Client Period-end

[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Use Guidance (Read & Delete Me):

This audit program is designed to be used for reference purposes only. These
programs should be modified to reflect client company policy where appropriate. Also,
consider whether additional tailoring and/or approvals are needed for specific
deployment. Professional judgment, based on individual circumstances, must be used
when considering the information included in this program.

Specific work steps that involve complex GAAP accounting issues or the interpretations
of GAAP accounting are to be expressly avoided. Any specific program work steps
contemplating such matters require the approval of the appropriate risk management
partner in consultation with DPP-RMAS.

Internal Audit Objectives

Assist management in determining the following:

1) Obtain and document an understanding of the accounts payable process and

related internal controls.
2) Accounts Payable, Purchasing, and Cash Disbursements duties are segregated.

3) Controls in place to support accurate and timely recording of liabilities are

functioning according to company policy.

4) Controls that support the data integrity within the vendor master file are functioning
according to company policy.

5) Cut-off controls designed to support recording of unpaid amounts to vendors in the

appropriate period appear to be functioning according to company policy.

6) Accounts Payable department takes advantage of the early payment discounts.

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
Internal Audit Objective 1: Obtain and document an understanding of the accounts payable
Use Guidance (Read & Delete Me):
process and related internal controls.
This audit program is designed to be used for reference purposes only.
1) Thesethe
Obtain programs
following: should be modified to reflect client company policy where
appropriate. Also,
 – Existing process consider whether
documentation (i.e., fromadditional
Sarbanes- tailoring and/or approvals are
needed
Oxleyfor specific deployment. Professional judgment, based on individual
projects)
circumstances, mustforbeaccounts
 – Organizational chart used when
payable;considering the information included in
this program.
 – Policies and procedures for accounts payable, including
vendor master-file setup and maintenance, invoice entry,
Specific work steps that involve complex GAAP accounting issues or the
and payments;
interpretations of GAAP
 – Signature authorization listaccounting
– checks and are to approval
invoice be expressly avoided. Any specific
program worksigners
(note check stepsshould
contemplating such
not be involved matters require the approval of the
in normal
accounts payable (A/P) activity);
appropriate risk management partner in consultation with DPP-RMAS.
   – Most recent A/P aging, and detailed A/P trial balance;
 – A/P check registers for the audit period (electronic if
possible);
 – An electronic download of the vendor master file.
2) Interview individuals within the Accounts Payable department
to determine the process for vendor payments.

If necessary, prepare flow charts or narratives on the accounts

payable process.

Consider the following key questions during interviews:

 – What coordination efforts happen between the A/P

department and Purchasing departments in order for
vendor payments to occur?
 – How are purchases priced, how often are prices monitored
for changes, and how are freight and sales & use tax
accounted for?
 – Do vendors reference Purchase Order (PO) numbers on
their invoices? If not, how does A/P determine what
source documents relate to the invoice?
 – What are vendor set up and maintenance procedures? Do
they include obtaining tax ID number for 1099 purposes
(US only)?

Filename: 688905249.xls Page 2 of 11

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
 – How are invoices authorized and approved on a timely
basis and are they matched with PO’s?
 – Is there any system where the invoices are set-up for
payment according to their due dates?
 – Are the balances in A/P reconciled monthly to supporting
detail, such as Aging Schedule with balances by vendor?
Does the aging schedule match to the General Ledger
balance?

 – Are purchasing, receiving, inventory and accounts payable

systems fully integrated? Obtain an understanding of
current IT systems.

 – Does the company take advantage of technology enabling

electronic processing of accounts payable?

 – Are procedures in place to verify that monthly trade

payables and other payable accruals are made at period-
end? Do the types of accruals vary from month-to-month?

 – Does A/P department take advantage of early payment

discounts?

3) Inquire as to the key performance indicators (KPI's) used by

management to evaluate operational performance. Inspect KPI
reports for the most recent period to identify potential areas for
further testing.

4) Perform a process walk-through to confirm the understanding

of the process and modify process documentation as needed.

5) Based on the interviews and walkthrough, prepare

observations and recommendations for management regarding
the process and procedures.
6) Based on the interviews and walkthrough tailor the remaining
audit steps.

Internal Audit Objective 2: Accounts Payable, Purchasing, and Cash Disbursements duties are
segregated.

Filename: 688905249.xls Page 3 of 11

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
1) Understand by inquiry and observation whether there is
segregation of duties among those that authorize transactions,
record transactions and maintain custody of assets. Review
the A/P organization structure and make inquiries regarding
assigned roles and responsibilities for the following:

 – Can A/P personnel handle cash or be responsible for

reconciliation of bank accounts?
 – Can A/P personnel issue or approve credit memos issued
by the company?
 – Where vendor files are in use (automated systems), are
A/P personnel able to change any field/data within the
vendor master file, including payees, addresses and bank
routing information?

 – What persons outside of A/P are able to authorize credit

memos? What method is used to process debit/credit
memos received from the suppliers?

2) Perform a knowledge assessment of the individuals and the

tasks they perform, and inspect their user profile to determine if
their system access provides segregation of duties.

Internal Audit Objective 3: Controls in place to support valid, accurate and timely processing of
liabilities are functioning according to company policy.

1) Select a sample of ____ purchase invoices and note the

following attributes:

·         Voucher number; ·         Invoice amount;

·         Vendor name/number; ·         Receiver number;
·         Invoice date; ·         PO number;
·         Invoice number; ·         GL account number
charged;
Test the following:

 – Agree the invoice to the PO terms: price, quantity, and

vendor;

Filename: 688905249.xls Page 4 of 11

1)

Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
 – Agree material received per the receiver to the vendor
invoice;
 – Agree freight bills to related receiving report;
 – Vouch approval for “service” invoices;

 – Recompute the invoice amounts;

 – Trace invoice to the listing as a payable and identify

whether it is excluded from payable when paid;
 – Note the date (or system log) on when the purchase
invoices were recorded in the Accounts Payable sub-
ledger as liabilities.

2) Review the invoice files for any unusual invoices (i.e.

handwritten, type-writer produced), and investigate.

3) Determine if management performs an account balance

fluctuation analysis. If so, review it for the past __ periods. If
not, perform a review of balances for expected or unexpected
fluctuations between periods to identify unusual trends. Inquire
about the cause of unusual trends to identify potential issues
that require further review.

4) Test Accounts Payable Account Reconciliations

Select a sample of ___ reconciliations during the audit period,

per the company's sampling guidelines.

Note: The existence of old unpaid invoices or unclear debit

advices may indicate disputes with suppliers or the inclusion of
invalid invoices.

- Inspect reconciliations considering agreement of records

reviewed, timely date of preparation and reconciliation
balances. Identify amounts outstanding for an excessive
period of time and other “unusual” items (e.g. debit
balances and old unpaid invoices).

Filename: 688905249.xls Page 5 of 11

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
- Inspect sample for documented evidence of management
review and understand by inquiry and observation whether
the reconciliation review process is in compliance with
company policy.

- Agree balances to source systems.

- Perform corroborative inquiry to determine if reconciling
items have been identified, researched and resolved
timely.
- Understand by inquiry and observation whether
segregation of duties is maintained between those
processing/ approving the transaction and those
performing the reconciliation.

5) Test Vendor Payments For Duplicate Payments

If possible, use data analysis techniques, such as IDEA, to test

the following using the vendor master files and purchase
orders:

– Identify the quantity of supplier numbers that were set up

for one-time use. Identify suppliers paid multiple times via
the one-time supplier number setup (see also the audit
program on Cash Disbursements).

– Identify gaps and duplicates on invoice number sequence.

– Identify potential duplicate payments by:

·         matching vendor number, invoice date, and
amount for different invoice numbers; and
·         matching invoice number and amount for different
vendor numbers;
6) Test Accrued Liabilities
Note: We may assist with the
calculation of routine accruals at
Review documents or working papers supporting amounts the component level (e.g., division,
accrued and: segment, etc.) only.

·         Determine the basis and method of accrual;

·         Recompute amounts provided;

Filename: 688905249.xls Page 6 of 11

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]
6)

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
·         Review accrual for reasonableness;
·         Look for potential “P&L management”.
7) Obtain the balance sheet for the period, and agree the detailed
accruals sub-ledgers to the respective line items on the
balance sheet. Note if the related disclosures tie to the
amounts on the balance sheet.

8) Obtain the open receiver report, which lists all goods and
services received without matching invoices. Use data
analysis tools, where possible, to review for aged items on
the report.

·         Age on receiving date using any pre-determined cut-

off. Manually create the aging “buckets” based on unique
Company situations.
·         Subtotal receiver values for each aging bucket.
·         Discuss with management the likelihood of paying
open receiver items that were received more than __
year(s) ago. If the likelihood is low, recommend an open
receiver clean-up.

9) Test Debit Balances In Accounts Payable Sub ledger

Obtain the most recent-issued list of suppliers with debit

balances (i.e., negative accounts payable balance, vendor
owes the company money, parts have been returned to
vendors). Select material debit balances of suppliers for further
testing. Reconcile the balances with the supporting
documentation.

10) Make inquiries to identify the actions taken to resolve the debit
balance situations.
– Is there a system in place to offset any other payments
due to the vendor, possibly through another division or
area?
– Is notification of the debit balance forwarded to the
vendors?
– Are the suppliers required to pay these balances? If so,
have balances been reported to the credit function for
collection follow-up per company policy?

Filename: 688905249.xls Page 7 of 11

10)
Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
– Have any debit balances been written-off? For these
write-offs, were collection efforts made prior to write-off per
company policy?
11) Use data analysis tools (if possible) to stratify the debit
balances, and to identify recurring vendors or other trends:
– Summarize invoices by supplier
·         identify top suppliers by dollar and transaction volume;
·         identify low dollar, high volume suppliers;
– Summarize by supplier and identify suppliers with net debit
balances.
12) Select a sample of ___ returns from the inventory records and
trace them back into the accounts payable records to identify
whether the return was reflected in the general ledger
according to company policy.

Consider generating a special costed report that includes all

returns by vendor for a designated period of time for both the
inventory records and the accounts payable sub ledgers. The
balances should generally be the same.

Internal Audit Objective 4: Controls that support the data integrity within the vendor master file are
functioning according to company policy.

1) Determine if responsibilities for adding, changing, and deleting

vendor master file records are segregated and include
secondary review/approval.

2) Select a sample of __ vendors per the sampling guidelines

recently added to the vendor master file and review
documentation for approval.

 – Trace information to vendor master form;

 – Agree to authorization on the vendor master form;

Filename: 688905249.xls Page 8 of 11

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

2)
Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
 – Verify all information was input, including vendor’s 1099,
and that vendor is blocked from payment if information is
missing. Also determine whether fields are made
mandatory, invalid information is not accepted, and
whether error/warning messages appear if improper
information is entered.

3) From the electronic vendor master file, use data analysis

tools (IDEA, ACL etc.) to help identify the following:
 – Fictitious vendors

·         Identify vendors with no address or only P.O. box

addresses;
·         Identify employees in vendor master files;

·         Identify vendor master files with missing key

fields, such as address fields and payment terms;
·         Identify vendors with no previous purchasing
history;
 – Duplicate vendor records

·         identify duplicates on supplier name;

 – Unauthorized changes
Compare the “system change log” with the list of
authorized personnel to determine if there were any
unauthorized changes.

 – (Non-ACL) Obtain the most recent vendor master file

edit listing (showing incremental changes, deletions
and additions that have been made since a point of
time). Obtain vendor addition/change/deletion request
and approval forms pertaining to the items listed on
the edit listing. Review for submission and approvals
based on Company policies or established protocols.

 – Special Payment Terms

Filename: 688905249.xls Page 9 of 11

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
Summarize on payment terms field within the vendor
master file.

For payment terms other than Company standard,

review for additional management approvals and
justifications. (This step is very important when a
company is closely monitoring its cash flows.)

Internal Audit Objective 5: Cut-off controls designed to support recording of unpaid amounts to
vendors in the appropriate period appear to be functioning according to company policy.

1) Obtain an understanding of the period-end cut-off policy, and

recording of unrecorded liabilities.

2) Select all invoice above $____ and a sample of other invoice

amounts from all accounts payable sources (i.e., disbursement
records, invoices received and recorded records, goods
received not yet invoiced records, and credits for returns)

 – Determine whether the item has been included as a

liability or excluded at balance sheet date.
 – List the last ___ inventory items received before the
period-end cut-off; and ___ items after; as well as the last
___ items shipped before month-end and ___ shipped
after month-end; and perform the following:

 – Determine that the items obtained above were included in

the current periods in inventory and accounts payable
balances;
 – Verify that receiving reports are being used in numerical
order.
 – Review the first two (2) check registers subsequent to the
balance sheet date. Verify that there were no unrecorded
liabilities. Schedule out all payments made in these check
registers for $______. Verify that their payments were not
unrecorded liabilities.

Filename: 688905249.xls Page 10 of 11

 Client Period-end
[Client] [Period-end]
Prepared by Date W/P reference
[Name] [Date] [W/P reference]

Accounts Payable (Purchase to Pay Cycle)

Auditor Date WP
Procedures Initials Ref
Internal Audit Objective 6: Accounts Payable department takes advantage of the early payment
discounts.

1) Obtain a log of suppliers that offer discounts to the company for

prompt payments.
2) Select a sample of __ invoices from suppliers offering larger
discounts and determine if the invoices were paid on or before
the discount date.
 – Verify that early payment discounts were taken advantage
of and, if not, determine the reason why.
3) Determine if discount records are kept, and if the controller
receives a periodic report of lost discounts and the reasons.
Perform further reviews if reasoning for lost discounts is
suspicious or numerous.

Filename: 688905249.xls Page 11 of 11