CHANCE AND CHALLENGE COMPANY LIMITED

60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

ACCOUNTS PAYABLE MANUAL

PURPOSE
This manual establishes the procedures for the payment of purchase order and non-
purchase order procured goods and services otherwise known as accounts payable.

Accounts payable represents CAC’s financial obligations to its vendors for goods and
services that have been received or will be received in the future. These liabilities need to be
paid within a reasonable period of time and in accordance with vendor credit terms. Accounts
payable and its related processes present a risk to CAC because cash ultimately flows out of
the Organization and therefore there needs to be a high level of confidence that the correct
amount is flowing to the correct suppliers for the correct goods or services.

The overall process of procuring goods and services at CAC is shown as follows. This
policy covers the activities and actions required in the second box:

This chart clarifies the key roles and functions in the account payable process as further
shown in the flow charts. Although accounts payable functions closely relate to purchasing
functions, this manual does not attempt to duplicate the information provided in the Purchasing
and Inventory Manual. The CAC Purchasing and Inventory Manual should be considered a
companion to the Accounts Payable Manual.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

POLICY
This policy identifies control actions to mitigate potential risks related to accounts
payable and establishes the following:

• All invoices must be verified to ensure payments are appropriately made to correct
vendor for the correct amount for goods and services delivered.
• For purchase order-based payments, discrepancies between the vendor invoice and the
purchase order must be resolved before the payment can be processed.
• Invoices received are matched to approved purchase orders, marked as delivered.
• Invoices are checked, authorized for payment and stamped as “PAID”
• Payments are made to the right party for the right amount.
• All the proper supporting documents are attached to the payment voucher

VENDOR PAYMENTS
A vendor is a legally registered business preapproved by the purchasing department.
Vendors must be a registered business entity. The Purchasing Department should be in control
of approving and entering new vendors into the accounting system. The Accounts Payable
Department, which is responsible for issuing vendor payments, should not also be able to set
up new vendors. This is a key internal control over disbursements. Each vendor should be
issued a vendor number in the database. Only one vendor number should exist for a vendor.
The vendor number will assure accuracy of vendor name and address, accumulation of vendor
payments and prevention of invalid vendors.

The master vendor file is the repository of all significant information about the
company’s suppliers. It is the reference point for accounts payable when it comes to paying
invoices. At a minimum, to have any chance of not being dinged when its master vendor file
practices are viewed, a company should:
• Limit access to the master vendor file.
• Periodically disable inactive vendors in the file (but do not delete the entries, as the
payment history associated with that vendors needs to be retained).
• Have a senior-level review of all changes made to the file.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

Vendor invoices are the source document for accounts payable transactions. Acceptable
today are electronic invoices and original invoices. The Accounts Payable Team should have
controls over duplicate invoice numbers by vendor ID. To prevent duplication, it is important
that accounts payable officer enter vendor invoice numbers exactly as they appear on the
invoice including leading zeros and dashes. Only one vendor number for any vendor should
exist in the vendor database.

Invoices should be mailed directly to the Accounts Payable Department to avoid the
possibility of being overlooked. It is recommended that all purchase orders give vendors clear
instruction on where to send their invoices.

Invoices should be matched to purchase orders and delivery receipts or verification of

receipt of goods and services. The process of matching is often referred to as the three-way
match.

There are circumstances when the district will pay an invoice without a purchase order.
Examples of this are utility costs which are invoiced regardless of an order being placed. These
are referred to as direct payments in this document. Other exceptions to purchase orders and
the three-way match will be discussed in detail later in this section.

PURCHASE ORDERS
CAC often use purchase orders to initiate a purchase from a vendor. Purchase orders
are used to:
✓ Complete an approval process prior to buy
✓ Communicate the order to the vendor
✓ Establish a contract with a vendor
✓ Encumber the amount of the purchase against a budget
✓ Track receipt of goods and services
✓ Provide information of accounts payable when auditing invoices
✓ Accumulate expenditure/payment information

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

VERIFYING INVOICE TO PURCHASE ORDER

Accounts payable officer should verify that the items invoices match the items ordered
on the purchase order. Consider the following when matching the items:
✓ Does the vendor information on the invoice match the vendor information on the
purchase order?
✓ Was the invoice issued prior to the purchase order being approved? All purchase orders
should be issued prior to invoices being received.
✓ Are the items invoiced the same as the items ordered?
✓ Do the amounts invoices (by total or by item) match the purchase order?
✓ Does the invoice have enough detail to verify that the services were performed as
contracted? An invoice for services, especially a progress invoice, should include
details such as dates of services, description of services and hours of services.
✓ Have all required documents been received (i.e. signed contracts, etc).

VERIFYING INVOICE TO RECEIVING DOCUMENT

CAC procedures may require the use of electronic verification of receipt through the
company’s accounting system or paper documentation such as signed packing slips or other
receiving forms. In the case of items ordered on a purchase order, the purchase order is the
approval to pay. The receiving of items can be verified by any responsible employee such as
warehouse person or office manager. The receiving of contracted services will require
verification by a person with knowledge of the services being performed. Consider the
following when verifying invoices to receiving documents:
✓ Does the invoice match the items received?
✓ When were the items received? This will make a difference at month end when
preparing the financial statements.
✓ Is the order complete and can the purchase order be finalized?

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

THREE-WAY MATCH
The accounts payable process often uses a technique known as the three-way match to
assure that only valid and accurate vendor invoices are recorded and paid. The three-way match
includes the following:

Document What it shows

1. Company purchase order What the company had ordered and at what cost.
2. Company receiving report What the company has received.
3. Vendor invoice What the vendor billed the company.

Only when the details in the three documents are in agreement will a vendor’s invoice
be entered into the Accounts Payable account and scheduled for payment.

Good internal control of a company’s resources is enhanced when the company assigns
a separate employee with a specific, limited responsibility. The following chart illustrates the
concept of the separation or segregation of duties involving accounts payable:

Person #1 Prepares the company’s purchase orders (POs)

Person #2 Prepares the company’s receiving reports
Person #3 Compares each PO, receiving report and vendor invoice
Person #4 Pays the vendors

The three-way match involves comparing the following information:

1. The description, quantity, cost and terms on the company’s purchase order.
2. The description and quantity of goods shown on the receiving report.
3. The description, quantity, cost, terms and math on the vendor invoice.

After determining that the information reconciles, the vendor invoice can be entered
into the liability account Accounts Payable. The information entered into the accounting
software will include invoice reference information, the amount to be credited to Accounts
Payable, the amounts and accounts to be debited and the date that the payment is to be made.
The payment date is based on the terms shown on the invoice and the company’s policy for

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

making payments. Lastly, the document should be stamped to indicate they have been entered
into the accounting system thus avoiding a duplicate payment.

EXCEPTIONS/ALTERNATIVES TO THE THREE-WAY MATCH

There are several exceptions or alternatives to the standard three-way match (purchase
order, receiving, invoice) for paying vendor invoices, these include:
✓ Direct payments where no purchase order was issued.
✓ Prepayments for services not yet received
✓ Loan payments
✓ Petty cash transactions

Direct payments are payments made without a formal purchase order being issued. One
common use of direct payments is utility services which are invoiced regardless of a purchase
order being authorized. For direct payment the accounts payable officer will match a vendor
invoice to an authorization to pay.

Prepayments are payments made in advance of receiving the goods or services. Typical
examples are reservations and deposits. A deposit may be required when a company rents an
event facility. Prepaying for items should be an exception used only in specific circumstances
authorized in the CAC’s policy. For prepayments the Accounts Payable Officer will need a
source document for payment. This source document might be the vendor’s facility rental
agreement. Accounts payable should match the source document to the authorization to pay.
The authorization to pay may be in the form of an approved purchase order.

PROMPT PAYMENT
It is important for budget managers to have current expenditure information on their
financial reports. There are a few vendors who still provide discounts for paying quickly and
the company may want to take advantage of those discounts. There are several factors that may
prevent timely payment including lack of receipt verification.

Vendors may provide early settlement discounts if their invoices are paid prior to the
due date. Taking an early settlement discount is not always economically sound. It is sometimes
more economical for the company to hold onto their money and pay within the due date.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

LATE PAYMENTS
There are many factors that may prevent a company from paying within the due date.
These include lack of receipt verification, invoices not mailed directly to accounts payable and
workload issues. In no case should the vendor be paid late to avoid interest.

CORRECTING VENDOR INVOICES

An invoice may be determined to be incorrect for many reasons. It is not recommended
that the company correct vendor invoices, but rather return them to the vendor for correction.
This allows the vendor’s records to be corrected and saves confusion when the district’s
payment is received. Invoices requiring vendor correction should be returned promptly. Any
discounts or late fees should be based on the corrected invoice.

VENDOR CREDITS
There are times when vendors are overpaid or items are returned and a credit is due to
the company. Vendors may issue a credit memo. Accounts payable should enter these credits
into the accounting system as soon as possible using the expenditure code from the original
invoice. When the company has invoices due to the vendor for more than the credit, the credit
can be taken. The company should request the vendor pay the credit if it is unlikely there will
be sufficient invoices to apply the credit against. If the district receives a cash refund for a
vendor credit, the cash receipt should be applied to an expenditure account used on the original
invoice.

PETTY CASH FUNDS

Petty cash funds are cash amount kept in secured areas to make minor disbursements
whereby a fixed amount of money is set aside for a specific purpose. The amounts expended
from the account are restored so that it remains intact.

Accounts Payable Officer is responsible for replenishing the petty cash account. A
replenishment request will be submitted by the custodian, preferably monthly, to the Accounts
Payable Officer for the total of all expenditures since the last replenishment.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

Receipts must be attached for each expenditure. The company use a standard
replenishment form. Replenishment request forms must include the following:
• Reconciliation of the total of the fund against the current replenishment and the cash
balance.
• Certification from the custodian that the expenditures are just.
• List the expenditure accounts to charge for each amount spent.
• Description of each item purchased
• All original itemized receipts attached.

Accounts Payable is responsible for auditing the replenishment request. The audit
process should include the following:
• Verify all appropriate signatures are included.
• Verify that the reconciliation of the total fund, the current replenishment and the current
cash balance is correct.
• Verify the account code is correct per the district’s chart of accounts.
• Verify that the original, itemized receipts are attached for each expenditure.
• Verify that the items purchased have a clear company purpose.

Since petty cash funds have a high risk of loss and fraud, the company should establish
a surprise cash count program to verify that the unspent cash, less receipts on hand, are intact
and secured.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

CONTROL MATRIX

Description Control Objective Control Activity

Disbursements made for
goods or services that were
not ordered.
Payment for the incorrect
quantity or non-delivery of
goods or services.
All payments relate to
authorized purchases.
All payments were made for
goods and services that were
delivered or received.
Description
Match vendor invoice to
Oracle purchase order or
supporting documentation
which provides evidence of
approval in the case of non-
PO transactions.
For PO based payments,
complete receipt in Oracle.
For non-PO based payments,
confirm receipt and document
in payment request checklist.

Invoices are not coded to the All purchases are coded to Finance reviews the Payment
correct account code resulting the correct account code. Request Checklist.
in inaccurate financial
reporting.
Payment is made to an Every payment is made to the Finance reviews the Payment
invalid vendor or the same correct vendor and there are Request Checklist.
vendor is paid more than no duplicate payments.
once.
Payments are authorized by All payments relate to Match the signature of the
staff that do not have the authorized purchases. manual approver in the
delegated authority to Payment Request Checklist to
authorize payments. the Signature Control
document.
Payment is made for incorrect All payments are made to the A three-way match should be
amount. correct vendor for the correct made between purchase
amount for the correct order, vendor invoice and
services. receiving receipt.
Forwarding Invoices All invoices should be
forwarded directly to
Accounts Payable Officer.

Verifying Invoice Data A three-way match should be

performed on all invoices
over some minimal level.
Difference must be resolved
before the invoice can be
paid.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

Short-Paying Invoices Include a detailed breakdown

for the reasons for the
deductions.

Handling Unidentified Send these unidentified

Invoices invoices back to the sender,
asking them to indicate who
ordered the goods.
Duplicate Payment • Approval of invoices
Avoidance should only be done
on Wednesday, except
for emergency cases.
• Run invoice numbers
against amounts to
quickly identify
obvious duplicates.
Paying when the original • Requiring two
invoice is missing additional signatures
from higher level
employees on copies
of invoices, say the
requestor’s supervisor
and the Head of
Finance.
• Requiring an
explanation for the
lack of an original
invoice number and
amount.
• Double checking the
file to make sure that
the payment was not
already made.
Petty Cash • Never reimburse an
employee who does
not have proper
documentation and
authorization for the
expense.
• Periodically, review
the expenses
reimbursed from the
petty cash fund and
look for alternative
ways to pay for those
expenses.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

Supplier Statements Accounts Payable should ask

every supplier for a statement
each quarter, including debit
notes.
Master Vendor File • Access to make
changes to master
vendor file
information should
only be given to
Purchasing Officer.
• A report should be
generated on a
monthly basis,
depending on the
number of changes
made. The report
should be reviewed
line by line for any
odd-looking entries.
• Any inactive vendor
should be removed to
the company’s master
vendor file.
• The three reports
should be generated at
least on a quarterly
basis: Inactive vendor
report, open amounts
report and new vendor
additions report.

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 CHANCE AND CHALLENGE COMPANY LIMITED
60/26 Yen The Street, Ward 2, Tan Binh District, Ho Chi Minh City
Tel: +84 028 38489647 Fax: +84 028 38487496

PAYMENT PROCESS

Start END

Reconcile
Obtain invoice Monthly
from Vendor Payments and
Vendor Open
File

Match invoice Post

details to PO payments to
in ERP Vendor File

Confirm Process
receipts of payments
goods or (Treasury
services Function)

Manual
approver of Create
Payment payment
Request voucher
Checklist
(PRC)

Ensure vendor
Review PRC name on
and account invoice
coding matches
vendor in
Oracle

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