and inadvertent errors are as costly as, or more costly, than those caused by intentional acts of fraud. Examples include: Making payments for incorrect amounts. Paying the wrong vendor. Paying the same invoice twice. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Control Matrix for the AP/CD Process © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Validity of AP/CD Inputs Input validity (IV) of vendor invoices: Achieved when recorded vendor invoices are for goods actually ordered and actually received (i.e., the invoices are supported by proper POs and receiving reports). Input validity (IV) of payment inputs: Achieved when there is a documented valid, unpaid vendor invoice for each payment. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Key Controls for the AP/CD Process Independent validation of vendor invoices: authority to record a vendor invoice should come from the PO and receiving report data created by entities other than the entity that records the vendor invoice. Match invoice, purchase order, and receiving report: The invoice should be matched to the PO and receiving report data to ensure that items on the invoice were ordered and received and that the invoice is accurately recorded. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Key Controls for the AP/CD Process (cont’d) Independent authorization to make payment: accounts payable records on which the payment is based should be created by an entity other than the entity that executes the payment. Reconcile bank account: Records of cash disbursements should be matched to the bank’s records to ensure that all disbursements actually made by the bank were authorized and accurate. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.