p-cards and electronic payments

Our15thYearServingtheAPProfessionnwww.AccountsPayable360.com SePtember2010ISSue10-09

Continued on page 13

AlsointhisIssue

BenChmarks & metriCs Case study

P-CardsandelectronicPaymentsbecomeCompany’sPreferredmeansofPayment..... 2With the use of cards, AP ACH payments, wire transfers, and ACH debits, Mohawk Fine Papers’ electronic payment rate is over 90 percent

t&e

Preventt&eAbuse.... 5In many companies, the volume of T&E reimbursement claims is too great to allow for thorough review.

Newsbriefs................ 8Expense-a-Steak Ploy May Be Hard for AP to Swallow....Who Has Your Phones?....‘They Wanted Me to Do QuickBooks, and I Didn’t Have a Clue!’

APCalendar............. 10AP conferences, seminars, and specialized training.

Continued on page 10

invoiCe proCessing

APDepartmentunderthemicroscopeWith direct control over cash flow, ap professionals are under increasing pressure to strengthen controls, drive down costs, and increase process ef-ficiency.

a survey report from Basware, Lost in Transaction 2010, indicates that 59 percent of respondents think the ap department as a finance function is becoming more strategic, 59 per-cent believe the ap department has a positive effect on profitability, and 48 percent say ap performance is

Form 1099

NearlyeveryPayeeWillbeSubjecttoDocumentationSolicitationrequirementsandreportingbymarianneCouch,J.D.

With the elimination of the corporate payee and goods purchases exemp-tions to Form 1099-misC reporting, as well as the requirement to report the “gross proceeds” of payments, payers can expect nearly every payee to be subject to documentation solicitation requirements and most payees to be subject to reporting.

some commentators have expressed concern that the legislation, as writ-ten, appears to eliminate the corporate exemption to many other types of

teChnology & automation

InvoiceVisibilityIsKeytoefficiency“the biggest reported problem for accounts payable is the lack of vis-ibility into invoices and other ap documents,” says nasreen Quibria, senior analyst for the aberdeen group.

“more than half the organizations that we surveyed—57 percent—say that ‘lack of visibility’ is a pain point for them. Forty-eight percent of the respondents report

Continued on page �

P-CardbenchmarksFromIOmA..............................................see page 2

(source: ioma)

0% 10% 20% 30% 40% 50% 60% 70%

Increasecard access

Target newspend categories

Convert more vendorsto p-card payments

39.7%

62.8%

45.8%

http://www.accountspayable360.com

2 www.accountspayable3�0.com septemBer 2010

mANAGINGACCOuNtSPAYAbLe

MANAGING ACCOUNTS PAYABLE (issn 1080-5753) is published monthly for $437 per year by the institute of Finance & management, 1 sound shore drive, greenwich, Ct 0�830. Copyright 2010. institute of Finance & management, a division of management networks, llC. all rights reserved. a one-year subscription includes 12 monthly issues plus regular fax and e-mail transmissions of news and updates. Copyright and licensing information: it is a violation of federal copyright law to reproduce all or part of this publication or its contents by any means. the Copyright act imposes liability of up to $150,000 per issue for such infringement. information concerning illicit duplication will be gratefully received. to ensure compliance with all copyright regulations or to acquire a license for multi-subscriber distribution within a company or for permission to republish, please contact ioFm’s corporate licensing department at 203-889-4973, or e-mail [email protected]. periodicals postage paid at greenwich, Ct, and additional mailing offices. postmaster: send address changes to MANAGING ACCOUNTS PAYABLE, 1 sound shore drive, suite 100, greenwich, Ct 0�830; 203-889-4977; fax: 203-�22-1738; email: [email protected]. to renew, email [email protected].

desktop editor: moniQue nijhout

director of marketing: jim sestito

editor: elaine stattler Contributing editor: andy dzamBa

research manager: Bikram gautam

managing editor: janiCe presCott

president & publisher: perry patterson

eDItOrIALADVISOrYbOArDpam miller

AP Director, BMC Select and Instructor AP Certification Program

jon Casher Senior Consultant, AP Advisory Services and Instructor AP Certification program;

President, Casher & Associates

marianne CouCh, esQ. Principal, Cokala

“according to benchmark figures commonly used for purchase cards, an average of 70 percent of spending transactions are less than $2,000, but account for only 10 per-cent of the entire spend amount,” says mike ruhm, manager of treasury compliance and controller of the e-commerce division at mohawk Fine papers inc., headquartered in Cohoes, n.y.

“at mohawk, we learned that 7� percent of our spending was under $1,000 and ac-counted for 5 percent of our total spend. By applying the benchmark for average savings obtained by p-card use, we knew that it made sense for us to consider their use,” says ruhm, a 10-year veteran at mo-hawk.

benchmarkingIdentifiesOpportunity

mohawk conducted benchmarking as part of a process review initiative to streamline operations and reduce costs. First, the company conducted high-level studies—comparing mohawk’s results with published standards—in order to determine if the process changes it had in mind were worthwhile.

next, for the processes it chose to pursue, it mapped the process steps and assigned costs to each, so that the costs could be compared (for example, cost of check versus cost of aCh payment). the company also calculated frequencies for each process to help determine potential areas of cost savings and provide direction for re-engi-neering.

“during the benchmarking process, we discovered that for most of our processes, we were pretty efficient when compared to other organizations,” says ruhm. “however, we did identify an area in which we could make improvements that would provide us substantial benefits—and that area was p-cards.”

ruhm explained further, “For example, we learned that, for us, a p-card payment is 52 percent less costly than an ap pay-ment using a purchase order and check payment. as a result, p-cards and electronic payments became our preferred means of payment.”

BenChmarks & metriCs Case study

P-CardsandelectronicPaymentsbecomeCompany’sPreferredmeansofPayment

Continued on page 4


mailto:[email protected]

mailto: [email protected]


www.accountspayable3�0.com 3septemBer 2010


PercentageofActiveP-Cards

p-card programs are being actively used at the majority of companies surveyed in a recent ioma benchmarking survey. By program size, 80 percent of companies with more than 1,000 employees in the p-card program are over 90 percent utilization, while only about half of companies with 501 to 1,000 employees are at that usage level, as are half of those with up to 10 employees.

CostofPurchase-to-Paytransaction

For more than half (53 percent) of the companies surveyed across all industries, the overall cost of a purchase-to-pay (p2p) transaction is less than $10. only one-fifth (20 percent) of companies using a traditional p2p process are paying less than $10 per transaction. however, approximately 20 percent of companies using both traditional and p-card p2p processes are paying $10 to $25 per transaction.

in companies with large programs, over 1,000, there is a striking difference between costs of traditional and p-card p2p processes. a significant 70 percent of these companies are paying less than $10 per transaction using p-cards, compared with only about one-third (35.7 percent ) using the traditional approach.

overall, p2p transactions cost less than $25 for three-fourths (75 percent) of companies using p-cards, compared with less than half (43 percent) for companies using a traditional p2p process. using a p-card reduces transaction costs across program sizes.

NumberofDaysinP2PCycle

p-cards significantly shorten the purchase-to-pay cycle. overall, only 5 percent of companies have a p2p cycle that’s a week, at most, in duration, whereas a full one-quarter (25 percent) of companies using p-cards are in that time frame. p-cards also shorten cycle time for companies whose traditional p2p process takes between 22 and 28 days (10 percent versus 5 percent).

using a p-card gets a lot more companies into the one-week transaction cycle. For example, only � percent of companies with 101 to 500 employees that use traditional p2p processes have a cycle of within a week, whereas almost one-third (29 percent ) of companies with that size program using p-cards are completing the p2p cycle within a week.

overall, on average, the p2p cycle takes a little over a month (32 days) for companies using a traditional process, versus 20 days for companies using p-cards (exhibit 1). across program sizes, p-cards reduce the average number of days in the p2p cycle (exhibit 2).

GrowthFactorsforP-CardProgram

overall, more than half of respondents (5� percent) said that mandating p-card usage for certain transactions was the most important growth factor for their p-card program.

increasing card access, targeting new spend categories, and converting more vendors to p-card payments are viewed as important growth factors across most program size categories (see front page box).

(source: AP Department Benchmarks and Analysis 2010. For more information, go to www.ioma.com.)

P-CardbenchmarksFromIOmA

AverageNumberofDaysinPurchase-to-PayCycle Traditional P-card Number Percentage Number Percentage1 - 7 10 5.2% 44 24.7%8 - 14 10 5.2 14 7.915 - 21 21 10.8 17 9.�22 - 28 11 5.7 18 10.129 - 42 95 49.0 �7 37.�43 - �0 41 21.1 17 9.�greater than �0 � 3.1 1 0.�total 194 100.0 178 100.0 OverallAverage 31.� days 20.4 days

(source: ioma)

AverageNumberofDaysinPurchase-to-PayCyclebyProgramSize

ProgramSize 1to10 11to25 26to50 51to100 101to500 501to1000 Over1000NumberofDays t P t P t P t P t P t P t P1 - 7 3.0% 15.�% 3.4% 27.�% 0.0% 22.7% 9.1% 25.0% 5.8% 29.4% 0.0% 1�.7% 11.1% 29.4%8 - 14 3.0 3.1 10.3 3.4 9.1 13.� 0.0 10.0 3.8 9.8 0.0 1�.7 5.� 5.915 - 21 15.2 �.3 3.4 10.3 0.0 13.� 27.3 5.0 5.8 7.8 0.0 33.3 27.8 11.822 - 28 9.1 �.3 �.9 13.8 13.� 13.� 4.5 15.0 1.9 9.8 14.3 33.3 38.9 5.929 - 42 51.5 53.1 55.2 41.4 45.5 22.7 31.8 30.0 55.8 37.3 71.4 0.0 1�.7 29.443 - �0 15.2 15.� 17.2 3.4 22.7 13.� 22.7 10.0 25.0 5.9 14.3 0.0 0.0 17.�greater than �0 3.0 0.0 3.4 0.0 9.1 0.0 4.5 5.0 1.9 0.0 0.0 0.0 0.0 0.0

(source: ioma)


www.ioma.com



its products are designated carbon neutral. so going paperless fits very well into our social responsibility ethic,” ruhm says.

resultsmeetexpectations

the increased use of p-cards, travel cards, and electronic payments has greatly reduced processing at mohawk. as a result, despite three acquisitions, the company has not had to increase the size of its accounts payable staff.

“the p-card program produces a signifi-cant amount of revenue in rebates,” says ruhm. “p-cards and travel cards are well received by our ap employees because they make their job easier.”

in addition, “the cards and electronic payments have helped with cash flow and cash forecasting,” says ruhm. “We are very satisfied with our results—they totally meet our expectations. i just wish we had done this sooner.”

ruhm says the benchmarking process at mohawk was so effective that “we con-tinue to use benchmarking to monitor our program. there are already plans to initi-ate another companywide procure-to-pay process review.”

Editor’s Note: mohawk Fine papers inc. (www.mohawkpaper.com) has six locations and 750 employees. the ap department has two full-time clerks and a manager who splits his time between ap, ar, credit and collections, and payroll. mike ruhm, Ctp, Cma, Capp, apm, CpCp, Cpp, CBm, can be reached at mike.ruhm@mohawkpaper .com. q

CompanySeekstoIncreaseP-Carduse

“We changed our purchasing policy and defined rules to make p-cards required for certain purchases,” says ruhm. “in addition, we identified opportunities to increase p-card use and increase the enrollment of ven-dors in the electronic payment program.”

in addition, “we also moved our travel card to the same bank we used for our p-card and negotiated a more attractive rebate contract. Credit cards must now be used for all but a few exceptions. this al-lowed us to reduce the reporting frequency from weekly to monthly. it also enabled us to change our receipt policy to make reporting easier for travel—and more ef-ficient for the ap department,” he says.

“With the use of cards, ap aCh pay-ments, wire transfers, and aCh debits, our electronic payment rate is over 90 percent,” says ruhm. “this is not only very cost ef-fective but it also helps support mohawk’s environmental initiatives, which are very important to us,” he says.

“it may seem counterintuitive for a paper manufacturer to move toward a paperless process, but conservation is part of our philosophy and our manufacturing process. all of the electricity used in our produc-tion process is offset by renewable wind power. mohawk also has joined the u.s. epa Climate leaders program by agreeing to voluntary emissions reductions. many of

CurrentSubscribers:timetorenew?

renew your current subscription to Managing Accounts Payable today.

Call us at 203-889-4977 or email

[email protected]

l Successfulbusinessesunlockcapitaltrappedininefficientfunctions. While the adoption of electronic payment vehicles requires businesses to alter their payment behavior and restructure their financial processes, the companies that make the shift will gain a competitive advantage.

Coming in future issues of Managing Accounts Payable:

P-CardsContinued From page 2


www.mohawkpaper.com






in many companies the volume of t&e reimbursement claims is simply too great to allow for thorough review, allowing dishonest employees to take advantage of the system, says peter goldmann, editor of White-Collar Crime Fighter.

the following examples do not represent an all-inclusive list of t&e abuses, but it does cover some possible areas to look out for. unethical behavior by employees might include:

l Creating fictitious hotel bills or other bills and expensing them;

l Copying, and re-claiming, receipts in a future expense report;

l expensing false “below the line” ex-penses when receipts are not required;

l overstating charges by expensing more than the actual costs;

l taking friends and family for meals, to entertainment venues, or on trips and expensing the charges erroneously;

l paying for products or services that are wholly or partially for personal use;

l Collecting hotel or vendor commissions that are due to the company;

l Collecting and personally using meet-ing planner points (which are different from individual hotel rewards points);

l using corporate cards for personal use in order to collect rewards points;

l using meeting and event suppliers that may provide something personal in return, such as free trips, room nights, spa service, car service, floral service, entertainment, extra rewards points, or other amenities;

l Booking company-expensed airline tickets, canceling the trip, and using the unused credit for personal travel.

according to scott sunbury, Cpa, CFe, a t&e fraud prevention specialist with Connect-icut-based Cjs group llC, companies must be especially alert to such t&e schemes as overstated or “over-purchased” expenses.

to reduce the company’s exposure to t&e abuse, sunbury recommends starting with an enforcement of a rigorous t&e expense documentation policy. sunbury recommends that companies formulate and communicate via the company’s intranet a detailed t&e policy, including a t&e code of conduct with rules such as:

l personal expenditures are strictly pro-hibited.

l an employee using a p-card for travel and entertainment expenses must also follow the policies outlined in the p-card program and sign a p-card agreement.

l only authorized personnel may ap-prove expense reports. delegating this duty to another employee is strictly prohibited.

l all t&e-related purchases must be properly documented in accordance with company policy. altered or forged docu-mentation is strictly prohibited.

l only authorized and allowable expens-es may be submitted for reimbursement. Check with your department manager if you have any questions about the eligibility or the validity of a purchase.

l all dollar-value purchase limits must be adhered to. splitting of transactions to avoid authorized limits is strictly prohibited.

sunbury says that employees should be required to click “i accept” after reading the policy. he also suggests the following:

l Follow up with all new hires who have not clicked the “i accept” function within

t&e

Preventt&eAbuse


� www.accountspayable3�0.com septemBer 2010


the first few months of their employment.

l prohibit upfront management autho-rizations of t&e expenditures.

l apply policies consistently to all em-ployees.

l eliminate cash advances.

l use company t&e credit or p-cards. But enforce a policy that reserves the company’s legal right to seek repayment by employees for fraudulent or prohibited expenses.

l establish and enforce a minimum dollar level for requiring receipts in your organization.

l require that expense reports include full descriptions of the business purpose of each expense, as well as the original receipt or other support documentation, time and date, location, and exact amount.

l Be suspicious of rounded dollar num-bers without supporting documentation or potentially counterfeit documentation, as well as a series of claims for the same amount.

l have receipts cross-referenced to the expense report and sent directly to the processing group.

l disburse reimbursement payments via direct deposit, or include them with normal paychecks.

l use an electronic t&e reporting sys-tem. these typically allow for built-in policy controls.

l Consider implementing a t&e re-port review policy that holds authorized managers or supervisors accountable for fraudulent or prohibited t&e expenses that slip through the review process due to incomplete reviewing. penalize second or third occurrences of such oversights with monetary penalties. q

Sources: t&e plus, debischolar.typepad.com; and White-Collar Crime Fighter.

1099 reporting beyond the misC, even though this does not appear to have been the intent of Congress.

these increased reporting requirements, effective for payments made on or after jan. 1, 2012, will create significantly increased opportunities for payee name-tin mis-matches, B-notices, penalty notices, and potential liability for backup withholding.

eliminationoftheCorporateexemption

Currently, payments to corporations, except to those providing medical or legal services, are exempt from Form 1099-misC reporting. (in addition, no corporate exemption exists for payments in lieu of dividends or fish purchases for cash re-ported on the Form 1099-misC.)

as a result, many payers routinely exempt corporate payees from Form W-9 solicita-tion using the “eyeball test.”

under the terms of this test, payers who can identify clear indications of corporate status in a payee’s name, such as inc., Corp., p.C., etc., are permitted to exempt these payees from reporting without first obtaining a Form W-9 from the payee.

(note: government and tax-exempt payees are not affected by the elimina-tion of the corporate exemption. payers will be permitted to continue to exempt from reporting payments to payees that are obviously government agencies, and tax-exempt entities such as well known colleges and universities, and charities.)

remember, however, that the “eyeball test” does not apply to corporations pro-viding medical or legal services, or others as noted earlier.

despite the fact that use of the “eyeball test” is permitted to exempt corporate

Form1099Continued From page 1


http://debischolar.typepad.com



requirements, and to move away from us-ing the “eyeball test” to exempt purported corporations from reporting.

eliminationofGoodsPurchasesexemption

at this time, payments to purchase goods are exempt from reporting. (note: Combination payments for goods and ser-vices are subject to reporting. in general, payers should report the entire amount of the payment—for both the goods and the services—on the Form 1099-misC.)

however, the exemption from report-ing payments to purchase goods was also eliminated with the passage of the patient protection and affordable Care act of 2010, pub. l. 111-148.

Beginning with payments made on or after jan. 1, 2012, goods purchases will be reportable. accordingly, payers will be required to solicit name-tin information, using the Form W-9 or applicable substi-tute, from all domestic vendors supplying goods.

payers retain the goods purchases exemption to Form 1042-s reporting. however, in order to apply the exemption, payers will be required to obtain from their foreign vendors a Form W-8Ben establish-ing foreign status.

the Form W-8Ben will confirm that the vendor is subject to the Form 1042-s, and not the Form 1099, reporting rules. Without the W-8Ben, payers will generally be required to presume that vendors are domestic suppliers subject to the require-ment to report goods purchases on the Form 1099-misC.

requirementtoreporttheGrossProceedsofPayments

the legislative language requires the re-porting of the gross amount of payments.

payees from the name-tin solicitation requirements (taxpayer identification num-ber, such as ssn, ein, itin, and others), tax advisors have long recommended against its use for several reasons:

l First, in addition to identifying the payee’s status as a corporation, the payer must also be able to determine that it is not a provider of medical or legal services. such a determination is not always possible to make from a payee’s name, alone.

l second, obtaining a Form W-9, or applicable substitute, from all payees, including those the payer believes to be corporations, will assist in identifying for-eign payees subject to the Form 1042-s reporting and 30 percent federal income tax withholding rules. (no foreign corporate exemption exists for Form 1042-s.)

l Finally, many payers mistakenly pro-vide the corporate exemption to their llC payees. as limited liability companies, not corporations, llCs are not exempt from re-porting. (note: llCs default to a tax status of individual, partnership, or disregarded entity, depending on the number of own-ers and relationship to a parent company, if any. llCs may occasionally elect to be treated as corporations for tax purposes. if this is the case, the irs would have pro-vided the llC with a determination letter of corporate status. tax advisors strongly advise that payers not give llC payees the corporate exemption to reporting without first obtaining from the payee of copy of this letter.)

nonetheless, with the elimination of the corporate exemption, payers will no longer be permitted to use the “eyeball test” to exempt corporate payees from reporting as of jan. 1, 2012.

Consequently, tax experts advise that payers begin implementing policies, procedures, and systems changes to ac-commodate these increased reporting Continued on page 10




NeWSbrIeFSexPeNSe-A-SteAKPLOYmAYbeHArDFOrAPtOSWALLOW

how do employees get around limitations on t&e expenses? Advertising Age and The Wall Street Journal report on how a new york ad agency, Walrus, created a Web and mobile application for its client, Fourth Wall restaurants.

the Fourth Wall company is comprised of upscale restaurants in new york City. one of the restaurants in the group is maloney & porcelli, located in new york’s financial district.

restaurant Creates receipts. the restaurant touts its expense-a-steak program with the line, “now you can eat at maloney & porcelli as often as you like and never worry about your expense report raising any eyebrows. simply type in your bill total and the expense report generator will do the rest.”

diners simply have to follow the direc-tions at the expense-a-steak site, enter the amount of their maloney & porcelli’s restaurant bill, and click a box that says “expense it!”

the program automatically generates a print-ready page of fake receipts for work-related expenses like office supplies and cab fare. the fake receipts total the same amount as the restaurant bill.

IsItLegal?“is it advertising? is it pr? is it aiding and abetting in fraud?” asks Bob garfield, a writer for Ad Age. gar-field, while admitting the program may be questionable to some, calls it “brilliant.”

legal or not, the program is being widely used. the Web site is just a week old but already has some 88,000 re-ceipt downloads, according to deacon Webster, chief creative officer at Walrus, the new york-based agency behind the campaign. Advertising Age reports that the site earned coverage in just about

every financial, advertising, food and consumer facing outlet—and Walrus claims that 150,000 sets of receipts were downloaded in the first two weeks of the campaign. m&p reservations were up 15 percent in the wake of its launch.

Webster says that the receipts, while remarkably authentic, are “not intended to be passed off as the real thing.” he claims: “if accounts payable is letting a receipt for $3,000 worth of cyan toner through their department, then we’re the last people who’ll get in trouble.”

HowFarCanAdvertisingGo?the campaign isn’t just online,” says kelly evans of The Wall Street Journal. “Walrus has also replaced the restaurant’s embla-zoned takeout bags with fake ones from cheaper chain restaurants (though well known italian- and mexican-food chains have issued cease-and-desist orders), so diners can disguise their leftovers as cheaper fare.”

the ad agency reports, “people have gotten a kick out of it and the restaurant has been busy.”

What Can AP Do? many organiza-tions use internal audits as their primary investigative method to prevent t&e mis-reporting, yet many internal audit teams do not know how to find, monitor, or value these incidents, reports T&E Plus.

Without a managed travel, meetings, and entertainment program in place that aids in pre-empting these practices, companies are vulnerable.

how much is your organization losing because of t&e misreporting? and, how can you reduce it? see article on page 2.

WHOHASYOurPHONeS?

Forrester reports that cutting telecom costs remains a top priority among organiza-tions. But the sheer number of mobile




NeWSbrIeFSdevices makes it difficult to maintain ac-curate, validated, and current inventories of company mobile devices.

the bigger the company, the greater the challenge with accuracy. “many companies have numerous devices that they cannot even locate. in some cases, former employees are still using corpo-rate devices—and there’ve even been situations where new phones are issued to expatriated or deceased employees,” reports onica king of Forrester.

a large Fortune 500 retailer, after imple-menting a telecom expense management (tem) solution, found 3,500 monthly cell phone bills of former employees still be-ing paid, costing the company in excess of a million dollars per year, reports king.

king offers a rather simple means of getting a spot inventory of your organi-zation’s mobile devices.

using a series of three mass text mes-sages sent over a three-week period, organizations can instruct users to re-spond with information that would identify themselves as an employee:

the first text message is sent request-ing users respond with their employee number.

those not responding to the first message are sent a second message re-questing that the user respond with their e-mail address.

if the user does not respond to the first or second message, send a third and final message including a warning that the device would be shut off if the user does not respond to the text message with their corporate e-mail address.

“of course, corporate mobile device environments are not static, and portfolio changes are common,” says king. “But

any moves, additions, changes and dis-connections (maCd) of service or devices should immediately be recorded online to keep the inventory up-to-date.”

‘tHeYWANteDmetODOQuICKbOOKS,ANDIDIDN’tHAVeACLue!’

an investigation is under way regarding the alleged mismanagement of accounts payable at two liquor stores in the state of virginia. it seems that the liquor stores had been operating at a loss and bills were not getting paid.

the underlying cause of the difficulty didn’t come to light until after a 20-year veteran accounts payable manager re-tired, and a new manager took over. the new manager was shocked to discover that the stores had $109,000 of accounts payable.

When questioned, the retired manager said the problems arose when she failed to learn a computerized accounting system. as a result, she hadn’t done the books since june 2009.

“they wanted me to do QuickBooks,” she said. “i told them i didn’t have a clue, and they didn’t listen. i practically ran the business by myself. the board never came in. i never did anything wrong; i just did the best i could. i guess the bills just kept accumulating.”

moralof theStory?never assume your employees will understand new technology without training.

While this story presents an extreme and unlikely example, it drives home the importance of training. helping people understand technology will quiet their fears and insecurities and thus help your company adopt new technologies more rapidly.




Currently, tax advisors do not know how the irs will interpret these terms. Will taxpayers be required to report reimbursed contractor expenses on the Form 1099-misC? Will certain insurance claims payments currently exempt from reporting become subject to reporting?

Increaseinb-Notices,PenaltyNotices,andPotentialbackupWithholdingLiability

once the irs issues a proposed regula-tion regarding these upcoming changes to reporting obligations, tax advisors expect to be able to determine with more specific-ity exactly how they will affect payers and what, in particular, will be required to fulfill these new requirements.

With these significantly increased report-ing obligations, expect a proliferation of B-notices and penalty notices. (note: a bill to increase proposed penalty amounts for information reporting (1099) errors has passed the house of representatives and currently resides in the senate Finance Committee awaiting action.)

Form1099Continued From page 7

APmicroscopeContinued From page 1

the best way to avoid these notices is to use the irs’s tin matching system. use of the system will allow payers to scrub their payee data prior to sending the file to the irs. the tin matching system is free, but does require registration. information about the program can be found at www.irs.gov/govt/tribes/article/0,,id=131207,00.html.

Finally, note that potential payer liability for backup withholding attaches to every reportable payment. Failure to report when required, to report correctly, or to withhold taxes when necessary exposes the payer to liability for the tax amount—currently, 28 percent of the payment—plus inter-est, plus penalties. absent Congressional extension of certain tax laws, the backup withholding rate is scheduled to increase to its pre-2001 rate of 31 percent.

exposure to this potential liability will also increase substantially when the re-porting requirements increase. therefore, in addition to modifying payee name-tin solicitation processes, payers should also ensure that their systems provide a mecha-nism by which to withhold tax from Form 1099-reportable payments.

as is evident, the implications of these new reporting requirements extend far beyond the obligation simply to re-port payments to corporations and for goods. q

Marianne Couch, J.D., is a principal with COKALA Tax Information Reporting Solutions, LLC.

IOmA/tAPNAccountsPayabletraining&CertificationProgram

register now for the ioma/tapn essentials of accounts pay-able training & Certification program, a one-day intensive ap seminar in preparation for the ap Certification exams taking place in: Washington dC, september 24, 2010; scottsdale, az, october 11, 2010; and orlando, Fl, november 14, 2010

For information, or to register, contact john Watkins at 203-889-4973, or via email at: [email protected]

9th annual accounts payable Conference & expo, oct. 10-13, scottsdale, ariz. Contact: ioma Customer service, 800-401-5937; www.ioma.com/conferences/1321.html.

2010 regulatory tax Compliance, Withholding & ac-counts payable Conference, nov. 14-18, royal pacific resort, orlando. Contact: 770-984-1184 or www.tapn .com/2010taxCompliance.

aCCounts payaBle Calendar

being monitored more closely than a year ago.

CostlyerrorsWon’tbetolerated

“the research depicts finance depart-ments about to reach a tipping point, where


http://www.irs.gov/govt/tribes/article/0,,id=131207,00.html

http://www.irs.gov/govt/tribes/article/0,,id=131207,00.html


http://www.ioma.com/conferences/1321.html

www.tapn.com/2010TaxCompliance

www.tapn.com/2010TaxCompliance



costly errors and inefficiencies can no lon-ger be tolerated, as companies search out additional cost savings and hunt for profit,” the survey says.

the Lost in Transaction survey reveals statistics around the incidence of error and the actual amount of time and money lost in processing accounts. among the prob-lems Basware found that ap departments experienced on a regular or occasional basis are the following:

l difficulties reconciling invoices with purchase orders: 32 percent

l missing early payment discounts: 30 percent

l incorrect posting resulting in account-ing errors: 28 percent

l incurring late payment fees: 27 per-cent

l payment to wrong supplier: 2� per-cent

l duplicate invoice being paid: 23 per-cent

l insufficient payables information to support compliance/regulations: 19 per-cent

l poor cash management visibility lead-ing to overdraft fees: 10 percent

l paying for goods not received: 10 percent

l paying for unsolicited invoices: 9 per-cent

exhibit 1 demonstrates the most likely causes of processing errors. exhibit 2 shows the elements of inbound invoice processing that take up the most time and are most prone to errors, and exhibit 3 illustrates the main discrepancies between pos and invoices.

FinancialLeakagemustbeControlled

“Finance departments can no longer afford to be a source of financial leakage

exhibit2.elementsofinboundinvoiceprocessingthattakeupthemosttimeandaremostpronetoerrors/discrepancies

(source: Basware)

38%Invoice scanning or data entry

Reviewing and approving invoices

Filing and archiving

Approving requisitions or purchase orders

Approving payments

Issuing purchase orders

Tax accounting

Creating, submitting and managing contracts with vendors

Submitting requisitions

Interacting with suppliers

Cost accounting

Other

None of the above

41%

38%26%

28%18%

27%21%

27%20%

22%20%

20%21%

20%18%

20%17%

19%16%

18%22%

3%5%

3%4%

Take up most time

Most prone to errors/discrepencies

exhibit1.mostLikelyCausesofAPerrors

(source: Basware)

Human error by AP department

Human error by procurement department

Scanning and data capture

Lack of communication between AP and procurement departments

Problems with using accounting system

58%

53%

31%

24%

21%

18%

21%Lack of integration between finance systems

Gaps/inefficiencies in the AP process

themselves and must become bastions of control, visibility, and growth,” observes Basware. “the payables landscape is changing and industry has embarked upon a road of e-invoices and dynamic discounting where the need to seamlessly exchange transaction-related information




and funds is becoming increasingly urgent,” the report says.

automation is recognized as an area offering not only significant potential for generating bottom-line improvements, but also a greater ability to monitor and manage cash flow and strengthen supplier relationships.

“automation is not a ‘big bang’ initia-tive,” says the Basware report, “but rather a migration where people, processes, and technology combine to enable finance de-partments to set a best-practice example to the rest of the organization.” q

Source: Basware, lost in transaction report. For more information, go to www.basware .com.

MAP offers the following five-step program designed to help companies incrementally improve their ap processes:

Step1:Controltheflowofpaper.most companies still need to handle both paper and electronic invoices as they come in. rather than dealing with a backlog of paper invoices to process, scan the paper invoices as soon as they come in. then transport the invoice data electronically to a central location for processing.

Step2:Optimizethewaydataisextractedfromincominginvoicesandthentransferthedataforfurtherapprovalor verification. if this process is manual at your company, there are tremendous cost savings that you can realize by automating. For example, you can automate this process with a solution that extracts the data from invoice fields with little or no manual intervention.

Step3:Havesupplierssendyouinvoiceselectronically(eDI), even if they are paper invoices. automation can integrate suppliers into your system and plug data into your workflow. For example, you can enable your suppliers to send invoices electronically through an application that hooks into their computer’s print system. then it extracts the relevant information, converts it to Xml (extensible markup language), and sends it to you so that you can run it through your business process.

Step4:Increaseprocesstransparency.Between 2� and 41 percent of an employee’s time is spent responding to queries regarding existing invoices. automation can help improve communication between parties. ideally, you want a system in which documents are searchable instantly by entering one or

more key words. Being able to answer customer inquiries in seconds improves the professionalism of customer service and increases productivity and cost savings.

Step5: Improvedataquality.With manual processes, there’s always the risk of keystroke errors. and even if the invoice information is captured perfectly, there’s still the risk that the invoice cannot be matched within a purchase order system. MAP surveys indicate that more than half (55 percent) of all incoming invoices could not be directly matched when straight-through processing is used. to remedy this, implement either a manual or automated process. With a manual process, you need to have someone in ap pick up the telephone to have these errors fixed. With an automated system, there is a feedback mechanism that alerts suppliers to fix the invoice data before the invoices are fed into your erp system.

Based on MAP’s research, it is estimated that a company still using manual invoicing processes can save more than $17 an invoice by using this five-step automation process to upgrade its ap operation (see exhibit).

ApproximateSavingsPerInvoiceusingthe5-StepApproach

Step1:Control paper flow $10.00Step2:reduce manual labor $1.00Step3:enhance process transparency $1.50Step4:add e-transactions $1.50Step5:improve data quality $3.00totalSavings $17.00

FiveWaystoIncreaseefficiency,ImproveDataQuality,andDecreaseProcessingCosts

exhibit3.maindiscrepanciesbetweenPOsandinvoices

(source: Basware)

49%Incorrect pricing information

38%

31%

30%

28%

26%

26%

26%

23%

18%

17%

16%

8%

Incorrect quantity of goods

Missing PO reference on invoice

Incorrect invoice recipient

PO not created

Missing goods receipt

Late or partial delivery

Incorrect payment terms

Additional cost on invoicenot reflected on PO

Supplier/contract not found in system

Consolidated/summary invoiceOther

No price specified on PO


www.basware.com

www.basware.com



having ‘limited’ visibility, and 5 percent report having ‘no’ visibility.” (see exhibit 1.)

visibility is important “because it allows accurate financial forecasting; yet only 15 percent of those we surveyed had real-time visibility,” says Quibria.

AutomationAllowsforIncreasedVisibility

there are significant strategic advan-tages to being able to instantly access data in real time. an automated system can provide charts and graphs about ag-gregate data in the workflow, says scott pezza, research analyst with the aberdeen group. For example, you can generate a pie chart of how many invoices are at each step of the process.

“automation has become the top action to enhance the ap process,” says doug Bertram, regional manager at metafile information systems inc. “it streamlines and improves functionality and can drive spend visibility.”

in a recent aberdeen survey, �2 percent of the respondents reported that they plan to automate invoicing processes, and 31 percent plan to integrate e-payables with other systems. Fifty-two percent of best-in-class (BiC) companies already have enterprise-level image repository and management systems (see exhibit 2). even without full automation, BiCs have more automated aspects than the others:

l spend analysis, 42 percent BiC vs. 23 percent all other respondents

l electronic invoice presentment and payment (eipp), 32 percent vs. 7 percent

exhibit1.theVisibilityFactor

(source: aberdeengroup)

No visibility5%

Real-time15%

Good visibility32%

Limited visibility48%

InvoiceVisibilityContinued From page 1

exhibit2.best-in-Classtechnologyutilization

(source: aberdeengroup)

Enterprise image repository &management system

Spend analysis

EIPP

Supplier portals

Digital signatures

Supplier networks

52%29%

42%23%

32%7%

30%14%

24%20%

24%15%

Best-in-ClassAll Others

l supplier portals, 30 percent vs. 14 percent

l digital signatures, 24 percent vs. 20 percent

l supplier networks, 24 percent vs. 15 percent

ProcessingSpeedtranslatestoSavings

Best-in-class companies have reduced their cycle time to 3.7 days, compared with




a 14.2-day average. one of the reasons for the faster invoice processing in BiCs is the adoption of direct transmission of data via Xml or edi. BiC adoption is twice that of others: 42 percent versus 21 percent. yet even for BiCs, �0 percent of all incoming invoices are paper-based, aberdeen re-ports.

“paper invoices aren’t going away any time soon,” Bertram observed, “and some-times it’s not worth forcing your vendor’s hand.” incremental improvements can still be important in cutting cycle time.

BiCs process 14,080 invoices per month, versus 9,409 for all others surveyed. the monthly value of the invoices was $�7.8 million for BiCs versus $45.9 million for the others. the percentage of those invoices that were po-based was about the same in both (�3 percent versus �2 percent). But the single-invoice processing cost was $4.84 for BiCs versus $20.13 for all others, which comes to an annual invoice cost of $817,�44 versus $2,273,07�.

CentralizationGivesAPControlOverSpend

“even if you can’t upgrade to an automat-ed system, much can be done to gain more flexibility and control of ap,” says Quibria. “Centralization of processes can really help chief procurement officers (Cpos) to gain more control over their spend,” Quibria said. “invoice approval and receipt are key elements—decentralization in these functions can severely inflate cycle times, and Cpos can lose out on early payment discounts.”

BiCs are better than their lower-per-forming peers at capturing early payment discounts. the value of a 1 percent gain in early payment discount capture (at 2/10 net 30) for the average low performer could save $110,051 per year, says Bertram.

the survey indicated that 29 percent of respondents plan to centralize their ap processes. responses indicated that cen-tralization is not an all-or-nothing process, with more companies already centralized in some areas than others:

l payment—79 percent

l reconciliation—49 percent

l po issuance—45 percent

l scanning—3� percent

l indexing—35 percent

l approval—34 percent

l receipt—30 percent

HowtoAvoidAProadblocks

the aberdeen group recommends four key strategies to plug performance gaps and generate cost savings:

1. review current receipt and approval policies andidentifymajorprogramgaps. are there any unclear policies that require more management handling?

2. engage senior management in strategic andtechnologicalAPinitiatives. if you have reviewed your processes, you can show management you have done the research and can quantify the benefits of further investment.

3. Increasetheuseofdynamicdiscounting.thisrequiresefficient communication with suppliers. Begin with and assess a pilot program before rolling out a larger plan. dynamic discounting allows more flexibility in taking discounts.

“you might miss the 2/10 discount, but still make 1 in 15,” Bertram said. “to complete this process in truly dynamic fashion, you need visibility into process and payment status to learn which accounts are even available for early payment discount. For a less technology-based process, look to your colleagues in procurement to carve out a tiered or alternative discount structure.”

4. Closetheloopwithdataintegration. When you automate, you are working with data that can be shared far more easily than data on physical documents. you can provide procurement, sourcing, financing, and treasury colleagues with real-time data on the status of invoices. it helps supplier relationships by keeping them informed as to when they’ll be receiving their money. it helps in forecasting cash flow, and it also reduces or eliminates error due to human entry.

the process can be slowly ramped up as each portion is improved to remove bottlenecks. in terms of staffing, a more efficient process results in a better deployment. you could trim headcount, says Bertram, but you could also redeploy your employees. For example, your data entry staff could be redirected to higher-level tasks.




ACCOuNtSPAYAbLemANAGerS’FOrumtOOmANY‘tOuCHeS’

Problem:the ap manager at a food distribution company was challenged by the sheer volume of paper that changed hands in the department. an analysis revealed that each document was “touched” between 34 and 42 times as it was processed. paper was filed, re-filed, faxed, e-mailed, transcribed and otherwise acted upon. there was difficulty in tracking the progression of any particular invoice as it was processed. it was also difficult to establish accountability for the invoices among staff involved in the invoice-processing chain.

in addition, the company was not only missing out on early payment discounts, it was paying costly late charges. the challenge was to find a solution to design a workflow process that would eliminate the overhandling of invoices.

Solution:the company researched nearly a dozen accounts payable document management solution providers, using a cross-functional team composed of treasury, purchasing, inventory control, transportation, and accounts payable representatives.

the team wanted more than a scanning solution. team members wanted a program that would eliminate the need for paper altogether and adapt their workflow.

the company selected metafile’s metaviewer solution, which captured, extracted, and routed digital invoices electronically at each phase of the company’s invoice-processing chain. the software also automated indexing and text extraction from every invoice, enabled links to or attachments of supporting documents, created workflow steps, and included customized action-oriented e-mails and customer notification tools.

the accounts payable manager can now create a real-time dashboard view of the flow of each invoice within the ap department. alerts and gauges identify and rectify missed deadlines, stalled invoices, and other process break-downs.

results: the company realized an roi less than one year after implementing the solution. its annual processing costs went from $135,000 per year down to $80,000 per year fol-lowing implementation. the processing time required for the average invoice was reduced from one week to one day.

“it seems clear that if you have invoices coming in at different places, or approval scattered throughout the department, it will take longer to process the invoices—plus there is increased risk of duplication and mistakes,” says Bertram.

OvercomeChallenges

upgrading takes time and effort, and there are usually some challenges along the way. Common impediments the surveyed companies have run into include:

l lack of internal support for change: 39 percent

l difficulty integrating ap with other systems: 37 percent

l non-standard nature of (or multiple formats of) invoices: 33 percent

l lack of automation of exception/dis-crepancy handling: 23 percent

l securing executive support for ap transformation: 21 percent

“support for change is a major issue at several levels,” says Bertram. “treat each level individually. For example, your employees might be concerned that you’re making their job more difficult on a daily basis. also, they may be concerned about job security. management and execu-tives may be concerned about roi—the costs upfront and ongoing—and they will want to know if the project will be worth the investment. how you address these issues can ease the transition,” he says. q

Source: the 2010 epayables Webinar series, Webinar 2: overcome road-blocks—turn your accounts payable into a revenue generator, Aberdeen Group—an invoice and workflow study of 150 compa-nies worldwide. For more information, go to www.aberdeen.com.


www.aberdeen.com

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