The Client and our role:
We were hired by a large company engaged in services to reconcile their creditors’ accounts. The company had various projects for maintenance and minor repairs. They were using an ERP that was implemented in a decent manner and the staff was aware their limitations than what they can achieve with the software.
The company had a robust policy of procurement. Any purchase above AED 500 had to go through a Purchase Order(PO) and the approval matrix. Also, any person deployed on the project could raise a PO and automatic transmission was made to the approver so that PO could be raised in real time. The company also maintained petty cash at various location but there were no rules for utilisation of petty cash.
The company had various maintenance projects and suppliers were paid on the basis of receipts from the customers, in other words, back to back payment.
Unfortunately, suppliers’ accounts were not maintained as per projects and there was one account per supplier. To make things complicated, single payments were made irrespective of collection from the various customers. As a result, bill to bill matching was not possible.
As we started digging deeper into the problems, we found various inconsistencies in the process resulting into mismatch. Some of the issues were:
- Purchases are through PO whereas payments were made from petty cash. Hence, once GRN is raised, that amount is shown outstanding in supplier’s account whereas in reality payment was made through petty cash.
- In some cases, payments were made on the basis of invoices, though no POs were raised, as purchase amounts were not known. For example, there was a contract entered into with a supplier for picking up garbage. The rate was agreed per MT. Since the quantities to be purchased were not known at the time of entering into a contract, there was no specific PO to be paid against. To top it up, some payments were made in petty cash and some through checks.
- Where there were contracts for services, no one could raise a GRN and the ERP always gave picture that no supplies were made. Accountants refused to make any payment to the party for the want of GRN and when payments were made under pressure from senior management, it reflected as advance to the supplier.
- Pricing for the same supplies was different for each depending on various factors. Hence, an accountant without looking into specific contract would reject the payment for discrepancies.
There were many issues relating to people. Wherever staff was transferred from one project to another, they refused to take any responsibility for the work done prior to their arrival on the particular project.
It took reasonably long time to understand the real issues as staff was non- cooperative. Hence, we approached the problem in the following manner.
- We identified local and overseas suppliers and called for their Statement of Accounts (SOA).
- Then we split the suppliers who were providing goods and the suppliers who were providing services.
- Next step was to identify suppliers where there is an open contract, but PO and payment needed to be done post supply of goods and/or services.
- We prepared SOPs for each of these supplies.
- The biggest thing was to bring all the staff – project, procurement and accounting – under one roof and went through each case and trained them how to handle the solution.
Needless to say, it was a hard work but impact was material and long lasting.
- We trained staff how to handle the situation depending on the type of supplies, in total three sessions of a half a day each.
- We received SOAs from majority of the suppliers. Wherever, we were not able to reach the supplier and get SOAs, we black listed those suppliers.
- We were able to recover almost 30% of the fees paid to us by way of identifying double payments made to suppliers and ensured recoveries are made.
- We wrote SOPs to be followed by procurement, accounting and project staff; and also set up review dates for those SOPs.
One of the biggest satisfactions was a comment from a staff who had been terminated- “if you had trained the day I joined the company, today, I would have still working in the company.”
Call to action
Every company faces this issue of reconciliations- whether suppliers or customers. If you don’t reconcile these statements, there is a chance of fraud or double payments. Hence, monthly reconciliations are a must.
If you are facing similar problem, please get in touch with us and we are confident, we shall be able to add value to your business.