Accounts Payable & Contracts Payable
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Accounts Payable & Contracts Payable

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Presentation from Ohio CPA Firm, Rea & Associates on AP and Contracts Payable for Ohio Businesses. Topics discussed include ORC requirements, Compling AP and contracts payable for GAAP financial ...

Presentation from Ohio CPA Firm, Rea & Associates on AP and Contracts Payable for Ohio Businesses. Topics discussed include ORC requirements, Compling AP and contracts payable for GAAP financial statements, Internal Controls over AP, and common audit deficiences in AP.

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  • 5705.41(D)- No orders or contracts involving the expenditure of money are to be made unless there is a certificate of the fiscal officer that the amount required for the order or contract has been lawfully appropriated and is in the treasury or in the process of collection to the credit of an appropriate fund free from any previous encumbrances. [Section 5705.41(D)]. Meaning – if a district creates a purchase order subsequent to the receipt of an invoice, it is in direct violation of this code section.Then and Now Certificate: This exception provides that, if the fiscal officer can certify that both at the time that the contract or order was made and at the time that he is completing his certification, sufficient funds were available or in the process of collection, to the credit of a proper fund, properly appropriated and free from any previous encumbrance, the taxing authority can authorize the drawing of a warrant. The taxing authority has 30 days from the receipt of such certificate to approve payment by resolution or ordinance. If approval is not made within 30 days, there is no legal liability on the part of the subdivision or taxing district. Amounts of less than $3,000 for other political subdivisions, may be paid by the fiscal officer without such affirmation of the taxing authority upon completion of the "then and now" certificate, provided that the expenditure is otherwise lawful. This does not eliminate any otherwise applicable requirement for approval of expenditures by the taxing authority. [Section 5705.41(D)]. Contract or Lease Running Beyond the Termination of the Fiscal Year Made: Pursuant to Section 5705.44, Ohio Rev. Code, where a contract or lease runs beyond the termination of the fiscal year in which it is made, only the amount of the obligation maturing in the current fiscal year need be certified. The remaining amount is a fixed charge required to be provided for in the subsequent fiscal year's appropriations. Continuing Contracts to be Performed in Whole or in Part in an Ensuing Fiscal Year: Where a continuing contract is to be performed in whole or in part in an ensuing fiscal year, only the amount required to meet those amounts in the fiscal year in which the contract is made needs to be certified. (1987 Op. Atty. Gen. 87-069).
  • In-service training is sometime more effective at getting the message across
  • Urgent Necessity: Defined in Mueller v. Board of Education 25 Ohio Dec. 195,1911 WL 1730 Ohio Com.Pl. 1911. means more than convenience and more than ordinary necessity. It is something that requires immediate action. Something that can not wait. When pleaded as an excuse for failure to comply with any statutory requirement it must be decided by the circumstances of the particular case in which it arises.” “Whether or not a case of urgent necessity exists so that a board of education may be enabled to build, alter or repair a school house or make other improvements without complying with the provisions of this section, as to competitive bidding is dependent upon the determination and declaration of the board itself and cannot be questioned for any reason other than fraud, collusion, absence of good faith or abuse of discretion. "1927 OAG 908. Single Source Purchasing: Make sure documentation is retained as to how it was determined that this was a sole source purchase. This will be coming under scrutiny for those participating in Medicaid School Program AUP.Joint Purchasing contract – Reminder that do not have to always use prices from the cooperative purchasing program, if the school district can prove that it can purchase those same supplies or services from the other party upon equivalent conditions and specifications but at a lower price. If so, the school district does not have to competitively bid those supplies or services.

Accounts Payable & Contracts Payable Accounts Payable & Contracts Payable Presentation Transcript

  • Accounts/Contracts PayablePresented by: Zac Morris, CPA
  • Overview What will we be covering today? ORC requirements Compiling accounts payable and contracts payable for GAAP financial statements Internal controls over accounts payable Fraud risk factors in accounts payable processes Common audit deficiencies in accounts payable
  • Ohio Revised Code Ohio Compliance Supplement  Located on Auditor of State of Ohio website  http://www.auditor.state.oh.us/services/lgs/publications/LocalGovern mentManualsHandbooks/ohio_compliance_supplement.htm  Used by all auditors in Ohio (AOS and IPAs)  Includes “Suggested Audit Procedures” Most common audit citations:  5705.41(D) – purchase orders dated after expenditure is incurred  Not utilizing a Then & Now  No Board approval on Then & Now Certificates > $3,000  Contracts extending beyond the end of the fiscal year
  • Purchase Orders How to deal with problematic employees/departments who do not get POs prior to ordering items  Address at an in-service training • Ask auditors to come in and speak to the group  If you are getting cited in your audit for this, send a copy of the audit report/management letter to the specific individuals/departments who caused the noncompliance. • Require them to formally respond to the citation.  Require explanation for anything requiring Board approval on a Then and Now or simply implement a policy requiring communication of all violations.
  • Purchase Orders (Continued)  Threaten to not pay the invoices • No orders or contracts involving the expenditure of money are to be made unless there is a certificate of the fiscal officer that the amount required for the order or contract has been lawfully appropriated and is in the treasury or in the process of collection to the credit of an appropriate fund free from any previous encumbrances. [Section 5705.41(D)]. • Processing of Then and Now certificate: The taxing authority has 30 days from the receipt of such certificate to approve payment by resolution or ordinance. If approval is not made within 30 days, there is no legal liability on the part of the subdivision or taxing district.
  • Purchase Orders (Continued) Contracts extending beyond the end of the fiscal year  Should be evaluated prior to year end and closed out for amounts not payable for work done in FY12 • Work done in June 2012, paid in FY13 – can remain open • Work done in FY13 – should be closed out – Pursuant to Section 5705.44, Ohio Rev. Code, where a contract or lease runs beyond the termination of the fiscal year in which it is made, only the amount of the obligation maturing in the current fiscal year need be certified. • Reopen PO in FY13 for amount of work expected to be completed in FY13 – The remaining amount is a fixed charge required to be provided for in the subsequent fiscal years appropriations.
  • Bidding of Contracts Required for contracts > $25,000 (Section D: Board of Education – ORC 3313.46) Common exceptions:  an urgent necessity [Section 3313.46 (A)] 10  acquisition of educational materials used for teaching; [Section 3313.46(B)(1)]  any item which the Board, by a two-thirds vote, determines is available and can be obtained only through a single source; [Section 3313.46(B)(2)]  energy conservation measures, with the approval of two-thirds of the Board [Section 3313.46(B)(3)] or  acquiring computer software or hardware for instructional purposes pursuant to Section 3313.37 (B) (4). [Section 3313.46(B)(4)].  School districts that participate in a joint purchasing contract are exempt from using competitive bidding. [R.C. Section 9.48(C)-(D)] • If you can acquire the same item for a lower price from another vendor, no bidding required
  • W-9s and 1099sW-9s sent to all vendors  Send when they submit an invoice for paymentPayments for services to an individual, partnership or LLC thatexceed $600 for the year require a 1099.  This includes payments made during the normal course of business, including but not limited to: • Sub contract labor • Repairs of equipment • Construction • Lawn Care • Rent paymentsPayments to any attorney in excess of $600 for the year. These feesare reportable even if paid to a corporation.
  • Internal Controls over Purchasing Controls must be testable  Make sure to take credit for what you are doing • Checkmarks, initials, signatures, etc. • What happens when someone is on vacation? Bank reconciliations  Have seen an increase in falsified bank statements in recent years  Should be performed and reviewed by someone other than the individual responsible for generating checks  Should be reviewing endorsements on checks during reconciliation, if possible  Payroll clerk do bank reconciliation on general checking account, and AP Clerk perform reconciliation on payroll account  Both reviewed by Treasurer
  • Internal Controls over Purchasing(Continued) Controls over vendor files  Is there a policy in place over access/editing to vendor master list?  Who is authorized to set up new vendors in USAS?  Who is authorized to make changes to existing vendors in USAS?  Require authorization forms that must be approved by Treasurer  Search existing vendor files prior to setting up new requests  Review vendor files regularly • Inactivate after a specified period of no payments • Review files for missing details (no address, only PO Box, etc)
  • Internal Controls over Purchasing(Continued) Data extraction software  Compare employee master to vendor master for common details (names, addresses, phone numbers)  Analyze vendor master file for potential duplicate vendors (same name, address, etc) • Can be caused by different department using same vendor • Can result in duplicate payments on invoices
  • Compiling Accounts Payable for GAAP Accounts Payable  Definition: goods or services were received prior to June 30 and were paid for after June 30  Easiest method – utilize PAYABL report from USAS • Only works if you are diligent about properly entering “Invoice Date” and “Received Date” fields • If dates are not entered here, it defaults to date paid • No manual data entry for your staff • GAAP preparer can typically run this report themselves (if you have provided them Read-Only A-site access)
  • Compiling Accounts Payable for GAAP(Continued) Accounts Payable  Alternative to PAYABL report is an excel spreadsheet • Lots of manual data entry • More room for error • Can be time-consuming to determine which amounts were encumbered and which were not Contracts Payable  If you have a large project going on, do not rely on the PAYABL report alone  Make a list of all contractors on the project (see handout)  Pull first check written to each vendor in FY13 • Review contractor’s “Application for Payment” for work performed to date (typically monthly) • Make sure you are picking up all FY13 payments with work performed in FY12 (may be more than one payment lag)  These payments are large, so if you miss one, it could result in a material audit adjustment!
  • Higher Risk Expenditures Credit card or procurement card purchases  Policies should, at a minimum, identify authorized users, guidelines for allowable use/ purchases,, specific unallowable uses, reporting, monitoring  Need solid internal controls over physical access to the cards • Complete request form prior to “signing out” a card • Require detailed receipts be turned in for all purchases • No sales tax should be paid on these transactions
  • Higher Risk Expenditures Employee reimbursements  These policies should, at a minimum, identify the types of travel authorized; guidelines for allowable and unallowable expenses; limitations on amount of reimbursement; types of supporting documentation required for reimbursement requests; reporting; monitoring of use by appropriate levels of management; and other guidelines the legislative body deems appropriate.  Common issue – lack of approval for Treasurer and/or Superintendent’s reimbursements • Treasurer approve Superintendent • Superintend approve Treasurer • Board/Board President approve both  Auditor of State of Ohio Best Practices (Spring 2004/Winter 2009/10)
  • Contact Information Zac Morris, CPA Senior Manager, Rea & Associates, Inc. zac.morris@reacpa.com Office: 330-674-6055 DL: 330-521-4539 Cell: 330-231-2493