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
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
Accountability ensures that you authorize, review, and approve invoices for payment based on signed agreements, contract terms, and purchase orders.
> 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
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.
> 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
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.
> 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
- Accounts Payable Help & Resources
- For questions on accounts payable processes, contact Accounts Payable.
- For questions on internal control practices, contact Controls & Accountability.