ELIMINATE CASH ADVANCES FOR EMPLOYEE TRAVEL
Many employees with few funds on hand will come to the Accounts payable department asking for cash advances so They can go on company- mandated trips. By doing so, the department may be handing over more cash than the employee
really needs, which can make it difficult to collect any unspent cash. In addition, employees who have already been paid for their expenditures have no incentive to submit an expense report, especially when the report may reveal that they must
pay some of the original advance back to the company. The usual result is a pro- longed process of asking employees for expense reports, while the amount of the original advance remains, incorrectly, on the accounting books as a prepaid asset.
This problem is eliminated by denying cash travel advances. However, this is much easier said than done. In reality, many Employees simply cannot afford to be out of pocket on any company- related expenses. If so, the company can purchase many of their expenses for them, such as airline tickets. Also, such an employee can travel with another employee who has the financial wherewithal to absorb cash expenditures for both
employees. As a last resort, the company can also issue company credit cards to employees, though this raises the risk of having the cards used for noncompany purchases. Through some combination of these actions, a company can reduce its reliance on cash advances to employees.
TRANSMIT EXPENSE REPORTS BY E-MAIL
In an earlier section in this chapter, ‘‘Automate Expense Reporting,” there was a discussion of how a company can install an automated system to walk users through the process of submitting an expense report. Though it is so automated that there isonly a minimal need for any human intervention, it is also a system that is usually created with custom programming. This is very expensive and probably not worth the effort for companies without a sufficient volume of expense reporting. This section describes a ‘‘poor man’s automated expense report” for those companies that cannot afford a more sophisticated system.
The ‘‘poor man’s approach” involves using the existing e-mail system to transmit expense reports to the accounts payable department. This approach does not automatically route the expense report to a supervisor for electronic approval-either the person submitting the report or the accounts payable staff must do this. Also, most e-mail systems do ot allow for electronic approvals, so this step may not be possible, in which case the only options are to route a paper copy to a supervisor (which defeats the purpose of using e-mail) or to avoid the approval step and just audit reports after the fact to ensure that they would have been approved.Also, an e-mail transmission does not allow for an interactive review of all expenses as they are entered, so
the electronic form being used to create the expense report should contain a text section that describes all travel and entertainment expense reporting rules. Each person submitting an expense report must read these rules to determine which expenses to report and which back-up materials to submit. In addition, each person transmitting an expense report must mail in all receipts that go with the expense report, without the trans-mittal document that would be used with a moreadvanced expense reporting sys- tem. Finally, payments are made by check, with entries being made manually into the accounts payable system, rather than automatically with wire transfers. Thus, this simplified system may not allow for upervisory approval, does not interac-tively review all expenses, does not issue a transmittal document, and does not automatically issue a payment. On the other hand, it is much easier and cheaper to implement than a full-blown automated expense-reporting system.As an example of how this simplified reporting system works, the accounts payable department periodically issues a spreadsheet to all employees (by e-mail), set up in an expense-reporting format. It shows where expenses are to be listed and contains the key reporting rules within the body of the spreadsheet. When a user completes the spreadsheet with actual data, the file is attached to an e-mail addressed to the accounts payable department. All receipts are sent to the depart-ment by mail, along with a paper copy of the expense report. The accounting staff receives the e-mail, prints out the expense report, and then enters the data imme-diately into the accounts payable database for payment.
The staff has the option of either issuing payment right away or waiting until the receipts are received. Later, the internal auditing staff can review a selection of expense reports to see if all reporting rules were followed.This approach does not allow for as much control over expense reporting as a fully interactive system, but it does allow most companies to quickly install a partially automated system that improves the efficiency of the accounts payable staff—usually in just a few days or weeks.
OUTSOURCE THE ACCOUNTS PAYABLE FUNCTION
Many controllers do not want to waste time managing such a mundane function as accounts payable. It does not directly contribute to the mission of any company, nor does it impact customer service. In short, it is a baseline clerical function that merely takes up management time with no particular payback. By off-loading this function to a supplier who specializes in accounts payable processing, a con-troller can reduce the management time devoted to this functional area and allocate more time to other more profitable company functions.
Besides reduced management time, it can also be less expensive to outsource to a qualified supplier. A well-run supplier has an excellent knowledge of accounts payable best practices and uses that knowledge to drastically cut the processing effort needed. This is an especially attractive option for those companies that are in difficult financial circumstances and that would prefer to pay just a per-transaction fee, rather than an entire staff. This essentially converts a large fixed cost to a variable cost that will not be incurred if there are no transactions to process.
Outsourcing accounts payable usually means that the entire company staff devoted to this work will be shifted to the supplier who is taking over the work, though it is also possible that the supplier will not need these people, or will ‘‘cherry-pick” only the most qualified. If the latter is the case, then the controller should meet with the staff to honestly appraise their future prospects with the supplier or to provide outplacement counseling. The supplier should also be available at these meetings to answer any employee questions, as well as to enroll employees in supplier benefit plans and to convert them to the supplier’s payroll system.
Besides the staff conversion, the controller must also determine how to man-age the supplier. This is not a case of handing the work to the supplier and then paying the supplier’s bills—on the contrary, some oversight will always be neces-sary to handle any problems that may arise, such as complaints from suppliers that are not being paid, verifications that discounts are being taken, and approvals of all payments prior to payment. These activities are most commonly handled at the level of an assistant controller, though the controller may manage the supplier directly if the transaction volume is minimal. In all cases, some continuing over-sight by the remaining accounting staff is necessary.
One should also consider the degree and form of ongoing interaction with the supplier necessary to ensure that accounts payable are processed correctly. For example, if a company has a fully integrated accounting and manufacturing software package, it will be impossible for the supplier to process accounts
payable on its own accounting software, because these transactions must be com-pleted on the company’s software package. The best way to resolve this problem is to give the supplier remote access to the company’s computer system, so that it can process accounts payable as though it were an on-site service. However, this arrangement will require an extra expenditure to train the supplier’s employees in how to use the system. Another option is to have the supplier perform only the most mundane accounts payable tasks, such as matching documents, and leave any data-entry or check-cutting work to the in-house staff. This option eliminates the worst drudge work from the function, while still allowing for greater control over it. Yet another variation is to allow the supplier to cut checks in payment of accounts payable, though this reduces some company control over cash flows. The best way to resolve the problem is to have company management approve check runs before they are printed and mailed. Clearly, there are a variety of approaches to the extent to which the accounts payable function can be out-sourced.
OUTSOURCE VAT RECLAMATIONS
It is in the best interests of all countries that collect value-added taxes (VAT) to retain these remittances as long as possible, even if a company is entitled to a refund for various reasons. To this end, the reclamation process is not only long, but also varies from country to country. In many cases, a company does not want to go through the effort of reclaiming funds, choosing instead to ignore the problem.
The aggravation of reclaiming VAT taxes can be shifted to a third party that specializes in VAT recoveries. Such parties usually charge a minimum fee per collection effort, as well as a percentage of the amount collected. Since a com-pany would otherwise rarely collect the money at all, paying this fee is a reason-able way to reclaim VAT. Examples of VAT reclamation companies are Ireland-based Fexco (www.fexcotaxreclaim.com), Meridian (a subsidiary of PRGSchultz Inc., located on the Web at www.meridianvat.com), and England-based The VAT Clearinghouse
SHRINK THE SUPPLIER BASE
Part of the job of the accounts payable staff is to maintain a complete and accu-rate database of suppliers, which typically includes address and payment infor-mation. If data is entered incorrectly, the accounting staff is usually notified by a supplier that has not received a payment (because it was sent to the wrong address), has been paid the wrong amount (because of an incorrect early payment discount rate), or has been paid at the wrong time (because of an incorrect due date). This type of problem is inevitable in even the best-run company and will require some time to research and fix. However, the problem is greatly exacer-bated in a company that has many suppliers, because there are so many chances for the supplier information to be incorrect. Another problem with having many suppliers is that there is typically little control over adding new suppliers (after all, that is how there came to be so many suppliers in the first place!). Theaccounting staff must deal constantly with adding new data to the supplier data-base, consolidating supplier records that have been entered multiple times, and (especially) making a multitude of small payments to a plethora of suppliers. Wouldn’t it be much easier if there were just fewer suppliers?
This is a best practice—reducing the number of suppliers. It is much easier to maintain accurate data in a relatively small number of supplier records, while there are few new suppliers to add to the database. In addition, the volume of purchases from the smaller number of suppliers tends to be larger, so there are typically fewer, larger invoices that can be keypunched more easily into the accounting database and paid with fewer, larger checks. Essentially, shrinking the supplier database reduces a variety of data-entry tasks.
Unfortunately, shrinking the number of suppliers is not easy. The first prob-lem is that the accounting staff must convince the purchasing staff to adopt a sup-plier reduction strategy, which the purchasing staff may not be so eager to pursue, especially if they prefer the strategy of sourcing parts from multiple suppliers. In addition, company employees may be in the habit of buying from any supplier they want, which can require a considerable amount of retraining before they are willing to buy from a much shorter list of approved suppliers. The effort required to reduce the number of suppliers is frequently far in excess of the productivity gains real-ized by the accounts payable staff, so most controllers do not pursue this best practice unless there is already either an active supplier reduction campaign in place in the company, or else the head of the purchasing department appears to be amenable to the idea. Even then, a supplier reduction strategy does not take place overnight. On the contrary, it can take years to effect a massive cutback in the supplier base. Accordingly, this strategy should only be adopted when there is multidepartmental support for the idea as well as a long implementation timeline.
