Effective Practices : Finances
Finances Section 3
1. Who is the person or group that is responsible for processing and mailing payments on Accounts Payable? Attach a position description if available.
2. Who approves invoices for payment at your school? Who generates the check, and who signs the check for invoices approved for payment?
3. Describe the system of checks and balances used in your school to ensure that checks are generated for appropriate invoices, and that opportunities for misappropriation of funds are eliminated/limited. Does your school have any separation of duties for the various stages in the accounts payable check generating process to ensure that the resources of the school are properly protected?
4. With what frequency are accounts payable checks processed in your school?
5. Describe the key elements of your school’s philosophy in relation to its processing of accounts payable.
6. What is particularly effective about your school’s processing of accounts payable?
7. If there were something you could change in relation to your school’s handling of accounts payable what would it be and why?
Who is the person or group that is responsible for processing and mailing payments on Accounts Payable? Attach a position description if available.
In most Waldorf Schools the person responsible for processing and mailing payments on accounts payable is the school bookkeeper. This person is known by a variety of titles including the Business Office Assistant and the Accounting Specialist.
Some schools assign this responsibility to the Business Manager or Office Manger. This typically occurs in younger schools with a corresponding lower enrollment and smaller office staff, or in schools with a past history of poor expense management.
Who approves invoices for payment at your school? Who generates the check, and who signs the check for invoices approved for payment?
Schools use a variety of approaches when approving invoices for payment. The most common practice in larger schools is for the invoice to first be sent to the department chair or committee chair to whose expense center the invoice will be charged. Requests for reimbursement typically require a check request to be completed with a copy of the invoice attached, and this form is sent to the department or committee chair for approval in the same manner as invoices from outside vendors. The school bookkeeper reviews all of the approved invoices and check requests for reasonability and conformity with school standards. Any unusual items are forwarded to the business manager for a secondary approval, as are large invoices.
In some schools the invoice approval process is handled by the Business Manager. This approval is based on his detailed knowledge of the budget, allowing him to easily determine which invoices are reasonable and appropriate. This approach is typical in smaller schools and ones which have a less developed departmental accounting and expense responsibility system.
One school with a history of expense control difficulties in the past has created a small group of individuals with the authority to spend money - the administrator, the treasurer, the secretary of the Board, another trustee and the faculty chair - and one of these individuals must add his or her approval to that of the person who placed the order.
Once the invoices are approved the bookkeeper enters them into the accounts payable system and checks are generated. Two individuals sign every check, typically the business manager and the administrator, although the school has a small group of other approved signers that are called on from time to time.
One school noted that it now requires only one signature on its checks. This change was made when the local banks stopped checking for second signatures, making this control unenforceable.
Describe the system of checks and balances used in your school to ensure that checks are generated for appropriate invoices, and that opportunities for misappropriation of funds are eliminated/limited. Does your school have any separation of duties for the various stages in the accounts payable check generating process to ensure that the resources of the school are properly protected?
Schools described several effective controls that are used to ensure that opportunities for misappropriation of funds are eliminated or limited. These include:
- All invoices and check requisitions are logged upon receipt by the school receptionist. The log includes very basic information such as the name of the company, the amount of the invoice, and the invoice number. All logged items are initialed by the receptionist to limit the possibility of a member of the business office staff creating a false invoice for payment.
- Department or committee chairs must initial all invoices prior to processing for payment. The school uses a detailed chart of accounts that tracks expenditures for each department and functional area of the school, and requires that every line on the income and expense statement has an individual with assigned responsibility for that line.
- The bookkeeper reviews all invoices for appropriateness and compliance with school requirements. Any unusual item or large invoice is referred to the business manager for a secondary approval.
- Although schools typically have a small group of people who are authorized to sign checks, most typically delegate this task to the same two people on an ongoing basis. It is felt that the individuals’ regular involvement with check signing affords them a high level of awareness of the school’s accounts payable, and unusual items are sometimes flagged due to this familiarity. As a further control some schools exclude both the business manager and the school treasurer from the list of people who can sign checks.
- All schools reported that checks are created by one person while the signing of the checks is done by someone else.
- The checks prepared for signature are forwarded to the signer with a check register that lists the expense center to which the invoice is being charged. This allows the signer to perform another check for accuracy in posting, and that a check is received for each item on the check register.
- Signed checks are returned to the bookkeeper for mailing, allowing her to ensure that a check is mailed for each item on the check register.
- Schools also reported having very tight controls on the use of school credit cards. These are distributed on a very selective basis, and schools often require that a check request be submitted with the original invoice attached for each item charged to the credit card.
- Expense reports are produced on a monthly basis. These are distributed to the affected department and committee chairs, and are also reviewed by other senior members of the school community. These individuals may include the business manager, school administrator, the treasurer, and the pedagogical chair.
With what frequency are accounts payable checks processed in your school?
Most schools process checks once a week, and work to ensure that all invoices are processed within 30 days of receipt. Some schools take pride in their ability and willingness to process checks on a daily basis if needed, while others work hard to discourage the lack of planning that leads to emergency check requests.
All schools report that they have the ability to process checks on a manual basis and to post the entry after the fact to their accounting systems. However, these manual checks are rarely used. Instead schools prefer to process emergency checks as a batch of one item through the usual accounts payable process as this helps to ensure that proper controls are in place even when there is pressure to act swiftly. Several schools also noted that they actively discourage CODs, and remind department and committee chairs of this each year.
Describe the key elements of your school’s philosophy in relation to its processing of accounts payable.
Schools shared the following thoughts about their philosophies regarding accounts payable:
We want to handle our affairs so that when we are speaking with lenders and donors it is clear that we behave in a fiscally responsible manner.
We take pride in processing invoices promptly. It is far better for us to process invoices promptly than to spend time researching and responding to inquiries from vendors as a result of late payment.
Pay your bills on time, and don’t spend money if you can’t pay promptly.
The focus is on getting our bills paid in an efficient and timely manner while protecting the assets of the school.
Timeliness is a key to establishing and retaining good relations with our vendors. It is not our vendors’ job to help finance the school through our slow payment.
Be diligent and be observant so that problems and mistakes are avoided.
Ensure that appropriate checks and balances are in place, within the constraints of the small size of our business operation.
The school is committed to having the best internal controls and separation of duties that is possible given the small size of the operation.
Do not go overboard with control systems when you are a young school. A few simple procedures are enough when you are a “shoe box” or “check book” size business. Make procedures that are appropriate for your size.
Don’t give too many people the authority to spend money or write checks.
Listen to your auditors and do your best to find practical solutions to their requests.
Routine is a key element. We establish a routine with our vendors, and this allows us to process payments very quickly with confidence. We emphasize relationships, rather than continually changing vendors in a search for low price.
Relate your purchases to the budget. Every line in the budget is assigned to an individual who then has responsibility for everything charged there. This creates a different consciousness with respect to invoice processing. With personal ownership invoices are not viewed as being paid for by the school, but are seen and experienced as being the responsibility of an individual.
To ensure that school funds are used in a responsible way the school requires that purchases of $5000 or more receive three competitive bids before the job is awarded unless the school has an ongoing well established relationship with the vendor. For purchases above $10,000 the Board has also charged the accounting office with ensuring that the purchase has a lasting value to the school.
Accuracy is a key.
We are a service to the organization, and try to be as responsive as possible to the needs of our community. At times this means writing a check with very little notice, and we do our best to accommodate these needs.
What is particularly effective about your school’s processing of accounts payable?
We get accounts payable checks out fast. We pay almost every bill within a week. As a result our vendors are happy and will gladly work with us when we need their help.
The school processes invoices accurately and on time.
The use of the school credit cards helps to reduce the number of checks that are being written.
The school revised its chart of accounts significantly to reduce the number of expense categories, making it easier to budget and easier to process payments.
The school has a one-room office. There is a strong sense of camaraderie as the staff works together on its various projects.
The review of invoices is quite good. It is rare that a vendor complains or points out an error in our work.
Timeliness and accuracy. Both the bookkeeper and the business manager are interested in making sure that vendors are not delayed in receiving their payments and in ensuring that no penalties are assessed due to slow or incorrect payment.
Given our small staff we have done a fairly good job of dividing the responsibilities so that we have adequate controls in place.
If there were something you could change in relation to your school’s handling of accounts payable what would it be and why?
We are clarifying who should have a school credit card and establishing policies and guidelines for the use of those cards.
The school is also discussing whether the accounts payable checks should be signed by a revolving group rather than the same two people in almost all cases. It’s efficient for the same two people to sign checks all the time, but there is a value to having a different set of eyes looking at checks at the time of signature.
We use Quick Books. We are right at the edge of this system not being adequate for our needs. The idea of shopping for a new accounting system and bringing it on line makes Quick Books look good despite the challenges it presents in getting the kind of management reporting that the school would like to have.
We would love to have another 20 hour a week accounting person. This would be someone higher than a bookkeeper to help with the generation of special reports and who could identify ways of simplifying accounting and bookkeeping procedures.
We would like to have greater compliance with the school policy that requires department heads to get approval up front for any expenditure over $500. This is sometimes difficult because of the large number of people who can make purchases on behalf of the school.
We are interested in the paperwork reductions capabilities offered by using online payments. When we last checked this out our banks system had an awkward approval process and didn’t seem as secure as our current manual methods.
The downside of being so responsive to requests for last minute checks is that people have come to expect this of us and don’t always plan ahead.
We are considering having someone other than the administrator sign the check if he is the one who approved the invoice. Today we only limit his signature in cases where the check is made out to the administrator.