Playing with P.O. numbers - is it ethical?
Answers
One solution you could implement would be to have a true up quarterly of the supplies that were used. If customer 1 was billed for $1000 in supplies, but only used $800, then reflect the difference on the next billing cycle. If customer 24 was billed for $1000 in supplies but ended up using $1500 then bill for the additional amount at the quarterly true up.
Is there a contract that the company has with the customers that must be adhered to relating to the services and products?
From my experience a PO is an estimated invoice, something that should be close, but isn't the real amount. The actual invoice is what determines the real amount the company will owe. Often times POs don't take into account applicable sales taxes, shipping costs, and actual quantity shipped.
I hope this help.
Chris:
I agree about POs not being the definitive, price document. Otherwise, besides the contractual implications, why have them?
However, my AP department is telling me that open POs and POs where the invoices have amounts different than the PO won't work in some
Do you know of anything like this?
To be fair, years ago when I came to this organization, new accounting software had been acquired/set up that cost $200,000. And, my AP clerk told me she had to do enter and pay because she couldn't close the AP module each month if an invoice had been entered but not paid. I thought she was bsing me and using it as an excuse not to change the checkbook mentality around here. Only it turned out, she was right! You couldn't close the AP module with unpaid invoices entered for future payment. It was ludicrous. If I wanted standard AP accruals, we had to set up manual JEs.
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My experience with POs is that if an invoice comes in at a different amount, the PO can be changed to match what was actually invoiced. If that PO is open, I would think it could be changed manually.
For the construction company I work for, we are able to change our POs manually to match what was actually received. On some of the POs vendors do not charge sales
After spending $200k on a new accounting software that AP didn't function correctly, I am not sure how I would have handled myself with the people who implemented the system. I doubt it would have been full of grace and mercy.
Not sure I know exactly what you mean by "playing with PO numbers" but here are my 2 cents:
If I place an order with Vendor A for 10 items @ $100 each and:
They deliver 9 items at $101 each, then I have the following
1. accept 9 instead of 10 and close out the order as complete (i.e. cancel the remaining 1)
2. accept 9 and leave the PO open for 1 until it is received, then close the order out.
3. reject the price of $101 as outside contract price
4. accept the price of $101 as being within operational tolerance
But I see no value in modifying the PO qty to 9 and the unit price to $101. A proper ERP system will let you manage POs with differences and help you control your spend. I'd like to know how often this vendor short ships us, how often the PO price is exceeded. "Fixing" the PO to equal the invoice is not acceptable to me.
My major financial issue is whether I paid only for what I received (9) and at the price I agreed ($100 +agreed tolerance of $1).
regards
Len
You've already received some great advice, but this might be helpful. In a previous role, we implemented Oracle/PeopleSoft ERP and it imposed new rigor to the PO/AP interface. Each PO was controlled by Purchasing and AP could not change it, nor pay an invoice that didn't match. However, you could establish systemic tolerances that would allow an invoice not matching the PO to be paid. Any differences outside the tolerances, whether quantity or price, had to be addressed by Purchasing before an invoice could be paid. Sometimes that required Purchasing to consult with the operating unit initiating the purchase requisition. It was a bit irritating at first because it seemed like a big waste of time. However, over time we came to appreciate the discipline imposed by the ERP system, and it firmly established ownership of POs with Purchasing, which is where it really belongs.
Robert's post also provokes another thought...if you are concerned about purchasing practices and risks, try looking for some patterns in POs and requisitions.
Are the same people regularly asking for exceptions to be taken care of?
Are the same vendors involved?
Is there a sudden increase in activity with one or a few vendors?
Be curious:)
Len's last point reminds me of another aspect of the ERP process. Suppliers need to be "trained" to refrain from making unilateral changes after they have accepted a PO. Although a supplier may have good reason to want to change a PO, they should consult our Purchasing folks before deviating from the published PO.
One item not mentioned, as far as AP goes, is re-assigning vendors to purchasers every so often. This goes a long way in interrupting possible collusion, but is no guarantee.
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Wayne - That is a great idea. Collusion could certainly be minimized by doing this. It would also help the vendors realize their relationship isn't with the purchasers, rather the relationship is with the company.