Accounts Payable Best Practices

There are various ways a company can implement an Accounts Payable (A/P) program utilizing internal or external resources.  Just keep in mind that the process will evolve.  The approach you establish to process 100 invoices/month will not be the same approach you establish to manage 1,000 invoices/month.

Following are three Best Practices that should be part of any program you implement, regardless of the size, to manage this activity.  Note, if the A/P process is not managed properly, the expense to correct deficiencies can be very high.  Best Practices include —

Establish Policies and Procedures –Document the entire A/P process.   This step ensures consistency in processing, i.e. everyone needs to work within the same established guidelines.  Clearly outline an exception process and a problem resolution process.  Caution – Do not let the exception become the rule.

Provide Vendors with your payment policy (abridged version) with payment dates, so as to set expectations of when payment will be made.  For example – “All invoices should be forwarded to the area ordering services for validation and approval.  Invoices will be processed twice a month, based on the date of receipt…”

Invoice Processing – Maintain a database of all preferred vendors, with complete information.  This information should include a valid W-9, current executed Purchase Order, and invoice identification information (invoice#, amount, and date).  Track the cumulative expense.  If it is large enough, you should be able to negotiate preferential pricing with the service provider.

Approved invoices should be processed in one central location, if possible.  Payment requests should fall into one of two separate groups, i.e. leases with a set amount paid monthly or quarterly as identified in a contract, or invoices with variable amounts.

Audit – Audit the process annually to understand if the documented policies and procedures are being followed.  It is also at this time that the process should be reviewed to potentially improve it.

There are pain points internal to the A/P department and pain points external to the A/P department, which include:

Internal Pain Points – Recurring Payments associated with contracts – Proper management of this area, will avoid over payments to terminated contracts and missed payments to new vendors. Any situation that can disrupt the A/P department’s flow should be eliminated.

External Pain Points – Multiple Offices – if your organization is composed of multiple offices around the country, another area of concern is ensuring those branches forward bills to the A/P department on time, to avoid the creation of out of cycle payments.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Internal Audits – “Inspect what you Expect”

According to The Institute of Internal Auditors (https://na.theiia.org) —

“Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”

During the normal course of business, department heads – identify operational risks; develop and document policies and procedures to mitigate these risks; and train their staff on the procedures.  These policies and procedures are amended, probably annually by the responsible department.  Internal auditors validate that the policies and procedures are followed and effective at minimizing financial risk.

But, recent market turmoil revealed additional risks that if not addressed expose the company to brand and reputational risks, as well as financial risk.  The role of the internal auditor is expanding and the approach employed is evolving.  Internal Auditors are accountable for reviewing current processes and improving them when possible, by implementing best practices.

A proper internal audit approach includes understanding business goals usually identified through senior manager interviews, preparing risk assessments, scoping key audit areas, evaluating controls, creating remediation plans, and testing controls.  An internal auditor must be able to evaluate, assess and implement controls across business areas.

According to the 2012 Internal Audit Capabilities and Needs Survey (Protiviti March 2012), identified themes for 2012 are associated with technology and the risks presented, such as IT Asset Management; Vendor Negotiations; Fraud; Social Media Applications; Cloud Computing; Continuous Auditing/Monitoring.

What has been your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

The SEC Whistleblower Program

As part of the Dodd-Frank Act, signed by President Obama on July 21, 2010, the Securities and Exchange Commission (SEC) was required to amend the Securities Exchange Act of 1934, to establish a separate office within the SEC to administer a whistleblower program.  On May 25, 2011, the amendment was finalized.  On August 12, 2011, the Office of the Whistleblower in the Division of Enforcement went live.

Even though we are approaching the first anniversary of the amendment this month, office activity only occurred for nine months.  As required by the Act, the SEC reports the results of the program to Congress annually.  The first full-year of data is expected to be released November 2012 and will include information for Fiscal Year 2012.

In developing the Whistleblower program, the SEC’s intention was that whistleblowers would report their concerns/issues of abuse internally to their company first, prior to SEC external escalation.  As an incentive, the SEC offers a monetary award of 10% to 30% of collected penalties, to whistleblowers if the information provided is original; leads to a successful SEC action; and results in monetary penalties exceeding $1 million.

One can only assume that when internal reporting procedures fail a whistleblower has no recourse but to go external.  Public companies thus have a large incentive to ensure their internal procedures are optimal.  Following are Best Practices in the implementation of an internal company program —

  • Educate staff on proper policies & procedures and their responsibility to report abuses;
  • Establish an environment where whistleblowers can report confidentially and are protected against retaliation;
  • Develop a process for employees to escalate concerns internally to an impartial area responsible to investigate allegations;
  • Track tips reported and the investigations undertaken to prove or disprove the abuse; and,
  • Report program status periodically to the Board of Directors.

What’s your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Audit Transparency – Rating the Raters

On May 1, 2012, the Public Company Accounting Oversight Board (PCAOB) announced changes to its website (www.pcaobus.org) where site visitors can now review certain public information provided by audit firms, which includes registration, annual and special reporting, disciplinary proceedings and inspection reports.

The PCAOB was created in 2002 as a result of the Sarbanes-Oxley Act.  As required by the act, auditors of US public companies are subject to external and independent oversight, by the PCAOB.  The SEC maintains authority over the PCAOB, with respect to rules, standards and budgets.

As of April 25, 2012, there were 2,378 registered firms (foreign and domestic), as well as 42 pending applications.  As of May 7, 2012, information for 1,627 inspection reports was provided, including 118 “QC criticisms now public.”  A quick review of the Big 4 Audit firms showed –

Firm Entity Reports QC Criticisms
Deloitte & Touche 18 1
Ernst & Young 30 0
PriceWaterhouse 32 0
KPMG 35 0

This type of information can only benefit companies/issuers that are looking for a new auditor for their private or public concern.

Please let me know how useful this information was to you, by Commenting.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Complying with State Tax Requirements for Non-Residents, i.e. Nexus

Nexus is the way in which a connection can be established between the state and the taxpayer.  If a nexus exists, the taxpayer may be liable to the state for taxes, regardless if the taxpayer is a non-resident or only works within the state for part of the year.  You would think that the clearest nexus standard is “physical presence”, i.e. work performed within the state.  But treatment varies –

According to the Mobile Workforce Briefing Book by the Council on State Taxation (09.09.2009) –

  • In 25 states, nonresident employees are subject to Withholding Tax on first day they enter the state; vs.
  • In 16 states, nonresident employees are subject to Withholding Tax after reaching a threshold which varies among the 16 states involved.

In the age of the World Wide Web, Consultants can market their services and generate revenue from customers in a state without maintaining a physical presence.  In response, some states are developing the concept of “economic nexus.”

Based on a random review of state tax laws, I found the following citation interesting –

Source income “…Attributable to compensation for services performed in Connecticut or income from a business, trade, profession, or occupation carried on in Connecticut, including income derived directly or indirectly by athletes, entertainers, or  performing artists from closed-circuit and cable television transmissions of irregularly scheduled events if the transmissions are received or exhibited within Connecticut;”

For a Consultant that transacts business in multiple states, a compliance nightmare exists which is burdensome and expensive to manage, i.e. a non-value added expense associated with an administration burden.  Disparate laws established by states are causing nexus confusion –

  • Standards are inconsistent for employees, i.e. personal income tax filings;
  • Standards are inconsistent for employers, i.e. withholding tax administration; and,
  • Penalties for non-compliance may result.

Help may be coming with the passage of H.R. 1864 – “Mobile Workforce State Income Tax Simplification Act of 2011 – Prohibits the wages or other remuneration earned by an employee who performs employment duties in more than one state from being subject to income tax in any state other than: (1) the state of the employee’s residence, and (2) the state within which the employee is present and performing employment duties for more than 30 days during the calendar year.”  (http://thomas.loc.gov/cgi-bin/bdquery/z?d112:HR01864:@@@D&summ2=1&)

However, until this bill becomes law, best practices are few – maintain records of when you performed work for customers, in which state, for how long; and retain all receipts.  When you prepare your personal state taxes, check if tax code thresholds exist, i.e. wage/income, days within state, reciprocal agreements.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.