Nonprofit organizations oftentimes don’t have good controls to prevent losses and fraud in the accounts payable area. We know that bills need to be paid, but accounting staff must be aware that NOT all bills are to be paid right away without questions. I have worked at a nonprofit that the accounts payable person was concerned about paying all bills on time, so that she won’t be blamed for late payments. As it turned out, a few bills paid were for items that were not received or were damaged. Such invoices shouldn’t have been paid. 

Speed is important in paying bills -- no organization wants to pay a late fee or interest, or be known as a slow payer in the community. However, this must be balanced with a good approach in processing bills, making sure all bills to be paid are valid and make sense. Doing one thing can help you in controlling bill paying better :

Establish a system where bills are approved by management before they are paid

Many organizations have a schedule to pay bills that works very well. Depending on the volume of bills, accounting staff pay bills at least once a week. As invoices arrive, they are entered in the system and filed away by department. On a specific day, these invoices are forwarded to the departments in special envelopes or online. They are usually approved quickly and sent back to accounting. This setup gives management a specific time to do the bill approval weekly. If a bill is not returned as approved, it’s not paid. To avoid delays, some organizations have an accounting person visit every dept. once a week with invoices to be approved, just to get this process done.

An accounts payable system may take a bit of time to set up, but it’s standard in many organizations. I witnessed a fraud case at a nonprofit where printer cartridges were received and a bill was mailed to accounting for payment. The fraud was caught when the IT manager refused to approve the bill and had no idea what the cartridges were about. However, this ruse worked before with the scammer being paid the year before… because nobody had approved the bills formally then.

Just having a systematic way of paying bills provides some control in this area. It can get cumbersome, but it’s a must for all nonprofits, large or small, to maintain some checks and balances in this process. The idea is for accounting to be responsible for processing payments after proper approvals. Paying quickly is good, but must take second place to authorizations. More blogs about this issue to follow….