Nine Common Invoice Processing Mistakes California Public Agencies Make (and How to Avoid Them)

Best Procurement Practices for California Public Agencies Series

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Why This Matters

Invoice processing errors are among the most frequent audit findings for California public agencies, including K–12 school districts, cities, counties, and special districts. These mistakes expose agencies to audit findings, disallowed costs, liability risk, and public scrutiny. The good news: nearly all are preventable with clear procedures, documentation, and discipline.

Common Invoice Processing Mistakes (and Practical Prevention)

1. Paying Beyond Authorized Amounts

Payments that exceed a purchase order (PO), contract, or board-approved authority without a formal amendment are unauthorized expenditures. Auditors routinely disallow these overages.

What to do:

- Verify remaining PO/contract balance before every payment.

- Stop processing if the invoice exceeds authorization.

- Process a formal amendment and obtain required approvals before payment.

2. Paying Invoices with Expired Insurance

Processing payments when vendor insurance has expired creates significant liability exposure and violates standard contract terms.

What to do:

- Track insurance expiration dates.

- Enforce a hard stop: no current insurance = no payment.

- Assign responsibility for insurance tracking and follow up proactively.

3. Skipping Three-Way Match

Trusting a vendor is not an internal control. Paying without verifying the PO, receiving, and invoice leads to overpayments and audit findings.What to do:- Require three-way match for every purchase, every vendor.- Ensure receiving staff physically verify quantities and condition.- Configure systems to require receiving before payment.

4. Not Tracking Phase-Level Spending

Professional services contracts often include phase or task budgets. Tracking only the total contract masks overruns.

What to do:

- Track authorized and spent amounts by phase or task.

- Update with every invoice.

- Escalate when phases approach full authorization.

5. Releasing Retention Too Early

Retention is leverage. Releasing it before verifying lien releases and closeout documents removes your ability to enforce compliance.

What to do:

- Use a retention release checklist.

- Obtain unconditional final lien releases.

- Verify all closeout documents before release.

6. Misusing System Tolerances

Accounting system tolerances are meant for immaterial rounding, not real discrepancies.

What to do:

- Set tight tolerances.

- Investigate and document all variances.

- Review override reports regularly.

7. Failing to Document Vendor Communications

Undocumented phone calls and verbal promises create audit trail gaps and disputes.

What to do:

- Document all vendor communications in writing.

- Confirm phone conversations by email.

- File communications with invoice records.

8. Missing Retention Release Deadlines

California statutes impose deadlines for releasing construction retention. Missing them can trigger penalties and claims.

What to do:

- Calendar retention deadlines upon project acceptance.

- Release uncontested amounts timely.

- Use withholds rather than delaying all retention.

9. Emergency or Sole-Source Payments Without Ratification

Emergency and sole-source procurements generally require board ratification. Paying without it creates unauthorized expenditures.

What to do:

- Document emergency or sole-source justification.

- Ensure timely board notification and ratification.

- Verify approval before processing payment.

What to Do Next: Business Office Checklist

□ Verify authorization and remaining balance before payment

□ Confirm current insurance certificates

□ Complete three-way match

□ Track phase/task spending

□ Verify retention requirements before release

□ Investigate variances

□ Document all vendor communications

□ Confirm board ratification when required

Common Pitfalls

- Assuming urgency overrides authorization

- Trusting long-term vendors without verification

- Relying on system tolerances as approval

- Waiting until project end to collect closeout documents

- Paying before board action on emergencies or sole-source work

Key Takeaways

- Invoice controls are a frontline audit defense

- Authorization, documentation, and timing matter

- Retention and insurance are risk-management tools

- Emergencies still require documentation and board action

If this article sparked ideas relevant to your work in a California public agency, you may find value in our free Purchasing & Public Works Group, where professionals share practical experiences and lessons learned.Learn more: https://www.colbitech.com/ppwg

This material is provided for general informational and educational purposes only. It is not legal advice. Public agencies should consult their legal counsel, auditors, or other professional advisors to ensure compliance with applicable laws, regulations, and local policies.