The Emergency Purchase With No PO
A production line goes down on a Saturday. The plant manager authorizes an emergency purchase of a $75,000 replacement motor from a supplier not on the approved vendor list, with no PO issued. The motor is installed Sunday; production resumes Monday. On Tuesday the invoice arrives with no PO reference, and AP cannot match it. The plant manager has signed the invoice as 'approved.' Company policy requires POs for purchases over $10,000 and approved vendors for all purchases, with an exception process requiring CFO sign-off within 5 business days. The CFO is traveling and unreachable for 4 days. The supplier offers 2%/10 net 30 and is pressing for payment.
1. Can AP pay this invoice now? Walk through the policy and control considerations.
Read the worked answer
No - not on the current documentation. AP must not pay on the plant manager's signature alone, because:
- No PO: policy requires POs over $10,000; there is no PO to match against.
- Unapproved vendor: the supplier is not on the approved vendor list - no tax ID, banking, or compliance vetting has occurred.
- Missing exception approval: the CFO exception has not been obtained.
- Segregation of duties: the person who authorized the purchase should not be the sole approver of the payment.
However, the liability is real - the motor was delivered and installed. The correct path is a documented emergency-purchase exception: retroactive PO or exception form, vendor onboarding/verification (including bank-detail callback), and CFO approval when reachable. AP should process the paperwork now so payment can release the moment approval lands.
Do not let the urgency of the discount ($1,500) override the vendor-verification control - an unapproved vendor is exactly the fraud vector bank-detail controls exist for.
2. The CFO is unreachable for 4 days and the discount expires in 10 days. What do you do?
Read the worked answer
Sequence the work so only the final approval is gated on the CFO:
- Immediately: initiate vendor onboarding - W-9/tax ID, banking verification via independent callback, sanctions/compliance check. This can proceed without the CFO.
- Document the emergency: plant manager's written justification, the downtime cost avoided, the service record, and the signed invoice.
- Prepare the exception package with a recommendation, ready for CFO signature.
- Escalate through the delegation of authority: most policies name an alternate approver (e.g., controller, VP finance) when the CFO is unavailable. Check whether the policy has a delegation clause - if so, use it.
- Timing: the discount expires day 10; the CFO returns day 4. If onboarding and exception prep finish by day 4, approval and payment can still hit the discount window.
If approval truly cannot be obtained before day 10: pay on normal terms (net 30) rather than pay unapproved to capture $1,500. The control cost of an unapproved payment exceeds the discount.
3. What would you recommend to prevent this recurring?
Read the worked answer
Root cause: The emergency-purchase policy exists but has no operational path - no pre-approved emergency vendors, no after-hours approval mechanism, and no delegation for the CFO.
Recommendations:
- Pre-approved emergency vendor list for critical spares (motors, pumps, electrical), fully onboarded and bank-verified in advance.
- Standing emergency PO or blanket PO per critical category, so a PO exists before the breakdown.
- Delegation of authority naming an alternate approver with a dollar threshold.
- After-hours approval workflow (mobile approval) so a Saturday event doesn't wait for Tuesday.
- Post-incident review within 10 days of every emergency purchase to confirm documentation and close the exception.
Exam framing: The judgment call is not 'pay or don't pay' - it is recognizing that a valid business need collided with a control designed for planned purchases. The fix is a controlled fast path, not weakening the control.