Avoiding the Goat Rodeo of Accounts Payable Accruals
In today’s accounting environment, CFOs and CEOs can’t afford to sign-off on financials that they don’t have confidence in. One of the biggest areas of uncertainty is often accruals for accounts payable invoices – those invoices that have been received somewhere in the enterprise, but haven’t actually been approved or entered into A/P yet. This creates a liability on the balance sheet, so you don’t want it to be overstated, but you can’t afford to have it understated either.
The problem with gathering accruals is mainly a control issue. In many organizations, regardless of size, invoices are sent to various locations within the business. If someone in the field gets an invoice but hasn’t gotten around to coding, approving, and passing it on to A/P for entry, it needs to be accrued. The problem is that the person (or system) responsible for logging those accruals generally has no idea that the invoice has been received. You can’t count what you can’t see.
Over the years, I have been in a lot of organizations and reviewed their accounts payable processes. Our accounts payable automation projects always start with an on-site review of existing practices and processes so we can document the as-is environment. This does two things; it sets a benchmark for us to make sure we fully understand what is happening today so we don’t break it, and it also helps us to flush out opportunities for improvement.
Invariably, we always find that there are a large number of paper invoices floating around in the organization that either haven’t been recorded yet, or sometimes invoices that have been recorded but already processed or rejected. I personally encountered a not-so-isolated case at one of our larger customers where in the process of doing our review, I found an invoice for over $200,000 that had been sitting on someone’s desk for three months, still waiting for approval from the business. Never mind the fact that there was probably a very unhappy vendor out there somewhere, here was a significant liability that had not been accrued, thus leading to a very serious reconciliation issue. In situations where there is one invoice like this, easily found, there are always many more that aren’t likewise. It doesn’t take too many of those situations to seriously understate liabilities, which can be a problem with very real consequences, especially for public companies in today’s Sarbanes-Oxley environment.
Using DocuSphere for accounts payable automation, this sort of problem is usually a very quick win. Processes are put in place immediately to have one or more official landing points for invoices. Vendors are notified and through proper change management the organization is put on notice that all invoices must be sent to one of the collection points immediately or they don’t get paid. Adoption of this process is generally very quick and at a very high rate of compliance. Vendors and employees alike soon realize that getting these invoices to the right place leads to on-time payment and easier management of the process.
At these landing points, the invoices are scanned almost immediately, usually within a day or less of arrival. When they are scanned, regardless of method, certain basic information is captured, which at a minimum includes invoice amount and invoice date. Depending upon how deeply the customer wishes to automate the process, (for example, if OCR and advanced capture is used) essentially all of the information needed to process the invoice can be captured at scan time.
Within minutes, or at most hours, of scanning, this data is made available to DocuSphere. Once in DocuSphere, it is now fully visible and tracked. Reports can be generated on a daily basis showing all invoices (and their amounts) received but not yet posted to accounts payable for processing, thus making the accrual process very simple. When an invoice is posted to the ERP system (and by definition to the appropriate expense or other accounts), it is tracked in DocuSphere as well, thus allowing accounting to automatically reduce the accrual.
With DocuSphere in place, CEO’s and CFO’s can now sleep nights, knowing that the financials they just signed-off on are correct, and that there is a verifiable and documented process in place to keep them that way, thus avoiding the “goat rodeo” of the manual accrual process.
Contact Image Integration Systems right away if you want find out how you can use DocuSphere to end the goat rodeo!
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