ACCOUNTS PAYABLE

OBSERVATIONS

RECOMMENDATIONS

PREPARATION/APPROVAL OF CHECK
VOUCHERS
Check vouchers are not pre-numbered; the
bookkeeper just assigns numbers according
to the check number. In addition, there were
checks issued without pre-authorized check
vouchers. Recordings were based on
passbooks and checkbooks which were
lodged in the books using journal vouchers.

To avoid issuance of check vouchers by

unauthorized persons, accountable forms
should be pre-numbered. Proper preparation
of check vouchers/ checks helps in subsequent
accounting for disbursements. Preparation of
checks should be preceded by approval of
check vouchers to ensure that all cash
disbursements are authorized.

Some vouchers were not stamped PAID All check vouchers and supporting documents
after release of cheque, and do not have should be stamped PAID to prevent
attached supporting documents.
presentation for double payment or liquidation.
Further, amount indicated on some
vouchers were based on quotation price
and not on the statement of account from
the supplier.

Vouchers should be prepared after suppliers

billing statements are received to ensure
accurate payment and to avoid cancelling
prepared vouchers and cheques.
Related documents must be attached to the
check vouchers to support the transaction.

Subsidiary ledgers were not maintained on Subsidiary ledger should be maintained. This
this account.
should be regularly updated and reconciliation
between the subsidiary ledger and general
ledger should be prepared for all transactions
of the Company to ensure that clerical errors
and unrecorded transactions/ adjustments are
immediately detected and corrected.
A confirmation reply was received from one
creditor indicating a discrepancy between
balance per books against amount confirmed
which was noted to be material. Based on this
reply, an adjustment was set-up by the
accounting department to update the hospitals

Subsidiary ledger of payables should be

maintained. This should be regularly updated
and reconciled with the general ledger. This
will also provide a ready reference in case of
discrepancy or dispute in the balances of the
book ledgers. However, before liability is
1

liability record
creditors books.

and

conform

with

the

recognized, it should be ensured that the

supplies/ equipment or services to be paid for
have been fully and actually received properly
and/or in good condition. A receiving report
should be required to be filled up for items
purchased whether they are going to be
charged to inventory, supplies expense or to
capital expenditures. A supply officer should
be responsible for this function.

At year-end, the detail of trade accounts

payable did not agree with the general
ledger control account. Our review
indicated that no reconciliation was
being made of the detailed balances
received from an outside accounting
service to the general ledger control.

Such a reconciliation should be made each

month and approved by the appropriate
supervisory employee.

The present system of recording trade

accounts payable does not provide a
monthly trial balance of outstanding
trade accounts payable by vendor.

Such a trial balance would assist the accounting

department in reconciling vendor statements and
would provide a ready reference of the amount
owed each vendor for settling disputed items.

The trial balance of accounts payable

prepared as of December 31, 1969, was a
chronological listing of unpaid invoices,
not in vendor sequence. From an
auditing standpoint, it was an
unnecessarily time-consuming task to
verify that there were no significant
unentered liabilities as of that date.
Conversely, as of the end of any
accounting period during the year, under
the present system it would be
impracticable for the accounting
department to attempt to verify that a
reasonably accurate accounts payable
cutoff had been effected.

We recommend that at the end of each

accounting period the trial balance of accounts
payable be prepared in sequence by vendor with
subtotals to facilitate reconciliation of vendor
statements and other verification procedures.

The policy of reconciling vendor statement

balances to the details of accounts
payable was discontinued during the

Reconciliation of accounts payable balances,

even on a periodic basis, facilitates location of
errors and follow-up on disputed items. We

year.

recommend that consideration be given to

resuming the procedure on some periodic basis.

Vendor statements are not being reconciled

and requests for confirmation of balances
are not answered.

This can result in poor vendor relations and a

delay in obtaining reimbursement for credits.
At a minimum, such items and longoutstanding amounts should be investigated.

Under the present system, invoices from

freight companies, covering shipments to
customers, are forwarded to the freight
clerk. The invoices are matched with the
bill of landing for weight, the clerical
accuracy is tested, and the rates are
compared with a rate book prepared by
the warehouse supervisor. According to
the clerk, it is not possible to check all
rates during the peak summer season.
Our tests bear this statement out, since
we noted ten rate differences during one
week of July. We realize that many
discrepancies are discovered by the
freight clerk; however, no figures are
available on the amount of the savings.
As a further check on the rates, all
freight bills are forwarded to an
independent service for verification of
the rates.

We recommend that the Company compute the

savings generated by the clerks review of
freight bills. If these savings are not sufficient
to cover the payroll costs involved,
consideration should be given to having all the
rate verification performed by the outside
service.

Because disputed purchased material invoices

were held in the purchasing department, the
receiving cutoff was not correct as of the
physical inventory date. Procedures should be
instituted requiring the routing of all incoming
invoices to the accounting department where
controls can be established prior to
distributing the invoices to other departments
for necessary action.

We recommend that this procedure be

eliminated, as it involves unnecessary work
when the same results can be obtained in the
following manner: all vouchers should be
processed in the normal disbursements flow,
until approximately the tenth working day of
the subsequent month. At that time a total of
disbursements during the new month would be
obtained from the numerical file of check
copies. To this total should be added the
amount of all unpaid vouchers then on hand,
and the combined total would represent the
accounts payable at the end of the previous
month, to be set up on a month-end journal
entry and reversed in the following month. An
allowance of ten working days would

Presently, if the voucher is prepared near the

end of the month and is not to be paid until the
following month, it is entered in an accounts
payable journal for the monthly accounts
payable set up.

normally permit most prior months bills to

have been received and vouchered.