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Need to know if these practices are ethical and/or legal

Andrea  M's Profile

I'm an Accounts Payable professional and have worked in the industry for over 10 years and consider myself very ethical in doing my job. I recently started a new job and am unsure if what I've been asked to do is ethical/legal or if it's just a case of poor practices. I'm not sure where to research this. For example, I'm asked to process payments without actual invoices (board member payments, some rent payments, commissions). Also, approved check requests aren't required to have any backup documentation either. Also, I'm being asked to pay full balances instead of just a current balance due, when I'd normally request the past-due invoices, submit them for approval, and then pay them once they're approved. And our company isn't required to pay sales tax, yet we're not to dispute sales tax charges on invoices, but just pay them in full without a separate sales tax entry. I just don't have a good feeling about these things, and don't know who to ask about the legality and ethics of these things. I've been looking online for answers when I found this site. I won't do something that is unethical or illegal just to please my boss. I've never been asked to do things like this ever. Thank you for your advice.

Answers

David Ringstrom
Title: CPA, author, Microsoft Excel trainer and..
Company: Accounting Advisors, Inc.
(CPA, author, Microsoft Excel trainer and consultant, Accounting Advisors, Inc.) |

I'm not an attorney, so I can't speak to legality, but as a CPA, I can say these are examples of non-existent internal controls. The practices are questionable at best, so I can at least validate your intuition that something doesn't feel right here. You're probably going to be happiest moving on to another situation.

Topic Expert
Jim Quinlan
Title: CFO, Managing Director
Company: Trinity Group, BlueGold, Genergy, Wellco..
LinkedIn Profile
(CFO, Managing Director, Trinity Group, BlueGold, Genergy, Wellcount) |

Unless your company is public or its owners are not aware of these lax practices, you are dealing with another's money and, if they are okay with this, you can suggest better practices, but, otherwise, you are just following sloppy orders. If you are public, still, you are not the decision-maker, so, probably okay following bad procedures; if the owners do not know, you should follow the chain of command and make your suggestions known.

Stephen Ettinger
Title: Tax Manager
Company: Epcor USA
(Tax Manager, Epcor USA) |

Since you're new you have the opportunity to submit recommendations that could benefit the company without the look of accusing others. In each situation where you see a need for improvement point out the benefits that controls would bring to the company: reliability, integrity, accountability, etc... Make these recommendations in writing (I recommend email to give the recipient an opportunity to respond). This would give the accounting manager/controller/CFO the opportunity to see what is currently being done in a new light. If after hearing the issues, with your recommendations, results in inaction, or you receive a directive to stay the course, you can make a decision to stay or go at that time.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

It may just be bad practice. Learn the reasons why (ask and don't assume!) they are doing said practice and recommend better procedures/practices.

That being said, if they insist on doing it their way.....COVER YOUR ASS and ask (demand?) for documented/written authorizations. You can use emails to initiate confirmation/authorizations without making too much fuzz. (sample...Please confirm payment of un-invoiced amount of $$$$$ to XXXXX) It may bite you in the ass in the future and you can be used as a scapegoat if something blows up.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

There are very few rules/laws in business, with respect to Operations; which is a main reason why business failures are so high. However, there are “best practices.” At times a company will take short cuts because there are few employees doing the Accounting/Treasury functions. That point becomes clear when you attempt to do a Segregation of Duties Analysis. In a perfect world you would have a transaction approver, a transaction processor, and an individual reconciling the accounts. It would be even better if you had redundancy for those three individuals and rotate them periodically to identify issues. But usually that is not what you have available.

I wouldn’t focus on CYA. Instead, I would focus on what reporting you could put in place to validate what is happening and if it is happening properly. Develop an audit process of the paper trail. Perform trend analysis to understand what the payments have been over time. If a payment exceeds your established boundaries, investigate.

Few companies institute segregation of duties, policy and procedures, business continuity – until they have an issue.

Good luck.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Since there was probably a lot of audit and accounting terminology used above that you are probably not used to, I will attempt to keep this simple:
A)There is nothing stopping you from asking individuals for appropriate support for any payments. You can respond that you need it for the file. If you boss questions this, simply reply that you cannot in good faith pay an amount without support. At some point, you may be saving the company money
B)You can also control or follow up with your vendors by asking for statements and save the company money by determining that you overpaid balances. This will give you some credibility to implement A.
C) On sales taxes, hold off on this one and ask your boss or his/her boss if their are guidelines for sales tax. This will get them to consider the appropriateness of payments.

If you can't do B and A, you may want to consider finding a new company where there are stronger internal controls.

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