Things may very well get a lot more exciting if accounts payable are out of control in your business. Understanding some basic internal control concepts and applying them in your business can keep the accounts payable function in its quiet, routine role, where it belongs.
Accounts Payable Control - Authorization and Verification
An accounts payable control system basically comes down to two fundamental concepts or processes:
Authorization
Verification
Authorization constitutes the initial phase, when decisions are made as to what commitments the business should take on and what disbursements should be made.
Verification constitutes the entire process of assuring that cash disbursements are made as authorized, and in accordance with the terms and conditions agreed upon.
These concepts are inherent in any business. A sole proprietorship or a small business may not have a formally documented accounts payable control system. The number of persons and steps involved may be limited, while in a larger business, the control system may be fully documented and very specific as to who does what, and how they do it.
But in either case, there needs to be an awareness of what accounts payable controls are really about, and that even the best designed internal control procedures will not serve their ultimate purpose, which is to safeguard business assets and resources, and contribute to an effective and efficient operation, unless they are carried out in practice. And this involves each person taking responsibility for the internal control practices and procedures that apply to his or her daily activities in the business.