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Assessing the Effectiveness of the University's Prompt Pay Policy
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Function, Project, Program, Organization, Activity:

Assessing the Effectiveness of the University's Prompt Pay Policy

Reason(s) Why Audit Is Needed:

In January 1999, the Office of the Comptroller implemented a 6-month pilot program to ensure the prompt payment of vendor invoices. The new policy allowed the accounts payable office to pay invoices that did not exceed $5,000, previously $500, without a receiving report, if a valid encumbrance document existed. The Materials Management Department's central receiving office was still tasked with obtaining receiving information from departments. For invoices of $5,000 or more, the 6-month program required a "positive" confirmation that the goods or services were received, the same requirement that existed in the past for invoices that exceeded (the lower amount of) $2,000. Again, the Materials Management Department's central receiving office was tasked with obtaining receiving reports and inputting appropriate information into the purchasing/accounts payable system. Another of the pilot program's six changes allowed the accounts payable office to pay invoices from limit sum orders without obtaining receiving reports, whereas receiving reports were required before invoices were paid in the past.

The program continues in effect and appears to have become standard operating procedure. The prompt payment program has never been audited.

Audit Objectives:

The objective of this audit is to assess the effectiveness of the new prompt payment policy by determining the promptness in which invoices are paid and the extent that discounts are taken or penalties avoided. A second objective of the audit is to assess the receiving department's compliance with obtaining and inputting receiving reports into the purchasing/accounts payable system. The audit will also attempt to identify and assess the internal controls that were put in place to mitigate fraud.

Priority: High


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