ACCOUNTS PAYABLE AUDIT PROGRAM PRELIMINARY SURVEY 1. Obtain a copy of the Policies and Procedures Manual. 2. Complete the Risk Assessment Questionnaire. 3. Prepare a flow chart describing the Division’s system of internal controls in the areas of ac counts payable and payments. Review flowchart with appropriate management. 4. Perform a transaction walk-through to determine correctness of system description. Ensure that stated controls exist and are effectively employed. 5. Investigate unusual fluctuations between current year, and budgeted amounts for A/P, cash disbursements, purchase discounts, and returns. 6. Review the following for large and unusual items: open p.o. listening; A/P register. Objective: To ensure that amounts due to vendors and others for goods and services received are accurately determined, promptly recorded, classified, and properly authorized. Scope: Review of policies, procedures, and controls over the following: vendor invoices, receiving reports, payment processing, manual check preparation, blank check security, and month-end invoice accruals. 1. Obtain the accounts payable reconciliation and perform the following: a. Test mathematical accuracy. b. Verify that reconciliations are properly completed and reviewed. c. Agree ending balance to the G/L. d. Investigate large or unusual reconciling items. 2. Select a representative sample of purchase orders and other invoices (travel & registration, tuition reimbursement, professional services, etc.) paid over the period under review in order to test compliance with established policies and procedures. Verify the following: a. Invoices are checked against receiving reports and P.O.s for agreement on quantities, prices, and other key data; b. Invoices are checked for extension; c. Receiving reports are checked for proper signatures and dates of receipts; d. Discounts are properly taken when available; e. All invoices are cancelled through proper authorization and signatures; f. All invoices are paid from original source documents; g. Trace to A/P register. 3. Select a sample of Requests for Remittances. a. Review for evidence of audit and approval prior to payment. b. Verify cancellation of supporting documents and invoice after payment. 4. Select a sample of invoices with discrepancies and determine if the invoices are actively followed up and the reason for any delay. 5. Sit down with the individual responsible for entering accounts payable transactions. Have them attempt to enter the following: a. duplicate invoices; b. an accounts payable record change to verify that a unique identifier such as vendor number and invoice number is used to ensure that the correct accounts payable record is being updated; c. non-numeric characters in the price and quantity field; d. invalid date; e. transaction with “”critical fields” left blank. 6. Obtain the accounts payable register and test mathematical accuracy. 7. Select a sample of Returned Goods Advices and ensure that their cost was not included in the A/P register. What controls are in place for returned merchandise before and after payment? 8. Review open files to determine that unmatched receiving reports,, invoices, etc., are being routinely reviewed an investigated to evaluate the overall controls over this process: a. Identify current volume of open receiving reports, invoices, retuned goods advices in the possession of A/P clerk that are greater than 60 pays from receipt. Discuss and investigate. b. Determine that there are effective control in place for documents that are sent out of the department for explanation or authorization. 9. Determine that the accrual process has necessary controls in place to ensure all goods and service received, but not paid for, have been accrued for. Determine the following: a. All receiving reports are obtained from Materials Management at month end. b. Accruals are made for routine monthly expenses. c. Accounts Payable files are organized in such a manner that an accurate accrual can be made. d. Verify cut-off for one month. e. Test accruals by reviewing a recent month accrual against supporting documentation on hand. f. Trace to general ledger. 10. Review procedures over vendor statements: a. Select several major vendors to review and test the reconciliation performed by A/P b. Review supervisory controls over this process. 11. Review the aged trial balance report (A/P Status Report) for debit vendor balances and any other unusual items. Review with A/P Supervisor. PAYMENT PROCESSING 1. Sit down with the individual responsible for entering payment transactions. Have them attempt to enter the following: a. supplicate payment for an item previously paid; b. payment change; c. non-numerical characters in the payment field; d. invalid date; e. transaction with “critical fields” left blank. 2. If partial payments are made, ensure that they are properly tracked and accounted for. 3. Verify that a record maintained for all recurring charges. 4. Verify that any checks mailed to vendors which have been returned are followed up in a timely manner. 5. Verify proper controls over hand carried checks. 6. Obtain the bank reconciliations and test as follows: a. Foot the reconciliation and supporting detail. b. Trace amounts to their source. c. Review the reconciling items for propriety. d. Determine that reconciliations are being performed monthly. e. Verify that they are being reviewed by management. 7. Obtain the cash disbursements transaction listing: a. Trace selected totals to the ledger. b. Test mathematical accuracy. c. Investigate large or unusual items. d. Determine numerical sequence of check is accounted for. 8. Select a sample of cancelled checks: a. Trace to ash disbursements listing. b. Examine for authorized signature, proper endorsement and cancellation by the bank. c. Ensure checks are not made out to “Cash” 9. Determine if the department has manual check preparation guidelines. Verify that checks are prepared with effective safeguarding measures. a. Evaluate the criteria for using manual rather than computer checks to ascertain that it is sufficient. b. Ascertain that manual checks are not signed by management directly in or over the A/P Department. c. Evaluate input and output of manual checks to the computer system. d. Select a sample of manual checks to determine that polices and procedure are complied with. 10. Review controls over blank checks. a. Review voided checks to ensue they are marked VOID. b. Review numerical controls over issued and un-issued checks. c. Determine there is sufficient separation of responsibilities between signature control and blank check access. d. Determine that un-issued, blank checks are under the control of someone outside the A/P Department. e. Determine that missing check numbers are documented and investigated. f. Conduct a blank check stock count of the A/P checks.
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