Controlling Your AP Processes

October 4, 2011Leave a reply

Accounts Payable is a part of any healthy business – so are local government agencies. And as your business gets more complicated, you get more invoices, and report to more government agencies.

Over the past few years, a number of our clients have received faxed and mailed notices instructing them to complete a corporate compliance form. Some of these notices are directed at directors or officers, while others are for the general corporation.

Generally, these notices will cite specific portions of the California corporate code that requires corporations to prepare corporate minutes. The form usually is pre-filled with company and officer names, along with state ID numbers. These notices appear to be issued by the California Secretary of State or some other governmental entity.

So, as a business owner you receive an official looking letter reminding you of your business requirements with a small filing fee (usually in the $100 – $200 range) – what do you do?

Most business owners write out a check and mail it in, one less government agency to argue with. But this was not a government agency, and it was not an invoice. If you took a few minutes to look everything over you would find (usually in small print or grayed out) something similar to:

CA Business & Professions Code Sec 17533.6: This service has not been approved or endorsed by any government agency, and this offer is not being made by an agency of the government. This is not a bill.

This is just one example. There is a company claiming to be based in the Netherlands (actually it is in the back office of a New York attorney) that sends out invoices that look like they are from the Real Yellow Pages for $1,000 per year to advertise you in their online directory. Another looks like a company domain renewal but actually sets you up for submitting your site to search engines.

These dubious schemes may be a minor loss to larger companies, but they also show a greater problem in many people’s accounting procedures. If these invoices can get through your system and get paid, then so can accidental duplicate invoices, or employee utility bills, or dozens of other items that may find your profit margins shrinking.

To keep your company (or yourself!) from spending money for purchases you don’t want, put these practices in place:

  • Limit the number of people who can pay invoices to just one or two.
  • Require a completed W-9 from your vendors before you pay them – this will also make things easier when you have to issue 1099?s.
  • Read the entire notice carefully. If it looks like an invoice and you don’t remember ordering the product or service, be particularly cautious. Remember you are not obligated to pay for anything you haven’t ordered.
  • If you are unsure whether an invoice is legitimate, call the company and ask for details of your purchase. If there is no way to get in touch with the company other than by sending a letter, be very skeptical.
  • Read the small print. Even if the company is legitimate and you think you’d like to order the product or service, be sure that doing so won’t get your credit card dinged for repeated charges.
  • If you use purchase orders, check all invoices against the purchase orders.
  • When you do sign up for internet services, watch for an acknowledgement page. Print it out and save it, then compare bills to your printed purchase receipts.
  • Train your employees to look for bogus invoices.
  • Include invoice numbers on your payments, and have the invoices with the payment when filing them in your records

And most important – review your company financial statements monthly. This way even if they do get an invoice through your procedures once, it will be quickly spotted as a variance compared to prior months and you can keep an eye out for it in the future.

About author:

Scott Macklin, E.A. is an Enrolled Agent at Darrel Whitehead CPAs and has been working in public accounting for over 15 years. Scott specializes in corporate taxation and consulting, primarily on start-up infrastructure, technology, and international tax reporting.

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