By using proper internal controls, you can ensure that goods and services are received, and payments are properly processed.
Did you know that UC Davis pays approximately $4 million in invoices each day? With this level of volume, it's important to always use proper internal controls.
If you purchase, receive, and/or process payments for goods and services, learn these best practices.
- Separation of duties
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Ensure that payment documents are processed correctly by having different people involved in the payment process. This principle is called separation of duties.
Best practice is to have different people:
> Approve purchases
> Receive ordered materials
> Approve invoices for payment
> Review and reconcile financial records
Potential consequences if duties are not separated:
> Erroneous or fraudulent invoices approved for payment
> Unauthorized payments made to non-existent vendors - Accountability, authorization, and approval
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Accountability ensures that you authorize, review, and approve invoices for payment based on signed agreements, contract terms, and purchase orders.
Best practices:
> Review and update signature authorizations periodically.
> Obtain pre-approval of consultant agreements by Purchasing.
> Verify receipt of goods and services to contract/purchase order and invoice information.
> Reconcile ledgers for accuracy of recorded transactions.
> Monitor that invoices are paid in a timely manner.
Potential consequences if accountability does not exist:
> Unauthorized, unnecessary, or fraudulent payments or purchases
> Unauthorized work performed by vendors
> Loss of supplier discounts due to late payments
> Improper charges to incorrect account/funds
> Conflict of interest when paying a UC Davis employee for unauthorized outside work - Security of assets
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Once you receive your purchased goods, secure the materials in a safe location. To account for resources, periodically count your inventory and compare the results with amounts shown on control records.
Best practices:
> Secure goods received in a restricted area.
> Restrict inventory access to appropriate staff.
> Lock up goods and materials, and provide key or combination to as few people as possible.
> Keep inventory records and periodically calculate beginning and ending inventory amounts
Potential consequences if your assets have not been secured:
> Theft of goods
> Inventory shortages
> Additional costs incurred for replacement of goods - Review and reconciliation
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Your reconciliation activities confirm that you're paying for approved purchases and are being billed correctly. Perform monthly ledger reconciliations to catch improper charges and validate transactions.
> Review vendor invoices for accuracy by comparing charges to purchase orders.
Best practices:
> Verify that the goods and services purchased have been received.
> Perform monthly reconciliations of operating ledgers to assure accuracy and timeliness of expenses.
Potential consequences if review and reconciliation is not performed:
> Payments made for items or services not provided
> Disallowances resulting from costs charged to incorrect accounts/funds
> Improper charges made to your department budgets
Questions?
- Accounts Payable Help & Resources
- For questions on accounts payable processes, contact Accounts Payable.
- For questions on internal control practices, contact Controls & Accountability.