My company is considering using evaluated receipt settlement (ERS). Since this is "invoiceless" what are other companies using for the audit trail of the payments? What kind of documentation should AP have on record to support the payment?


A payment audit trail is difficult with ERS because you don't have an invoice number, which also makes things difficult for the vendor when they apply the payment. So it's important to agree and establish with vendors some procedure to compensate for that lack. And it is critical that your receiving department understands the importance of the accounting aspect of their operation. Everything depends on the integrity of the receipt and of the purchase order. The receiving department must usually undergo a culture change for effective ERS. Receiving is typically concerned with receipt and distribution, while accounting is not high on their radar. This must change –they must understand the critical importance of processing the receiving documents.

Those implementing ERS are advised to begin slowly with a trusted vendor. Sit down with the vendor and agree on a common document number that will be used by both you and the vendor in lieu of an invoice number. (Your voucher number is meaningless to the vendor.) The packing slip number is often used. See if the vendor will agree to electronically transmit the packing slip number (or other agreed-to identifier) to AP as well as to your receiving department. It then becomes part of the record. When you sit down with the vendor, also insist that the vendor send a monthly statement. The statement must be reconciled monthly. Reconcile everything –credits, deductions, returns. This will help satisfy an auditor that you are compensating for the lost controls of an invoice process.

Furthermore, you should meet regularly, whether quarterly or every six months, with the vendor, to reconcile outstanding items and keep a close rein on the process. You should meet monthly with purchasing and receiving. Don't forget the shipping department with regard to returns to the vendor, an area commonly overlooked but a potentially significant part of the process. Finally, it is a good practice to have an independent auditor periodically do a random audit of receipt integrity. Complete, detailed packing slips and purchase orders, a mutually agreed-on transaction identifier, reconciled monthly statements and documented processes will support your payments.

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