I remember as a kid, we had a whiteboard where we would write funny sayings.  We would make up stupid quotes like the ones from Jack Handy from “Saturday Night Live” in the 90s. One time my older brother wrote simply “Money Goes Away.” He realized that as he started to earn money, it went away faster than he could imagine or keep track.

Of course this is an issue in our personal lives, but it is even more significant in the business or nonprofit world. Last time we talked about having proper procedures for money coming into your company. But what about how we spend the money?  Do you have adequate processes around what I call the Disbursement Process?

Checklist of Best Practices

  1. Send Accounts Payable Bills to a standard email address or system (such as Bill.com).
  2. Ensure Bills are approved by someone aware of the expense and managing the budget. A sound system such as Bill.com will allow you to set up approvers knowledgeable of the purpose of the expense.
  3. Pay Bills on time. The person approving or signing checks should be different from the person entering the bills into the Accounting System, approving payment, or reconciling the bank statements. Have the due date entered, so you pay them on time (but not early) to help with cash flow.
  4. Expense Reports for reimbursement should include the date, business purpose, people involved, and other applicable information.
  5. Any person using a company credit card should complete an expense report with attached receipts, business person/people involved, and other applicable information. Use Expensify, Tallie, or Concur to help.
  6. All Expense Reports should be approved by their supervisor before being reimbursed.
  7. Run the payroll and review payroll reports. Compare to the last payroll—review against offer letter or other change notifications.
  8. Forecast weekly or monthly cash flow based on trends and the latest information.
  9. Review annual recurring expense contracts – Ex. IT, Telephone, Internet, Subscriptions, Software.
  10. Forecast any significant capital expenditures for equipment, computer, property, or vehicles. Compare actual to forecast regularly.

Why Does This Matter?

First of all, it is best practice to separate the person entering transactions from the approver, and the payer (signer). This separation establishes a proper check and balance that not only prevents fraud, but also does not put someone in a position to be suspected of fraud. It also provides a 2nd and 3rd set of eyes to ensure accuracy.

Of course, this process is only useful if we are checking. Recently I was involved in an issue where we paid the wrong vendor. It was a huge and embarrassing error. I had not adequately checked the invoice to the payment for each transaction. You can be sure I will be reviewing everything much more closely from now on. You cannot expect the person who enters bills or any transaction never to make an error. Now this was a significant error, but it was the first time I had seen this error, and there are hundreds of transactions going through that system.

Some of these procedures ensure that expenses are following the budget, trend, or are even necessary. Expenses have a way of creeping up on us if we are not monitoring them closely. It is increasingly more popular to have monthly recurring subscriptions, and sometimes nobody even knows what they are. Review recurring expenses regularly. Recently we came across a vendor that we paid by both credit card and by check. By doing a quick analytical review of expenses, we can catch this kind of duplication and then look for ways to correct it going forward.

Next time we will discuss the last major step in the financial cycle, which is consistency of the month-end processes to improve accuracy and reliance on your financials.