Efficient businesses pay their vendors, suppliers, utility companies, contractors, and others who provide services or goods in a timely manner. Not giving proper attention to the accounts payable process can result in tense vendor relationships and really obstruct business operations and plans.
As a business owner, you need to ensure that your company has a reliable and efficient accounts payable process.
But how can you do that? By having regular accounts payable (AP) audits performed by a professional.
Why does your business need AP audits?
The accounts payable process at most businesses is subject to certain risks that, if not mitigated, can drain earnings and put company success in jeopardy. Fraud, including invoice tampering, has traditionally been one of the biggest of these risks. The Association of Certified Fraud Examiners reports that businesses, on average, lose about 5 percent of their annual revenue to fraud.
Accounting inaccuracy is another AP risk that can harm businesses. When a company repeatedly makes errors like duplicate payments or failing to record liabilities, the financial health of the business will suffer.
How can you prevent these potential issues? By making it a priority to have a professional accounts payable audit, performed either by your in-house accounting staff or an external accountant. In addition to identifying individual accounting issues, an AP audit can pinpoint inefficiencies in company processes and provide a plan for fixing them.
What does an AP audit look like?
There are several steps to an AP audit, all of which are important to the process.
1. Planning
The first step to a successful AP audit is to plan a strategy. You should bring your management team together to discuss the outcomes you hope to realize and any questions that need to be answered.
- Are the company’s current AP processes efficient?
- Could they be improved/updated by procedural changes or new technology?
- Are the right people involved in each stage of the AP process (budgeting, purchasing, paying, recording)?
- Are there particular issues of fraud that need to be addressed?
- What is the source of any significant or repetitive errors that are occurring?
Your accountant should prepare the necessary documents for carrying out the audit at this time.
2. Fieldwork
Once a plan is in place, the necessary fieldwork can begin. At this stage of the audit, your accountant will undertake a number of activities, including:
- Comparing purchase orders, invoices, bank records, and other documentation against the actual payables
- Analyzing the AP ledger to make sure vendor invoices and outstanding balances match what’s recorded in the ledger
- Looking for unrecorded liabilities and checking for potentially fraudulent activity that needs to be investigated
- Verifying financial statements and ensuring that payables are being properly recorded
- Comparing current year (or quarter) payables to previous year (or quarter) payables and noting any inconsistencies that require review
- Studying the AP functions, and reviewing or creating standard operating procedures that formalize the process
- Investigating any duplication of duties that might create opportunities for errors to occur
“Leave no stone unturned” is an excellent rule of thumb for this fieldwork phase.
3. Reporting
With the fieldwork completed, your accountant will write a report outlining the relevant findings, including whether or not any fraud was detected, noting any deficiencies in the processes, and outlining what steps you and your leadership team can take to remedy any issues. The report may also include suggestions for ensuring a clear separation of duties between accounting personnel.
Hopefully, the audit report will verify that your AP processes are in compliance with generally accepted accounting principles (GAAP). If not, it should outline what needs to be done to bring them into quickly compliance.
4. Follow-up
You should have AP audits conducted periodically, preferably annually, to ensure you’re making progress in improving your AP processes and that your fraud prevention efforts are working effectively.
What can I do, as owner, to streamline the audit process?
You might consider implementing AP automation software and electronic invoicing in your company. Automating these tasks can speed up and optimize your day-to-day accounts payable processes and your annual audits.
You may also evaluate the potential benefits of outsourcing your AP to an accounting firm, especially to a firm that can offer automation as part of their service. An intelligent, cloud-based payments platform, such as the one offered by BILL, can create a number of specific efficiencies in the AP process.
BILL makes the process of receiving, paying, and recording invoices easy. Bills can be reviewed and approved from any device, with a click or a tap. Once a payment is made, it’s automatically synced over to your company’s accounting software. You save time on duplicate data entry, reduce the chance of manual entry errors, and always have up-to-date books. BILL also offers custom user roles (Administrator, Accountant, Clerk, Approver, Payer) to ensure a clear separation of duties and maximize the efficiency of your staff.
Visit BILL for more information on how your company can automate and effectively control its AP process.