1. The Accounts Payable/
Cash Disbursement (AP/CD) Process

2. Learning Objectives AP/CD
Know definitions and basic functions of the AP/CD process
Understand relationship between the AP/CD process and its environment
Achieve a reasonable level of understanding of the logical and physical characteristics of typical AP/CD process
Become familiar with various technologies used to implement the AP/CD process
Know core process goals and the plans used to control a typical AP/CD process
AP/CD

3. Process Definitions and Functions
The accounts payable/cash disbursements (AP/CD) process is an interacting structure of people, equipment, methods, and controls that is designed to accomplish the following primary functions:
Handle the repetitive work routines of the accounts payable department and the cashier
Support the decision needs of those who manage the accounts payable department and cashier
Assist in the preparation of internal and external reports

4. AP/CD Horizontal Perspective
1. Invoice Received from vendor

5. AP/CD Horizontal Perspective
2. Invoice notice sent to general ledger

6. AP/CD Horizontal Perspective
3. Approved voucher (payment request) sent to cashier (3a) and to general ledger (3b).

7. AP/CD Horizontal Perspective
4. Payment (e.g., check) sent to vendor by cashier (4a), paid voucher (payment notice) returned to the accounts payable department (4b), payment notice to the general ledger (4c)

8. Vertical perspective-AP/CD

9. The AP/CD Process—Level 0 Diagram

10. AP/CD Process Level 1 DFD: Validate Invoice
(Assumes non-voucher system—a formal voucher would have space for formal approval and account distribution)

11. AP/CD Process Level 1 DFD: Make Payment
(Triggered by due date of invoice)

12. Purchase Returns and Allowances
In some cases defective goods may be returned or an allowance made for non-conforming items
This exception routine usually begins at the point of inspecting and counting the goods or at the point of validating vendor invoices
Purchaser transmits a debit memo to the vendor requesting the account adjustment
The vendor responds with a credit memo indicating the authorized account adjustment

13. Processing Non-Invoiced Disbursements
In some cases disbursements are not invoiced, e.g., freight bills, rent, payroll, etc.
The handling of non-invoiced disbursements depends on whether or not a voucher system is used
A voucher system prepares a voucher for every expenditure from payroll to purchases of raw materials

14. Processing Non-Invoiced Disbursements

15. Logical Data Descriptions for the AP/CD Process
Accounts payable master data. This data store is a repository of all unpaid vendor invoices
The data design should consider how the data will be processed when the cash manager is deciding what payments to make
For example, the manager may want to merge vendor invoices so that the total amount due each vendor can be accumulated
Alternatively, the manager might want to select specific invoices for payment
Cash disbursements data. The purpose of this data is to show, in chronological sequence, the details of each cash payment made.
Each record in this data normally shows the date the payment is recorded, vendor identification, disbursement voucher number (if a voucher process is used), vendor invoice number and gross invoice amount, cash discount taken on each invoice, net invoice amount, check amount, and check number.

16. Entity-Relationship (E-R) Diagram (Partial) for the AP/CD Process

17. Technology Trends and Developments
E-invoicing - the processing of invoices in electronic form
Scan documents
Use purchasing cards (p-cards)
Invoices can be submitted electronically
E-payments - the electronic submission of payments
EDI and XML-based technologies
Settled through the ACH network, wire transfer, or credit card

18. Technology Trends and Developments
The AP/CD process is the primary candidate for EDI in major organizations (as it is in the OE/S, B/AR/CR, and purchasing processes as well)
Several major companies have implemented EDI systems into the AP/CD process, resulting in significant cost savings
An increasing trend among some of these major companies is to require all vendors to use EDI in their transactions with the company
If the vendor does not implement EDI technologies, the major companies simply find a new supplier
In the last few years, several alternatives to EDI have been deployed
These new technologies, based, for example, on XML or IP-based EDI (Internet EDI), have not replaced EDI
Services provided by the value-added networks (VANs) and the high degree of EDI standardization make EDI attractive for fully digital B2B collaboration among trading partners for years to come
Many organizations are using Web-based payment systems

19. AP/CD Process: Systems Flowchart

20. AP/CD Fraud
AP fraud usually involve fictitious vendors and false invoices
A dishonest employee who has access to the vendor file and authorizes payment
May embezzle amounts refunded by vendors
Human error is still a leading cause of loss
CD fraud is less sophisticated
Usually involves check fraud
Check fraud takes many forms from stealing and passing stolen checks to changing amounts on legitimate checks or check forgery
CD fraud is becoming easier and more common with computer duplication technology

21. Exposure to Loss and Destruction of Resources
Although the subject of fraud and embezzlement is seductively interesting, resource losses due to unintentional mistakes and inadvertent errors are as costly as, or more costly than those caused by intentional acts of malfeasance
Making payments for incorrect or larger amounts
Paying the wrong vendor
Paying the same invoice twice

22. Other Plans AP/CD Process (Non-EDI systems)
Avoid duplicate payment of Invoices
Mark paper invoice as paid
Set flag on computerized AP record
Safeguard Blank Checks
Limit time when checks can be cashed
Use Check-Protection machine for writing checks

23. Control Goals of the AP/CD Business Process
AP/CD Control Matrix
Control Goals of the AP/CD Business Process
Control Goals of the Operations Process
Control Goals of the Information Process
Ensure effectiveness of operations:
Ensure efficient employ-ment of resourc-es (people, computers)
Ensure security of resources (cash, accounts payable master data)
For vendor invoice inputs, ensure:
For accounts payable master data, ensure:
For payment inputs, ensure:
For accounts payable master data, ensure:
Recommended control plans A B IV IC IA UC UA
Present Controls
P-1: Independent validation of vendor invoices
P-1
P-2: Match invoice , purchase order, and receiving report
P-2
P-3: Tickler file of payments due
P-3
P-4: Independent authorization to make payment
P-4
P-5: Agreement of run-to-run totals (reconcile input-output batch totals)
P-5
P-6: Digital signatures
P-6
Missing controls
M-1 Tickler file of open purchase orders and receiving reports
M-1
M-2: Reconcile input-output batch totals
M-2
M-3: Cash planning report
M-3
M-4: Reconcile bank account
M-4