Cash Disbursements: Check Printing & Distribution Part 3
This is the 3rd article in a series about Cash Disbursements. This material is adapted from The Automated Accounting Systems and Procedures Handbook (John Wiley, New York 1991) Chapter 7.
7.3 CHECK PRINTING AND DISTRIBUTION
With the systems and techniques available today, a variety of alternatives exist for improving and refining check printing, handling, and distribution.
CHECK PRINTING
With an automated accounts payable system, the process of check printing is ^ fairly straightforward. Using the selection criteria defined earlier during the pre-, payment review, an accounts payable operator prompts the system to print checks [ for those items selected. Should the printer jam and destroy a series of checks, . The operator can restart the check printing at a certain point.
It is interesting to note that with current laser printing technology, PC-based r printing systems are available that can automatically print check stock (including MICR-encoded characters). The benefit is that not only can the amounts and payee information be supplied by the accounts payable system, but now the software can be used to select the actual check formats to be printed by the laser printer. This is quite a labor-saving approach compared with manually loading and unloading printer check stock, particularly when more than one bank account is involved.
Check Layout and Remittance Detail. Figure 7-5 shows a system-prepared check with attached remittance information. Remittance information documents what items the payment covers, serving both the vendor and the accounts payable department with this information. The vendor uses this to apply the payment on his accounts receivable system. And the accounts payable department uses this as an accounting of why the check was issued. Each line of remittance information corresponds to a voucher being either partially or fully paid with that check.
A flexible accounts payable system will allow the organization to use alter-native formats for printing the check information and the remittance detail. This t can help preserve an investment in check stock that would otherwise be destroyed if the new system required a wholly new format. Be sure and avoid a pitfall that catches many others. It is rarely a good idea to spend thousands of dollars in customizing a new system's check printing format just to preserve a few hundred dollars in old check stock. So often it is better to just purchase new check stock.
The format of Figure 7-5, with the check following the remittance advice, is quite popular. Alternative formats include the remittance advice following the check and the remittance advice and check appearing side-by-side.
All of these approaches work very well when each remittance stub contains enough room for printing all the remittance detail lines. If additional detail is required, the system can void the next check and continue the remittance detail on that check's remittance stub. However, some businesses can have thousands of line items of remittance information when paying high-volume vendors. Even ' short of this extreme, it makes no sense to print a large volume of remittance detail on anything but a separate remittance advice form. This separate report , can print on standard paper or preprinted forms and retain an entire 500-line remittance advice that is not interrupted by voided checks.
Most accounts payable systems also allow a remittance message, such as the one shown in Figure 7-5, to be printed on the check stub. This can be broadcast to all vendors or just sent as a private notice to one particular vendor. The invoice entry screen in shows where this message can be entered for a single voucher.
Check Numbering. Notice that the check in Figure 7-5 shows a check number printed by the system. Allowing the system to print check numbers on each check provides some flexibility over the process of check printing and printer alignment. It also requires tight control over the unprinted check stock because, since the unprinted checks are not numbered, it is nearly impossible to tell if one is missing!
Another approach is to use checks with preprinted check numbers. This ensures absolute sequential control and accountability over all checks—printed or unprinted. Unfortunately, using preprinted check numbers requires the operator printing the checks to exactly match the next check number internally stored in the system with the next preprinted check number. Failing to exactly match the next check number can ruin the entire batch of checks.
Overall, the first approach of using system-printed check numbers on unprinted check stock may be preferred if there are good controls over the safekeeping of the check stock and over the reconciliation of bank account records. Certainly, this practice of using check stock with unprinted check numbers does not in itself constitute a weak control over cash disbursements. For example, printing checks under the custody of the accounts payable department would generally constitute good control over unprinted, unnumbered checks and would be one component of an environment that could support this.
Payment Records. For each disbursement to be created, the system generates a payment record. This is a new entity, separate from the voucher, that contains information about the payment amount, bank account, general ledger accounting, and status of each payment. The system uses this record to track payment in-formation through the payment process and afterward to retain an historical record of the payment.
The relationship between voucher records and payment records is not straightforward. Several voucher records can be combined into one payment record since the system normally pays vouchers in groups. But if a voucher is paid with recurring payments, that voucher will correspond to not one, but many payments.
The system provides inquiry into completed payment records stored in the payment history file. These history records can be accessed either through the voucher number or through the payment number (Figure 7-11). The payment number uniquely identifies each payment and is usually just a combination of the bank code and the check number.
Payment Status. Just as a voucher has various status codes, so will each payment record. Generally these status codes indicate that a payment is either
• Not yet paid.
• Paid.
• Voided for printer alignment.
• Or stopped payment.
Occasionally a system will have special variations on these. For example, the system may use one status code to identify a payment voided for remittance continuation and a different one to identify a payment voided for printer alignment.
Check Register. The check register provides a detailed audit trail of all printed checks. Sorted by check number, this report also helps answer questions about checks that have been printed and sent out. (Payment history inquiry can also provide this information.) Figure 7-6 shows a typical check register.
Voided Checks Generated by the System. Under certain circumstances, the accounts payable system must void the checks that it prints. For example, when printing checks, the system operator tests the printer's alignment by printing a few voided checks before initiating the check print run. The system will allow the operator to do this any number of times to achieve the proper alignment.
Voided checks will also be produced when remittance information overflows one particular remittance form. If check number 1034 has 24 lines of remittance detail and each check form allows only 15 lines of remittance detail, the system will void check number 1035, allowing check 1034's remittance advice to continue onto a second page.
Payment history records for voided checks may or may not be created by the system, depending on whether the checks are prenumbered. When using checks with preprinted check numbers, the system will retain history information on all voided checks just as it does for valid checks. This allows the payment history to retain a complete audit trail of each check. However, when using checks with system-printed check numbers, the system keeps no history records for voided checks.
DISTRIBUTION
Check distribution—that is, the check signing and mailing—is one of the most manually intensive processes in all of accounts payable. In spite of this heavy reliance on manual handling and processing, there are some considerations that can make this process more efficient and better controlled.
Check Signing. Checks are not valid until they are either signed by an authorized individual or are imprinted with a signature plate bearing such person's signature. Using a signature plate is preferred when processing large volumes of checks because it is more efficient. The plate fits into a check signing machine and imprints each check with the signature.
The intent of this process is not to authorize the organization's cash disbursements; rather, it is necessary for transforming a printed piece of paper into an authorization to pay someone. Signing checks is more of a perfunctory task than the review process that it was in the past. To exemplify the futility of check signing as a review process, consider that it has no role in electronic funds transfers—a procedure used to move the vast majority of funds between financial institutions. If check signing is actually the first time a responsible manager is reviewing the disbursements, then the prepayment review process is not serving its function.
Stuffing and Mailing. After the printed checks have been signed, they must be stuffed into envelopes and mailed. This is also a manual process, but there are several techniques that help make this more efficient. For example, windowed envelopes are much preferred over alternative methods such as typing an envelope or affixing a preprinted label. Using windowed envelopes saves preparation time.
In a high-volume environment, for example, one that processes several thou-sand checks per week, an automatic stuffing machine can provide a cost-effective means for inserting checks into envelopes. Desktop check stuffing machines cost as little as $8,000 to $12,000. Of course the prices increase from there, but on the low end, a machine such as this can process about 3000 checks per hour, compared with a person who works at about a tenth this rate. Of course, in environments that process lower payment volumes, clerical effort is usually sufficient for stuffing envelopes.
Under certain circumstances the post office will forgive up to several cents per item for receiving presorted checks. The accounts payable system can accommodate this by printing disbursements sorted by zip code order. But naturally, this sort order must be maintained throughout the check signing, stuffing, and handling process.
Here is another tip that can save money on postage: for each envelope that includes a nine-digit zip code, the post office will allow an additional half a cent off the postage. This, of course, translates to a system requirement to hold a nine-digit zip code as well as a procedural requirement to gather this information.
Some people hold checks that are printed and ready for mailing to slow the disbursements of funds. This creates unnecessary complications in projecting cash flow and hinders the timely accounting of cash disbursements in the general ledger. The vouchers these disbursements are paying are recorded as paid when, in fact, they are not. This is something that should not be practiced.
Next Month's topic: Bank Reconciliation
| About this article and the author: |
Doug Potter is the owner of The Newport Consulting Group a professional management consulting organization that provides clients with information systems planning, selection, and implementation services. He can be reached at dpotter@newportconsulting.com or through his Web site, http://www.newportconsulting.com.
Note: The contents of this article were excerpted from Mr. Potters book "Automated Accounting Systems and Procedures Handbook" Copyright 1991 by Douglas A. Potter, published by John Wiley & Sons, Inc. New York
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