Can you provide a checklist designed to assist during an acquisition, i.e. questions to ask about Accounts Payable?

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We have not published a specific AP checklist for an acquisition since companies tend to customize it to their industry, management philosophy, and materiality to the overall business. However, below are some tasks to consider as part of it:

  • Copy of accounts payable aging reports
    • Explanation on any vendors past due their payment terms
  • Reconciliation reports comparing the general ledger balance in accounts payable to the accounts payable aging report
  • Copy of all accrued expenses and an explanation of each one
  • Copy of all vendor agreements
  • Listing of all vendors sorted by dollar purchases (including contact information and general description of what is purchased)
  • Listing of any legal claims filed by vendors
  • Copy of purchase order document
  • Copy of receiving report
  • Sales and use tax returns filed for the last 12 months
  • Copies of all correspondence from governmental or regulatory agencies including notices for penalties
  • Copies of the last 3 years escheatment filing reports with each state applicable state
  • Listing off all employees in the Accounts Payable department including title, responsibility, compensation
  • Copy of the departmental budget and reports showing comparison of actual to budget along with reports describing any large discrepancies
  • Listing of the payment terms with each vendor and applicable discount programs
  • Financial report listing the discounts taken on payments within the last 12 months and the value of any discounts not taken
  • Organizational chart of the A/P department
  • Internal control manual for the department
  • Accounts Payable policy and procedures manual
  • Copy of the P-Card Policy Manual with a listing of all corporate p-card programs including employees who have been issued cards and their respective numbers (last four digits is okay) coding process and related documents used to ensure proper identification of the cost center to charge
  • Copies of flow charts depicting the work flow of the various processes in the A/P department
  • Listing of the type of recurring payments and their interval and what they are for
  • Copy of financial records for the charge off and escheatment of property subject to escheat laws
  • List and describe any liability or obligation not disclosed in your company's accounts
  • Status and communication of any federal, state, or local tax examinations
  • Accounting systems used in the AP process including sub-systems such as imaging and workflow software
  • Copy of any monthly, quarterly, and annual management reports from the AP department
  • List of single source vendors for any critical materials or services needed for the company's operations
  • Copy of any reports issued by the outside accountants reporting on the AP operations

The general purpose of your due diligence is to assess the following:

  • How is the organization staffed
  • How effective is their internal control environment (adequate separation of duties, management oversight...)
  • What efficiencies does your organization bring to the combination- technology to enhance productivity which might also lead to removing staff redundancy
  • What are the integration issues with the target companies AP system vs. your system
  • Based on volume of business done with common vendors are there opportunities to achieve cost savings from better bargaining power with the combined organizations
  • Identify integration issues that will address- staffing, equipment, systems...

We also recommend posting your question to the Messaging/Forum section of the site to get feedback directly from your peers as to the items they request during an acquisition's due diligence process.

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