Accounts payable specialists are experts in multitasking and organization; they process current purchases, follow up on previous purchases, and process payments for items received and paperwork submitted.
Throw in the months of May and June when the school year is winding down and the new year is gearing up—the work now doubles.
If you are a new school business official without a background in auditing or experience in accounts payable, grasping the moving parts of this process can induce head spins. The purpose of this article is to provide basic information about accounts payable and what you, the school business official, should look for and be aware of during the monthly process of paying district expenditures.
First and foremost, the district should have a purchasing procedures manual. If your district doesn’t have one, consider implementing one as soon as possible. If your district’s manual is outdated, consider updating it.
Helpful hint: Every year, ensure that all vendors have updated paperwork in the purchase order system for efficient payment of bills.
Requisition
A requisition is a department-submitted request for the purchase of a good or service for the district. Requisitions are created by data entry by a particular department or in accounts payable. Most accounting software programs are designed to link budget accounts to a particular department and to provide in real time the balance of the account line when a requisition is submitted.
If the amount of the requisition is greater than the balance, most accounting programs will not allow the requisition to move forward until sufficient funds are transferred into the account or the account is overridden by an authorized user (usually the school business official). Most software programs allow the user to upload quotes, bid award documents, or other paperwork to tie out to the requisition.
Helpful hint: When reviewing the requisition, look for the following:
- Correct account charged (sometimes an account with funds in it is charge, but it may not be the correct account)
- Backup paperwork ties to requisition, including shipping
- Whether the goods or services were budgeted
- Whether the request complies with purchasing procedures
Purchase Order
When a requisition is approved, it is turned into a purchase order, and the funds are now encumbered in the expenditure account. The purchase order is a contract between the district and the vendor of the goods or services.
When the vendor receives the purchase order, the goods or services are processed. The goods are shipped to the district contact or the services are provided.
The purchase order is a multipage document that permits the district to transmit the order to the vendor for processing. A purchase order usually has the following pages:
- Vendor copy—white: the order from the district
- Vendor payment voucher—green: for the vendor to sign to certify that it has provided all goods or services and the order is complete and ready for payment
- File copy (district)—yellow: stays in the business office
- Receiving copy—blue: goes to the district employee who requested the purchase order
Helpful hint: Purchase orders must have required language (usually included on the back of the documents). Make sure that your district’s language is up to date. If sensitive information is part of the request (student name, personal information), use other identifying information to protect the sensitivity of the subject.
After the order has been completed, an invoice is sent to the district for payment.
Helpful hint: The invoice date must be later than the purchase order date. If the invoice date is before the purchase order date, an order was placed without going through the proper procedures. You should ask why the invoice date precedes the purchase order date.
Upon receipt of the invoice, vendor payment voucher (green copy signed by the vendor) and receiving copy (signed by either the receiving department or individual department that placed the requisition), the purchase order will be processed on the next bills list.
If the payment is not a partial payment, it should be coded as final. When the accounts payable checks are posted in the accounting software, the encumbrance will turn into an expenditure.
Payment and Filing
When the voucher—purchase order packet consisting of the purchase order; green, blue, and yellow copies; invoice, and packing slip, if received—is paid, either a manually entered stamp or a printed sticker identifying the check number, account number, and check date should be placed on the front of the voucher packet (the first page is usually the green copy), and it should be ready for filing. Filing can be by purchase order number, in alphabetical order, or by check number.
Some districts file the paperwork electronically. Hard copies should be retained within record retention guidelines. Vouchers are public information and can be requested through open records requests.
Good to Know
Here are some additional considerations:
Payable vs. encumbrance. An account payable and an encumbrance differ as follows: If the goods or services have been completed and payment has not been made, it is payable. If the goods or services have not been completed, it is an encumbrance.
Open purchase order list/aging report. As a best practice, the business official should review the monthly open purchase order report (also known as the aging report). Review which orders are outstanding for the most days and determine whether they are valid or need to be cancelled. See which orders are incomplete. You might consider filing open purchase orders in files or binders alphabetically or by purchase order and follow up each month as part of the payment procedures.
In recent years, supply chain issues are valid explanations of why orders are over 90 days. Communicate with the vendors monthly to ensure that the goods are still on track for receipt.
Rollover of purchase orders. At the end of the fiscal year, there may be open purchase orders that are valid, but the services or goods have not been fulfilled. These orders would be rolled over: the monies are associated with the fiscal year encumbered and will be put aside in the new year when the orders are processed. If an order is rolled over, is cancelled, or is paid with less monies, the released funds will go back into the fund balance.
This report, in theory, should not contain a large balance if the steps listed earlier are followed and reciprocated by the vendors. If there is a large balance, document the reasons for the auditors, who will be looking at the report.
Outstanding checks/spot check. If you notice numerous outstanding checks, look for the disconnect between paying the vendors and the vendors not cashing the checks. Also, spot-check the addition on a random number of purchase orders to ensure that overpayments are not occurring.
Reviewing the purchase order listing (both paid and outstanding orders) may help you determine whether a monthly payment has been missed. This review can avoid your receiving a statement saying the district has not paid a certain month when the purchase order has been closed and the liability is valid—and funds will then need to be paid out of the current year funds.
Vendor or employee? The Internal Revenue Service has guidelines that determine whether an individual is an employee or a vendor (www.irs.gov/businesses/ small-businesses-self-employed/independent-contractor-selfemployed-or-employee). If you are unsure, I strongly suggest that you speak to your auditor or attorney before any payments are made. Also be sure to read “Is This Worker Your Employee?” in the April 2024 issue of School Business Affairs.
All accounting software packages now include options to identify whether the vendor should receive a Form 1099. These enhancements make it quite easy when processing the annual reports in January.
Training. Professional development in the areas of purchasing, 1099s, and fraud is strongly recommended for the accounts payable specialist and the business official. The wonderful aspect of technology today is the numerous webinars that can be accessed to enhance the employee’s knowledge base.
Concluding Thoughts Understanding the dynamics of this process will allow school business officials to provide the district with the tools to keep education in motion toward a better tomorrow. Occasionally placing a cupcake on your accounts payable specialist’s desk will achieve the same effect.