Every organization should keep its operational spend guarded with strong AP controls. Most AP experts are familiar with the high volume of invoices and checks that flow through their Accounts Payable department. Within that framework, it is not inconceivable to imagine the extremely high potential for loss and displacement of assets. This loss not only creates a completeness issue with regards to understanding your true expenses but also creates the appearance of control deficiencies, potentially impacting your reputation. Accounts payable activities impact not only your internal stakeholders but also third-party vendors and ultimately clientele. Therefore, we emphasize the need for companies of all sizes to implement and maintain robust AP controls.
The risks of material misstatements increase exponentially without the presence of controls and could present several issues. For instance, financial loss caused by the duplication of invoice entries. Even with an extensive AP module, duplicate entries can slip through the cracks. Over the years, we’ve worked with a variety of great post-payment audit tools that can assist with catching duplicate invoice entries after they’ve been paid. These tools provide the option to cancel or recover funds that would otherwise be lost. Another classic example of an AP control weakness is the absence of sufficient invoice and check review, highlighting the importance of an audit function within the AP process. Control deficiencies can also create the environment for employees to take advantage and/or defraud the business by writing checks to themselves, shell companies or collude with vendors. Finally, let’s underscore the likelihood of untidy financial reporting and/or Sarbanes Oxley (SOX) violations if your business is publicly held.
Companies tend to be acutely focused on their P&L while short-sited with regards to mitigating the risk of fraud and capital loss. The following steps can strengthen internal AP controls and reduce exposure to errors and/or fraud:
- Implement an automated A/P system (ERP, etc.)
- Create a solid invoice entry and approval process
- Designated tasks per employee
- Cross-trained employees for coverage (i.e., Fraud can be uncovered when an employee goes on vacation)
- Create a vetting process for new vendors
- Create an internal audit group guided towards reviewing your AP
- Seek external AP audit and/or recovery services
The urgency exists for businesses to adopt a well-thought-out AP process that flows with the appropriate checks and balances to protect their operational spend. Once these checks and balances are in place, there will see an increase in AP productivity and a decrease in processing discrepancies across the board.