Accounting controls - invoice must exactly equal purchase order???

C

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We're looking at outsourcing of some financial transactions, including accounts payable. One of the vendors that we quite like is insisting that in ALL cases, the invoice must exactly equal the purchase order amount. The quoted reason for this is 'controls', but no-one can explain it any further.

Any payables system that I've used before would check that the invoice did not EXCEED the PO amount, but it never had to be an exact match. This requirement would seem to rule out (for example), raising one PO and processing two invoices for two seperate shipments of goods against this PO. It would also rule out raising a blanket PO for the year for regular consumables, e.g. photocopier paper.

Could there be any good reason why the invoice must exactly equal (as opposed to 'must not exceed') the purchase order?
 
None that I can think of.

Having worked in manufacturing for years, it was common practice to raise a blanket PO on a supplier with individual lines for "call-offs" of discrete deliveries by week or month. The "exact match" requirement sounds nonsensical.

Cross them off your list as they are likely to seriously p*** off suppliers.
 
None that I know of. For example we do business with a international company and they would give their Irish subsidiary a PO worth up to say 20k. Who would then use that PO number on all orders until they reached the 20k limit, before changing to a new PO number.

BTW I hope you don’t pick the same crowd as BOI, you should be some of the emails we got from India, complaining there is no PO in the invoice. They even included a PDF of Invoice, guess what is in bold at the top... Purchase Order Number, but you know 'PO' is not the same thing!
 
The reason why the PO and the invoice should be the same is for your own internal control - that is the whole purpose of a PO system.


However, surely if a PO is raised, and the invoice is then for a different amount, you can amend the PO or set a credit against it or adjust it somehow. I would imagine that these changes would have to be approved and this therefore giving you your internal control.

You need to go into more detail as to what you want, what you need and why you need it.

If the POs and the invoices will be different -what is the PO system doing for you??? Do you really need it??
 
This sounds impractical - for one thing, the calculation 'rounding' can differ slightly from system to system. Never to the tune of any more than €0.01 and only occasionally, but it's not unusual for us to receive a properly calculated PO with a total of say €799.02 only for Sage, at the time of invoicing, to decide it is actually €799.03 for example.
 
There are lots of valid reasons why a purchase invoice won't match a PO.
You shouldn't even be considering doing business with a company who would issue a blanket statement like that and then not be able to back it up
If you like the guy so much go out for a pint with him but i would be outsourcing somewhere else
 
This crowd sound far too rigid and out of touch with business realities. I would have thought that you would be the one calling the shots on this, not them. If they want your business, they should be willing to do business your way. Otherwise, there are lots of fish in the sea!
 
Thanks all for your suggestions and comments. One person suggested to me by PM that it could be down to accruals (though this being public sector, it is cash-based accounting). Perhaps the purpose of the rule is to avoid being left with partially consumed POs?

Domo said:
The reason why the PO and the invoice should be the same is for your own internal control - that is the whole purpose of a PO system.
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Either I'm missing something or you're missing something. I really don't see how insisting that the PO exactly matches the invoice gives any control. I would expect that the system checks to ensure that the invoice amount (plus any previous invoices for that PO) do not exceed the PO amount.

In the proposed system, you could raise a PO for €1000 and not be able to process an invoice for €900. How does this give control?


Domo said:
However, surely if a PO is raised, and the invoice is then for a different amount, you can amend the PO or set a credit against it or adjust it somehow. I would imagine that these changes would have to be approved and this therefore giving you your internal control.
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Indeed, it looks like we would have to amend just about every PO. In the example given above, we would have to amend the €1000 PO to be a €900 PO, and raise a further PO for the remaining €100 that we expect to be billed next month. To me, this is a whole load of non-value-adding bureacracy that does not add any control.

Domo said:
If the POs and the invoices will be different -what is the PO system doing for you??? Do you really need it??
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The purpose of the PO is to ensure that orders to suppliers are authorised. In the example above, the supplier should not get the order to proceed with the €1000 order until the PO has been approved by the relevant Director.
 
Alot of companies running PO purchasing based systems don't understand where the controls are or where they want them to be

The whole idea of having a system where POs are raised approved and receipted and prices ,contracts approved vendors are on the system is that the control is exercised before the organisation commits themselves to the transaction by ordering. Also with a good PO system alot less work has to be done at the invoice processing stage,in theory if the invoice can be matched to a receipted PO it can be paid

What tends to happen is that companies have sloppy PO processes and finance dept ends up fiddling around with invoices that don't match POs.
POs should not be changed retrospectively,instead management should be looking at reporting showing variances between POs and invoices and the emphasis should be put on getting the POs in the business raised accurately
 
Internal Controls - Purchasing and Payment

1. Place an Order using Company Purchase Order book which is numbered, agreeing Prices and Quantities.
2. Fax PO to Supplier
3. Supplier checks PO against inventory levels, if part of order can not be fulfilled, you should be notified and PO amended.
4. Supplier delivers your order, this should be checked off against your PO.
5. Delivery should be booked into as per the delivery docket to insure your stocks are correct. Delivery docket should be signed and dated.
6. Copy of the delivery docket should be attached the the PO and filed with Accounts Payable for payment.
7. When the Supplier Invoice is received the PO and delivery docket is attached to the invoice and entered to your creditors account.
8. All supplier invoices for the month are then approved by an individual for payment.
9. Accounts payable then writes and posts the cheques to suppliers.
10. Any queries over prices are put on Hold in a credit file and a payment stop placed until credit query is resolved from supplier. Refer back to PO and agreed prices.
 
Complainer said:
. One of the vendors that we quite like is insisting that in ALL cases, the invoice must exactly equal the purchase order amount. The quoted reason for this is 'controls', but no-one can explain it any further.

Could there be any good reason why the invoice must exactly equal (as opposed to 'must not exceed') the purchase order?
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This suggests to me that the company you are outsourcing to , do not want to 'waste time ' checking why an invoice does not match PO.

If it matches exactly ... of course it can be passed off straight away........

If amounts differ ,ie either +/- it creates a query and results in duplicat/triplicate checking
 
Kluivert said:
Internal Controls - Purchasing and Payment

10. Any queries over prices are put on Hold in a credit file and a payment stop placed until credit query is resolved from supplier. Refer back to PO and agreed prices.
Click to expand...

Step 10 is a key one for all invoice amounts which exceed the PO amount by a certain tolerance (0%-X%). I can't really see the reasoning for putting amounts less than the PO amount on query - as long as the PO reference on the invoice is correct.

If the invoice amount is less than the PO amount, then the PO will stay open. This will create another file: "Open PO report". These should be checked regularly and then 'closed short' as required.

Another important step (I suppose they are all important ;) ) is #5. All deliveries should be independently verified & logged - whether a service or a product.
 
Complainer said:
Why would a negative difference (i.e. invoice amount less than PO amount) generate a query?
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A negative difference could suggest that there has been an undercharge .....This could result in a supplementary invoice later on .....maybe for an amount even greater than original PO
 
allthedoyles said:
A negative difference could suggest that there has been an undercharge .....This could result in a supplementary invoice later on .....maybe for an amount even greater than original PO
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Indeed - My point was that this is checked when that supplementary invoice arrives. There is no value (as far as I can see) in checking this when the first invoice arrives, once it does not exceed the PO value.
 
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