Finding Text
Criteria:
According to Generally Accepted Accounting Principles (GAAP), liabilities should be recorded accurately and in the correct accounting period. Internal control procedures should ensure the accuracy, completeness, and proper cutoff of accounts payable. An effective reconciliation and review process should be implemented to detect and correct errors in a timely manner.
Condition:
During our audit of the Organization we noted that the Accounts Payable subsidiary ledger was in agreement with the general ledger control account. However, the underlying balances within the subsidiary ledger included errors such as duplicate vendor invoices, incorrect amounts recorded, and transactions recorded in the wrong period.
Cause:
The discrepancies were primarily due to inadequate review and reconciliation procedures over the Accounts Payable detail. The organization lacked sufficient review procedures and monitoring controls over the A/P recording process. Vendor invoices were not adequately reviewed for duplication or accuracy, and there was no formal process for cut-off testing during month-end or year-end close. Management did not identify or correct entries and recording errors.
Effect:
The financial statements contained misstatements related to accounts payable, which required adjustment to fairly present the liability balance as of year-end. This also impacted the current and prior year expense recognition.
Recommendation:
We recommend management strengthen the review and reconciliation controls over the Accounts Payable ledger, including periodic review for duplicate entries, vendor invoice validation, and cut-off.
Internal controls can be enhanced over the accounts payable process by:
• Implementing detailed, documented reviews of vendor invoices for accuracy and duplication.
• Establishing formal cutoff procedures and ensuring that all obligations are recorded during the financial close.
• Performing monthly reconciliations that extend beyond matching the A/P ledger to the G/L and instead validate individual vendor balances.