Originally published in
Reprinted with permission

A/P Troubleshooter Reveals the 3 Biggest Missed Opportunities

Jon Casher, [chairman] RECAP, Inc., gets the opportunity to look at a lot of accounts payable departments and is paid to see opportunities in the day-to-day operations that others often overlook. He shared what he considers the most important of these with the New England chapter of the IAPP last June. Specifically, he identified the following three areas: metrics/key indicators; security and control; and people.

Metrics/Key Indicators

Casher feels that many accounts payable professionals overlook this golden resource. Many have at their fingertips valuable vendor information that can be used to track the volume, both by dollar amount and items ordered, by vendor. Use these numbers to identify high-volume vendors and assign each to a particular staff member. This can help to smooth the relationship with key suppliers.

With this information, a savvy purchasing department can also negotiate quantity discounts, where applicable, and solidify relationships. Rather than order the same item from a dozen vendors, the company can limit its purchase of a particular article to two or three vendors. Limiting the number of vendors will result in a larger quantity being ordered from each, giving purchasing additional strength to negotiate discounts.

This information can typically be manipulated out of the accounts payable system—something most purchasing departments do not have access to. Teaming with purchasing to obtain and analyze this data can enable both departments to come out winners.

Another way to look at the numbers is to see how many transactions are handles by each employee. (Depending on the sophistication of your system, you may or may not be able to obtain this data.) Even if the system cannot calculate it for you, you may be able to do it yourself with little effort. Use these numbers to determine which staff members are producing the largest number of invoices. Are they more efficient because they are doing something different, or are they just more efficient?

Casher says that depending on the complexity of the processing involved, an accounts payable staffer should be able to handle between 50 to 100 transactions each day. This volume will vary based on how transactions are handled at one company versus another.

He also recommends tracking customer service inquiries by type. This will help the department identify areas that should be changed or processes that need tightening. If a large number of calls are received because deductions are not clear, the company may want to include a note on the check stub identifying such deductions to help eliminate some phone calls. Of course, if the vendor does not view the deductions as legitimate, you will not have solved the problem. You will then need to determine whether these deductions should be taken or if they are actually costing more than they are saving.

Similarly, if an unduly large number of complaints revolve around the work of a certain staffer, a little retraining may be in order.

Finally, Casher says that accounts payable departments should track the quality of incoming work. In many companies, the accounts payable department "cleans up" the mistakes made by a variety of other departments. These errors are often made through carelessness, laziness, or sometimes just plain lack of knowledge. By identifying the culprit departments and then the cause of the errors, it is often possible to fix some of them. Once again, a little retaining may be called for.

If it is not, you may have to take more aggressive action. Making it more trouble for the offending party to fix a mistake will slowly correct the problem. Initially, it will be more work for you, but ultimately you will be rewarded with better incoming work.

For example, if the purchasing manager often "forgets" to code invoices before they are submitted for payment, send them back for coding. Many accounts payable professionals fall into the trap of simply looking up the code themselves: It’s easier than sending them back. But, it does not encourage the purchasing managers to complete the form correctly the next time—why should he take the time to look up the correct code if you will do it for him?

Keep a log of all duplicate payments. Again, it is imperative that offending parties be made aware of their errors.

Security and Control

Accounts payable managers have within their dominion responsibility for much of their company’s assets. Many do not realize this and thus take the responsibility lightly. Even more serious is the fact that management may not fully understand the level of obligation. Casher identified four prime areas falling under the accounts payable domain: checking accounts; check printing and check stock; vendor files; and transaction processing. Improper care of these items can result in overpayments from either fraud or neglect.

• Checking Accounts—Do not run receipts and disbursements through the same bank account. This is a fraud prevention technique that many controllers and treasurers balk at. They simply see it as paying for an extra bank account, and in that regard, they are correct. An extra bank account will have to be paid for, but it is money well spent. Once a crook is in possession of your bank account number, he has overcome more than half the battle in getting his hands on your money.

Typically, a crook will get this number in one of two very simple ways. One way is to call the company and ask for instructions to make a wire transfer. Most companies are only too willing to provide this information to anyone looking to pay. The second method involves a little extra work—but yield the thief a little more useful information. He orders from the company and intentionally makes an overpayment.

When the company sends the refund check, the crook is on his way. Not only does he have your company’s account number, he also knows who the authorized signer is on the account and has a copy of the signature. With this information (and if you don’t use positive pay), and a rather inexpensive computer, he can get into your bank account and wipe you out. If he goes the wire transfer route, he will have to get a copy of your annual report and copy the president’s signature, or simply make up a signature if the forged check is to be less than $10,000. Since many banks do not verify signatures—even on large checks—as often as we would like, forging the signature is not as important as getting the account number.

There are actually three lessons to be learned from this. First, as Casher states, segregate your receipts from your disbursements into separate accounts. The receipts can then be automatically "swept" into another account from which money can be disbursed. The bank should be instructed not to honor any checks that are presented.

The second two are fairly obvious. Wire instructions should not be given to everyone who calls. Get the person’s name, phone number, and an explanation of the money to be wired. A legitimate caller will gladly provide the information.

Also under the guise of being overly careful, many companies have an artist prepare the signatures in the annual report—and these inscriptions bear no resemblance to the real thing. Thus, when the swindler tries to present a large check, it will look like exactly what it is—a forgery.

Although these steps should e followed by all companies, those using positive pay have less to be concerned about.

• Check printing and check stock—Those companies still using preprinted check stock need to have secure procedures not only got storing their checks but also for the accounting of those items. It’s a good idea to get other departments’ personnel in monitoring and storing checks. Of course, an even better approach is to do away with preprinted check stock completely. Not only does this remove the threat of check theft, but it reduces costs and generally makes the check-printing process easier.

Those choosing to use laser check printing find that they need simpler procedures for monitoring their check stock—if they need any at all. However, it is important to have the necessary checks and balances in place when using a laser process. The plates need to be stored securely, and if the printer signs the checks, keep a close tally on the number actually signed.

• Vendor files—Improper care with the master vendor file allows those with ill intent to divert or make payments to those who are not owed. For more information on the correct handling of these files, see "5 Techniques to Keep Phantom Suppliers Out of Master Vendor Files"(MAP, June 1997) and "Master Vendor File Clean-Up: When Was the Last Time You Did Yours?" (MAP, June 1997).
• Transaction processing—Ultimately, all payments made on behalf of a company will pass through the hands of the accounts payable department (unless wire transfers are handled in treasury). This is a tremendous responsibility. A/P managers need to ensure not only that payments get out in a timely manner, but that both duplicate and fraudulent payments are not processed. This is often easier said than done.

Casher says that the person in any organization most likely to send in a duplicate payment is the CEO. Unfortunately, this is the payment probably paid with the least amount of checking—after all, the CEO sent it in. However, this individual has no knowledge of payments that have been made. Accounts payable managers need to review their procedures to detect duplicate and fraudulent payments and then tighten up wherever they appear flimsy.

People

The most valuable asset any company possesses is its employees. Not all firms realize this. In fact, not all managers do. Casher believes that properly motivating your staff can make a big difference in the productivity of your unit. He suggests running contests and organizing the work in the most efficient manner. While the second part off his advice seems obvious, many often overlook what’s staring them right in the face.

Procedures in most companies simply evolve over time. When you ask someone why they are doing something in a particular manner, the response is often, "Because that’s the way we always did it." Now, MAP readers know this is not a good answer, but how many have looked at our own processes and procedures in over a year? Are you doing things "the way you always did?" Reviewing your processes often makes it possible to find better ways to do things. Many departments have been able to eliminate steps that are no longer needed.

One shrewd accounts payable manager was making a copy of the entire check run for the accounting department. This took close to an hour because of the way the computer printed the information. It was a task no one in the department liked. She made a trip over to accounting to see exactly what they did with the printout. And the answer was more than a little disconcerting. The department simply filed the report. No one ever looked at it.

The accounts payable manager agreed with the accounting manager that if the accounting department ever needed the report, it could use accounts payable’s copy. One has to wonder why accounting didn’t ask accounts payable not to send the report, since all it was doing was taking up valuable filing space—but that is another issue. Corporate America is filled with such stories of waste. In this case, accounts payable stopped the copying and put the time to more productive use.

By focusing on the three key areas identified by Casher, accounts payable professionals will be able to enhance their own operations without having to increase staff—something that should make their bosses quite happy.

"A/P Troubleshooter Reveals the 3 Biggest Missed Opportunities" ©1997 Institute of Management and Administration, Inc. For subscription information call (212) 244-0360 or send e-mail to SUBSERVE@IOMA.COM