Within your first week on the job, you are horrified absolutely horrified - to learn that theres no documentation whatsoever on the firms cash disbursements process. No flowcharts, no written narratives, nothing!
You obviously need to fix this ASAP! The outside auditors are scheduled to start SOX testing on transactions within the Purchasing & Cash Disbursements Cycle come Monday of next week.
Accordingly, you send out an email to your lead AP clerk and ask him to describe the process. His response is summarized on the next page.
Required: Convert the response into a one page flowchart.
In Accounts Payable (AP), we receive three different documents (purchase orders, receiving reports, & vendor invoices) from three different places at three different times. Accordingly, each of these three documents is filed alphabetically in its own, separate filing cabinet. The PO's come to us from the Purchasing Department. The receiving reports come to us from the Receiving Department. And of course the invoices come to us from our outside vendors. We pay all invoices within 10 days to take advantage of early-payment discounts. Accordingly, as soon as an invoice comes in the door, an AP clerk immediately records the journal entry (it's a purchase transaction) in the Accounts Payable Ledger then files the vendor invoice. We then file the invoice. Later, when it comes time to pay the invoice, we pull it from the filing cabinet and match it with its underlying PO and Receiving report. These three documents are then sent to the Controller. The controller, upon receiving the three documents from AP., then does a 3-way match to make sure all the details on each document (quantity ordered vs. quantity received, unit price stated vs. unit price charged, etc.) are all in agreement with each other. Assuming everything is consistent and no errors or frauds are found, the controller then prepares a check (plus a copy of that check) and makes a journal entry in the Cash Disbursements journal. The controller then forwards the four documents (PO + Rec Report + Vendor Invoice + 2-Part Check) to the owner. The owner then reviews the documents received from the controller. Again, this is a final internal control to make sure the controller has cut the check for the right amount. Assuming everything is consistent and no errors or frauds are found, the owner then signs the check and sends it to the vendor as payment in full. The owner then returns the documents (PO + Rec Report + Vendor Invoice + copy of check) back to the AP Dept. The AP Dept. then files these documents alphabetically in a 4th filing cabinet called the Paid Vendor Invoice cabinet. Finally, at the end of every month, an AP clerk uses the Accounts Payable ledger to prepare an AP Aging report which is sent to the owner. When the owner receives this AP Aging report, it's reviewed as a final internal control step then filed by date. Please note that copies of these AP aging reports are often requested from us by our outside auditors at year end
