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    Accounts/ContractsPayable

    Presented by: Zac Morris, CPA

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    Overview

    What will we be covering today? ORC requirementsCompiling accounts payable and contractspayable for GAAP financial statementsInternal controls over accounts payableFraud risk factors in accounts payable

    processesCommon audit deficiencies in accountspayable

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    Ohio Revised Code

    Ohio Compliance SupplementLocated on Auditor of State of Ohio website

    http://www.auditor.state.oh.us/services/lgs/publications/LocalGovernmentManualsHandbooks/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

    http://www.auditor.state.oh.us/services/lgs/publications/LocalGovernmentManualsHandbooks/ohio_compliance_supplement.htmhttp://www.auditor.state.oh.us/services/lgs/publications/LocalGovernmentManualsHandbooks/ohio_compliance_supplement.htmhttp://www.auditor.state.oh.us/services/lgs/publications/LocalGovernmentManualsHandbooks/ohio_compliance_supplement.htmhttp://www.auditor.state.oh.us/services/lgs/publications/LocalGovernmentManualsHandbooks/ohio_compliance_supplement.htmhttp://www.auditor.state.oh.us/services/lgs/publications/LocalGovernmentManualsHandbooks/ohio_compliance_supplement.htm

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    Purchase Orders

    How to deal with problematic employees/departmentswho do not get POs prior to ordering items

    Address at an in-service training

    Ask auditors to come in and speak to the groupIf you are getting cited in your audit for this, send a copy of the audit report/management letter to the specificindividuals/departments who caused the noncompliance.

    Require them to formally respond to the citation.

    Require explanation for anything requiring Board approval ona Then and Now or simply implement a policy requiringcommunication of all violations.

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    Purchase Orders (Continued)

    Threaten to not pay the invoices

    No orders or contracts involving the expenditure of money are to bemade unless there is a certificate of the fiscal officer that the amountrequired for the order or contract has been lawfully appropriated andis in the treasury or in the process of collection to the credit of anappropriate fund free from any previous encumbrances. [Section5705.41(D)].

    Processing of Then and Now certificate: The taxing authority has 30days from the receipt of such certificate to approve payment byresolution or ordinance. If approval is not made within 30 days, thereis no legal liability on the part of the subdivision or taxing district.

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    Purchase Orders (Continued)

    Contracts extending beyond the end of the fiscal year Should be evaluated prior to year end and closed out for amountsnot 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 acontract or lease runs beyond the termination of the fiscalyear in which it is made, only the amount of the obligationmaturing in the current fiscal year need be certified.

    Reopen PO in FY13 for amount of work expected to be completed inFY13

    The remaining amount is a fixed charge required to beprovided for in the subsequent fiscal year's appropriations.

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    Bidding of Contracts

    Required for contracts > $25,000 (Section D: Board of Education ORC 3313.46)

    Common exceptions:an urgent necessity 10 [Section 3313.46 (A)]

    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 canbe 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 toSection 3313.37 (B) (4). [Section 3313.46(B)(4)].

    School districts that participate in a joint purchasing contract are exempt fromusing competitive bidding. [R.C. Section 9.48(C)-(D)]

    If you can acquire the same item for a lower price from another vendor, no biddingrequired

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    W-9s and 1099s

    W-9s sent to all vendorsSend when they submit an invoice for payment

    Payments 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 payments

    Payments to any attorney in excess of $600 for the year. These feesare reportable even if paid to a corporation.

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    Internal Controls over Purchasing

    Controls must be testableMake sure to take credit for what you are doing

    Checkmarks, initials, signatures, etc.

    What happens when someone is on vacation?

    Bank reconciliationsHave seen an increase in falsified bank statements in recent years

    Should be performed and reviewed by someone other than theindividual responsible for generating checksShould be reviewing endorsements on checks during reconciliation,if possiblePayroll clerk do bank reconciliation on general checking account,and AP Clerk perform reconciliation on payroll account

    Both reviewed by Treasurer

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    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)

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    Internal Controls over Purchasing(Continued)

    Data extraction softwareCompare employee master to vendor master for commondetails (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

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    Compiling Accounts Payable for GAAP

    Accounts PayableDefinition: goods or services were received prior to June 30and 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 haveprovided them Read-Only A-site access)

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    Higher Risk Expenditures

    Credit card or procurement card purchasesPolicies should, at a minimum, identify authorized users,guidelines for allowable use/ purchases,, specific unallowableuses, 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

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    Higher Risk Expenditures

    Employee reimbursementsThese policies should, at a minimum, identify the types of travelauthorized; guidelines for allowable and unallowable expenses;limitations on amount of reimbursement; types of supportingdocumentation 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 Superintendents reimbursements

    Treasurer approve Superintendent

    Superintend approve Treasurer

    Board/Board President approve both

    Auditor of State of Ohio Best Practices (Spring 2004/Winter 2009/10)

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    Contact Information

    Zac Morris, CPA

    Senior Manager, Rea & Associates, Inc.

    [email protected]

    Office: 330-674-6055

    DL: 330-521-4539

    Cell: 330-231-2493

    mailto:[email protected]:[email protected]

UNITED STATES DEPARTMENT OF AGRICULTURE232 Accounts Payable 232.1 Accounts Payable - General 232.2 Accounts Payable - RUS Construction 232.3 Accounts Payable - Other 233 Notes Payable

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