Effective P2P Management

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Compliance : Sarbanes Oxley : Technology : Back Office

Effective P2P Management

SOX Compliance and Beyond

David Furth
General Manager
BasWare

When it was signed into law three years ago, Sarbanes-Oxley was intended to bring more accountability to corporate governance. These days, leading companies realize there is an unexpected benefit of running a tighter ship: companies are able deliver better results. According to industry research firm Aberdeen Group, industry leaders ?are keenly focused on leveraging SOX compliance to improve operating results.?

Purchase-to-pay (P2P) process is an area that when managed effectively can provide substantially improved results. Since P2P is where financial commitments are made and outbound cash flow is controlled, providing more accountability is critical to a fiscally sound organization. P2P can impact key performance indicators in operations: productivity, cash flow management, and profitability. Effective P2P management provides important preventive benefits as well, addressing such needs as inadequate controls, potential fraud, and inaccurate financial reporting

Since P2P has such a significant impact, most organizations had some documented policies and procedures in place, even before SOX. These policies and procedures can define everything, ranging from what an employee is permitted to buy and his/her approved purchasing level, to the approval hierarchy for the purchase and the invoice. These policies and procedures are being implemented not only to ensure compliance, but also to maximize efficiency and cost savings. However, there can be a substantial gap between these documented policies and procedures and what employees are actually doing. .

For example:

? From a compliance perspective:

? It is impossible to manually check the signature of every approver on a requisition or invoice or track appropriate approval limits.

? It is difficult to make sure all non-PO invoices find their way to AP in less than 30 days.

? From an operations perspective:

? t is typically easy for employees to buy a good or service that is not on a company

? It is possible for a good to be shipped to an address outside the company.

These seemingly simple issues put your organization at risk of non-compliance and lower operational effectiveness. For example, if your auditors determine that you are not properly controlling the approval of financial commitments, they will state that you have ?deficiencies in that which is documented.? If non-PO based invoices do not get routed to AP in 30 days, you cannot accurately record expenses for the period and are at risk of having to restate results. If your employees purchase goods and services outside company negotiated contracts, they are likely to pay more, thus impacting profitability. If goods can be shipped outside the organization, the cost of sales is exaggerated due to potential fraudulent activities.

Companies can avoid these issues by assigning a person with authority to monitor compliance ? thoroughly reviewing the gap between documented policy and actual behavior ? and making sure the organization carefully selects and implements technology solutions.

The challenge for many organizations is implementing the solutions they have put in place, especially in the purchase to pay arena, which involves multiple functions and business units. To be successful, organizations need to gain consensus between purchasing, accounts payable, IT, and the end users. Additional strategies for implementing effective P2P solutions, include:

? Define the big-picture strategy, but focus on short-term, high impact results. These results could be measured quantitatively ? for example, improving AP productivity from 12,000 invoices/person/year to 25,000-40,000 invoices/year, or qualitatively ? improving the accuracy of accruals. Determine what is most important now to your organization and act quickly.

? Ensure purchasing and AP buy-in and cooperation to the project early. Purchase to pay is a value stream that cuts across multiple functions. The likelihood of success improves dramatically when each of these groups agrees on the type of information to be collected, the controls required, and the process for moving information along.

? Buy a solution that you need, not what you may want.

Look closely at the out-of-the-box capabilities of the technology and align them with your requirements. While everyone has ?unique? requirements, the cost of building a solution with tools or templates will take more time to deliver results and certainly cost more.

In the end, expect results. A well thought out and implemented solution can quickly deliver results in many areas. From a compliance perspective, you can gain complete control of the process ? only company standard goods and services should be available for purchase; the approval hierarchy, limits, and rules will be written into the system; a complete audit trail will exist; and information will be available to deliver timely and accurate financial reports. From an operations perspective, you should expect process savings, including 40-60 percent from invoice automation alone, more effective leverage of your company?s purchasing power, and improved cash flow management.

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