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You Never Know What You Never Know

Fact or Fiction

I have heard it said that “you only know what you know and you never know what you never know”. In Corporate Accounts Payable, this is a dangerous scenario. Below is a sampling of not knowing…

How Much?

It was a Friday afternoon, sun shining and birds singing…everyone was happy at a large CPG company. Everyone knew their products because they were constantly advertised. Just after lunch their major advertising vendor called and wanted to know why they had not been paid the $5,000,000 owed to them. The AP Manager reviewed the account with the CFO and they determined they only owed $500,000. They called the vendor back and told them they did not have the invoices. The Vendor explained they mailed them to several different Division VPs. When the CFO contacted the VPs, they found the VPs had the invoices on their desk. They all had reasons for not having sent the invoices to AP.

What they did not know…$4,500,000 in liabilities past due!

Why it mattered…Vendor will not do more business until paid. They want 50% payment up front. Balance Sheet would have been understated.

Give Me My Car

Business was going great for chemical company. They sales people were happy because the company had recently decided to provide nice company cars. As part of the fleet deal, the CEO was also provided a car. The cars were routinely maintained by the leasing vendor. After a scheduled maintenance appointment, the CEO stopped by to pick up the car. The dispatcher checks the computer and then told the CEO…”No. You can’t pick up the car until your company has paid its bill”. The CEO became very familiar with the Accounts Payable Manager.

What they did not know…each month the Fleet Manager had to approve the invoice. The Manager had gone out on long term disability and the person taking their place was not aware of they had to approve. They thought the invoice was just a copy for their file.

Why it mattered…Vendor was also refusing to return several cars in that time period. Several on the sales team were missing appointments. A very large early payment discount was being lost.

The Log Ride

Much like the long line at the popular log ride at the amusement park on a hot summer day, the Accounts Payable Professional at an energy company had a very long backlog. They had recently gone through a merger and their work had grown significantly…without much additional labor. Overtime became routine and temporary personnel had been brought in. It just so happened that one of the employees “retired” during the merger saw an opportunity to commit fraud through false billings. The situation was compounded in that the invoices from the “factious company” were being handled by a temp with a backlog. Only after a post merger audit was the activity uncovered.

What they did not know…significant payments were being made to factious vendors.

Why it mattered…money was lost and never recovered. Showed others how easy to commit fraud.

Closing Thoughts

Only when the Accounts Payable process is under control will these stories move from real life drama to fiction. Implementation of an automated rule driven process optimization will significantly improve Accounts Payable processing. As the stories above would promote…control receipt of invoice along with movement of meta data from invoice to general ledger, strictly control and monitor invoice approval and invest in efficiency gains so that Accounts Payable Professionals have the time to properly analyze the invoices.

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1 Comment

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  1. Mark Chalfen
    with wordly examples .

    AP is an area not to get wrong…

    And on the other side of the coin one man’s vendor’s is another man’s customer.

    This shows the importance of cash flow on organisations.

    (0) 

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