By Mary S. Schaeffer, AP Now
This installment can serve as your checklist for an AP (Account Payable) Audit.
Regardless of how progressive or backward the accounts payable function is at any organization, the one thing they all have in common is invoices. Every single company, not-for-profit, college, university, city, state municipality, hospital and other entity has bills to pay and hence invoices to process. How these invoices are handled can make a huge difference in the:
• Efficiency of the department,
• Cost-effectiveness of the operation,
• Number of duplicate and/or erroneous payments made and lastly
• Strength of the protections against fraud.
Changing Best Practices
All of these issues have a direct impact on the profitability of the organization and hence its competitive stance in the marketplace. While strong internal controls do provide protection, best-practice companies periodically audit their invoice processing to ensure their controls are still in place and being used.
Additionally, it is a good idea to periodically review what you are doing to make sure there aren’t any practices which need to be tweaked in order to be considered best practice. Some recent examples include verifying ASAP wire transfer demands from the CEO and change of address requests from vendors.
Insights from Problem Invoices
Discrepant invoices should be tracked separately. Many managers will handle this in an Excel spreadsheet or in their AP Automation system. This can be used to monitor the invoices and make sure they are resolved in a timely manner. With very little extra effort, this spreadsheet can be used not only to track the resolution of problems but also to identify root causes of problems and fix them.
The Basic Audit
Use the quick checklist below every six months to make sure that your processes and your accounts payable staff are not unintentionally creating a control problem that ultimately could result in a serious hit to the organization’s bottom line. Identifying a problem early on and fixing it will help avert a serious disaster. The checklist shown below will help you do just that.
Quick AP Invoice Audit Checklist
- The detailed written invoice handling processes is reviewed at least once a year to ensure it meets current needs.
- A copy of the most current invoice handling processes has been given to each processor and supervisors responsible for invoices.
- A strict coding standard, which matches the standard used for entering data in the master vendor file, has been developed and shared with each processor.
- Processors are instructed to pay as close attention to the invoice number as they do to the dollar amount when entering or reviewing invoice data.
- Vendors are instructed to send invoices to one place, one time. That place should include a mailing address, a special email account for invoices only and one fax number.
- Periodically, and on a surprise basis, the manager, or other designated supervisor, will sit with each processor and make sure they are still following the written directions for handling invoices and using the coding standard.
- No processor is also setting vendors up in the master vendor file, changing information about an existing vendor, or has the ability to do so.
Mary S. Schaeffer is a nationally recognized accounts payable expert and the founder of AP Now, a company that creates business intelligence on all issues impacting the accounts payable and payment function.