Three-way match as an 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.


Referensi : http://simplestudies.com/three_way_match_as_internal_control.html