The Three Way Match as Internal Control
The
purchasing and accounts payable areas represent high risks associated with
errors or asset
misappropriation. Making sure that such
errors and
misappropriations are mitigated is important and sometimes vital to the survival of a
company. One of the most known
mitigation factors is internal controls; and the three-way match in particular (i.e., there
are other controls, of course, like segregation of duties.
The
three-way match is a process of comparing information on vendor invoices
(vendor bills), company purchase orders, and receiving reports and resolving any mismatches to ensure payments are
processed for valid and authorized purchases.
From the
description above, the following documents should be compared before a payment
to a vendor (supplier) is processed:
Vendor invoice (bill)
Company purchase order
Company receiving report
There
may be variations of the three-way match:
Two-way match is when vendor invoices
(bills) are compared to company purchase orders. This variation omits the comparison of vendor
invoices and purchase
orders to company receiving reports because such receipts are not used or are
not required. This may be applicable to
service organizations that do not buy physical items, so there are no receiving
reports.
Four-way match is when vendor invoices
(bills), company purchase orders, company receiving reports, and (company) inspection
reports are compared. In this variation,
the fourth document is an inspection report for received goods.
Typically,
the three-way match is performed in the Accounts Payable department. Accounts Payable personnel receive all
required information and
conduct the three-way match before a payment is sent to a vendor. On a side note, depending on the company
size, purchase orders will likely be prepared by the Purchasing department and receiving reports will be
prepared by Warehouse personnel.
Purchase orders and
receiving reports are forwarded to the Accounts Payable department either
manually or within a
software package (see below).
The
comparison criteria will be defined by each company as business peculiarities and requirements may
vary. The Accounts Payable department
(or software) may compare the vendor name, item prices, and item quantities, among other terms.
If
information on documents matches, a vendor invoice (bill) is processed for
payment. If there are discrepancies, the
invoice is put on hold and
investigation takes place. The Accounts
Payable department may need to engage the Purchasing department or Warehouse personnel
to resolve differences. Depending on the
results of such investigation, the differences may be resolved or they may be
approved and the vendor invoice is then processed for payment. If no resolution is found, the vendor invoice
is rejected (i.e., the vendor may adjust the invoice and resubmit it).
It may
be inefficient to investigate small, insignificant differences and delay payments to vendors
(which may irritate vendors or eliminate an opportunity to take early payment
discounts). Therefore, sometimes
tolerable deviation variances are allowed by company policies. For example, a quantity difference or price
difference of 5% or less can be considered acceptable and no investigation
would be deemed necessary; the vendor invoice would be processed for payment.
Nowadays,
a lot of companies, especially mid-size to large corporations, use
sophisticated software packages (e.g., ERP) that integrate purchase order,
inventory receipt, and
accounts payable processes. Such
software will likely include the three-way match as one of the software
functions and will
perform all matching automatically. If
there are no mismatches, the system will route vendor invoices to payment. If there are differences, they will be
subjected to tolerable deviation criteria (which are usually customizable
within the software), and
those exceeding tolerable variances will require intervention from the company
personnel.
sumber: simplestudies
