7-1 Project Two- Accounts Payable Memo

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7-1 Project Two: Accounts Payable Memo Nicole Sheppard Southern New Hampshire University ACC 315 – Accounting Information Systems Ciro Castaldi June 18, 2023

Posey’s Pet Emporium To: Juanita Spellman, CFO From: Nicole Sheppard, Business Analyst Date: June 18, 2023 Subject: Accounts Payable Process Review Analyze After analyzing Posey’s Pet Emporium’s accounts payable policy, I believe it is very well written overall. It is mandatory for every payment in the company to be supported by a source document like an invoice matched with an approved purchase order. Having an invoice portrays the corroboration from a third party that the company was provided with a product, while the purchase order presents a confirmation that the company requested the product, and it was received and approved. Having this attestation guarantees a way to secure legitimate payments while keeping them audit compliant. The company also adequately supports its employees’ reimbursement requests. Necessary documentation for these requests is submitted by the employees/ The direct manager then reviews and approves the documentation and it is reviewed and approved a second time by accounts payable before the payment is processed. Posey’s is able to verify the identity of the vendor they are paying by requiring a W-9 preceding the payment. The company also remains audit compliant by filing all necessary tax documents and acquiring a 1099 after the calendar year-end. Inconsistencies and Anomalies

I encountered a few inconsistencies when examining the company’s AP Ledgers. The irregularity I observed was on August 15, 2022. In the general ledger, there is a credit that is recorded as $400.00, which is recorded as a credit for $4,000.00 in the Vendor D ledger. The second inconsistency I came across was a credit on August 17, 2022, in the general ledger that was documented as $1,844.28 and was entered into the Vendor B ledger as $1,804.28. The last discrepancy that I noticed was a debit that was recorded on August 4, 2022, in the Vendor C ledger for $43.21, which does not have a correlating entry in the general entry. These are all red flags for the company. I believe that a procedure for verification that ensures that all entries are recorded accurately should be put into place for the company. Risks Physical paper checks are one of the biggest risks that I encountered when reading the AP Policy. Many risks are affiliated with paper checks. This includes losing the checks in transit or processing, transposed or interchanged numbers, infelicitously timed processing, improper processing by vendors, and more. There is room left for mistakes by checks taking too long to clear. Overpaying a vendor is possible if the AP department overlooks marking a bill as paid could result in two checks being cut for the same invoice without being caught before they are cashed. Although we would like to believe all vendors are honest, there could be some that are not honest enough to bring to light the overpayment. Risk Mitigation Risk mitigation is the most commonly used risk response used by companies. “It allows companies to take on risks in order to create a competitive advantage” (Savage et al., 2022, 2- 21). By reducing the company’s exposure to potential risks, you can reduce the likelihood that the risk will ever happen again. Companies use the strategy of incorporating preparations to

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lessen the effects of threats that businesses face such as fraud, IT attacks, cyberattacks, and physical damages from natural disasters. We require multiple levels of approval and confirmation before payments as risk mitigation in our AP processes, but there are still other risks. Although we process our checks on Tuesday and Thursday while waiting to distribute them at a later date is one of the risks we make. If we ever had to put a stop payment on already processed payments due to a natural disaster, could become very expensive. Fraudulent check cashing is also a possibility when not distributing processed payments because they have the possibility to land in an unauthorized party's possession. Summary Overall, our company has a sufficiently adequate set of control set in place to assist our company. The process of having third-party approval established is a thorough way to verify that payment requests are legitimate before the company makes a payment. Audit compliance and risk mitigation have some room for improvement, but we can get there. It is not best for the company to leave so much room for the risk of potential fraud and losses. The company can use secure digital payments (ACH/Wire) as an improvement to mitigate the risks it has by using paper checks. By switching to digital payments, the company is speeding up the payment process. The company will no longer have to wait for the mail to deliver physical paper checks to every customer, and wait longer for the deposit to clear once the customer puts them in their accounts.

References Savage, A., Brannock, D., Foksinska, A. (2022). Wiley. Retrieved from https://wileyplus.vitalsource.com/reader/books/9781119744429/