Audits are a common practice in most businesses. Those audits typically include the accounts payable function or process, which involves accounting nearly all of a company's payments outside of payroll.
In large corporations, internal accounts payable processes are carried out by an accounts payable department, while in a medium-sized company they are carried out by a small staff or bookkeeper. In a small or solo business, the accounts payable processes can be done by the owner.
To safeguard your business' cash and assets, the accounts payable process should have internal controls that ensure all valid supplier and vendor invoices are properly recorded and promptly paid by the business, says Harold Averkamp, a university accounting instructor, accountant, and consultant for more than 25 years. By doing that you will “pay only the company's bills and invoices that are legitimate and accurate.”
Accounts payable internal controls include safeguards to ensure what the company had ordered, what the company has received, and the proper unit costs, calculations, totals, etc. have been accounted for accurately before a vendor's invoice is entered into the accounting records and scheduled for payment. All of that is to prevent paying a fraudulent or inaccurate invoice, or paying a vendor invoice twice.
Checklist for Internal Accounts Payable Audits
Businesses that do not adhere to the four strategies listed below are often doomed to fail the business audit of accounts payables at first glance:
1. The Best Practices
Not every standard in the "Best Practices" manual is going to fit the model after a year or more. Sometimes the manual needs to be changed every so often to fit the current state of a company.
The profit margin has an impact on everything, including audits. That is why it’s recommended to check any "Best Practices" portion of your business model every so often. That way you know the standards are up to date and upheld. The standards should be coherent with the here and now.
Get rid of anything in that manual that has no place in the current financial climate. Also tweak your wire transfers department as necessary. Make sure that the right address for every client and associate is accurate and used correctly.
Sometimes an audit fails because the wrong IP address is included in the manual. Businesses oftentimes have to change vendors because the information is no longer accurate or needed. Proper audits catch everything, including accuracy with the information and data on record.
2. The Problem Child
Do you have an Excel spreadsheet that tracks the current invoices, especially the problem invoices? It’s recommended that you have it. The reason is that those problem invoices need to be tracked in a separate account. Independent auditors do not take too kindly companies that rope them all together.
Many experts also advice that you should be tracking the problem invoices separately. Find out what is causing the issue and fix it. The audits want to see you take a proactive approach to the situation. Regulators and auditors will ask you why the problem has not been taken care of.
This is an important factor in your accounts payable internal control checklist as it counts against the bottom line. Audits look very closely at the profit-loss statements in a company. If it is not taken care of in an in-depth and methodical manner, it could impact negatively on the accounts payable department.
3. The Invoice Audit
A systematic audit of invoices and your invoicing procedure is an integral component of a successful business. A few suggestions for the invoice audit in the accounts payable department are as follows:
- Review the invoicing procedure and established standards once a year to determine if the current procedures are effective and followed.
- The invoice reference information and coding files need to mirror the master copy and be shared with the appropriate parties.
- No un-authorized personnel should have access to the vendor files. They should not be allowed to make changes unless officially authorized too.
By ensuring invoicing is secure in your business, you’ll be able to make your payments due correctly and on time, as well as protect the data and privacy of your clients, partners and business associates.
4. The Full Accounts Payable Cycle
Finally, it is also recommended that you not only create a basic accounts payable checklist for your business, but also review the full accounts payable cycle regularly.
The full cycle of accounts payable entails matching documents, approving invoices, issuing checks and recording payments, says Madison Garcia, a business writer who received her Master of Science in accountancy from San Diego State University. “It consists of the full range of necessary accounting activities required to complete a purchase once the order has been placed and the product or service received.”
Make sure your acounts payable internal controls are also watertight and adhere to set best practices and procedures. Everyone in your business, for example, should use an order book to purchase anything, and the supplier should always be asked to quote the order number on their invoice.
There could be a staff member making unwitting mistakes without your knowledge. In such a case, reviewing the full accounts payable cycle will help identify any systems or staff contributing to issues or problems in accounting and educate them on how best to improve and make things better.