Accounts payable audits can seem overwhelming or a complete pain. They're often assumed to take up a substantial amount of time and resources as an auditor goes through the paperwork and tracks the necessary transactions.
However, AP audits offer many benefits for your business. From discovering potential fraud to uncovering inefficiencies in your operations, an AP audit is a valuable tool for achieving greater success.
At the most basic level, an AP audit brings in an independent accountant or accounting service to go over your accounts payable documents. The auditor puts together a report that explains whether any problems were discovered, if these issues point to fraud, human error, system errors, or general inefficiencies, and makes recommendations for your business going forward.
The auditor should not have any conflict of interest with your company. For example, you would not hire an auditor from the accounting firm that does your taxes or handles your books on a day to day basis. These firms have a vested interest in remaining in your good graces and may end up overlooking fraud or other errors to maintain your business relationship.
When you bring in an independent auditor, you don't have to worry about an existing relationship getting in the way of an accurate AP audit. You get unbiased and complete information about your accounts payable practices, policies, procedures, and paperwork.
Whether an AP audit is mandatory or not depends on if your company is public or privately owned. In the United States, public companies are mandated to perform AP audits under the Sarbanes-Oxley Act, which is also known as SOX or Sarbox. Privately owned companies are not typically required to go through an external audit, but the insights delivered by this process are invaluable, so it's often worthwhile for these types of businesses as well.
The benefits of an AP audit include:
The typical AP audit follows a four-step procedure.
The auditor informs your company about their plan to look at your accounts payable records for an audit. You set up a time to meet to talk about everything that will be covered in this audit and the intended outcomes. Typically, management is involved in this meeting, along with significant stakeholders. If you have particular concerns about your accounts payable records, you would bring them up to the auditor during this meeting.
The auditor develops a plan based on the intended scope and the input they receive during the planning meeting. Some examples of the documents, policies, and procedures that the auditor will look at include the accounts payable ledger, fraud investigation reports, expense reports, company expense budgets, purchase orders, electronic payment records, bank statements, vendor lists, and purchasing policies.
Once the planning phase is complete, the auditor provides an outline of the intended AP audit process. You can make suggestions about specific areas to look at if you feel that the outline is missing out on anything major. It's best to think of the AP audit process as a collaborative experience between your organization and the auditor.
The auditor implements the plan that they developed. They will go through original documents, transactions, accounts payable standard operating procedures, financial statements, and vendor verifications to see if there are issues in your company's accounting measures.
The length of time that it takes to conduct an AP audit depends on the complexity of your company's accounting, the method that you use to store financial records, the completeness of your accounts payable documentation, and whether major errors or fraud is uncovered during the process.
Since many companies have more records than an auditor can look at on their own, a random sampling of records may be used to get a representative view of the company's overall financial and accounts payable health. If discrepancies are uncovered in the audit, the auditor will flag the records and return to them for a more thorough review.
The auditor prepares a complete report that details their findings and recommendations. This information is presented to management, as well as significant stakeholders. The auditor will answer questions about what they found and whether the company is following best accounting practices, as defined by generally accepted accounting practices. They also go over their recommendations for improving the accounts payable process, which may include changes to controls, systems, and other processes.
In the event of significant fraud or egregious errors, it's important that your company acts quickly to prevent greater financial losses. A fraud investigation may need to be launched or fast overhauls to your expense and reporting policies need to be made. There are many factors that can go into your accounts payable records not being accurate. Looking into these problems provides a long-term gain for your company.
The auditor follows up with your company in a year. They check in to see whether you have implemented the recommended improvements and if the outcome detailed in the planning step has been realized. Your company may want to conduct another AP audit at that time to determine whether you truly have made effective changes, and if there are other recommendations for improvement.
AP audits that took place before paperless offices were common could take weeks. The auditors would have to go through document store and files to find the information that they were looking for. They had to disrupt normal operations to ask stakeholders for access to paperwork to verify accounts payable invoices and otherwise double-check the data.
Today's technology offers a streamlined AP audit process that is quick, painless, and reduces disruptions in the office. When you have the right set of technology on hand, you can quickly realize the benefits of an AP audit.
One of the key problems with moving to a paperless office is the transition. Manual data entry of hard copies takes up a significant amount of resources and time. It also introduces the possibility of human error, which can be a big issue when it comes to accurately recording accounts payable paperwork.
OCR software is the solution. It's capable of scanning your invoices and other accounts payable documents and creating a digital copy. The software recognizes text-based characters, so it's able to sort the data for your company. You end up with a full library of business-ready data that's reformatting into the form that you need for your accounting and audits.
Now that you have digital copies of your accounts payable paperwork, you need a place to store it. Document management software provides you with a centralized repository of your data that is easy to access and use. You can streamline your accounts payable workflows thanks to the ability to quickly retrieve the necessary documents and to share them across teams and departments. The management team gains increased visibility into business data, which can drive your decision-making processes and provide a comprehensive view of the company's operations.
Finally, you can build compliance rules into the document management software itself. When the system maintains compliance measures, it's easier to improve adherence to the requirements throughout the organization.
Repetitive tasks take up a lot of your accounting department's time. When they have to spend their days inputting transactions, doing 3-way matching, and managing approval routing, they have less time to fix problems with the accounts payable processes as a whole or to do other valuable work.
Accounts payable automation software eliminates many manual processes and provides several other benefits to your company's accounting department. This type of system can store all accounts payable content, such as bills and invoices. You can automate the approval process to free up the accounting department's time and reduce the chances for human error to be introduced into the procedure. It's also easier to verify that there are no duplicated invoices in the system for a particular account.
If your AP automation software supports integration with other accounting software, it's easy to access data contained in those systems as well.
Accounting automation can make your AP audit experience easier and less stressful. A centralized technological system creates an instant audit trail and makes fraud easier to detect. Many companies dread mandatory AP audits, but when you have the right tools in place, you'll be looking forward to all of the benefits that it brings to your organization.
Want to learn more about how Accounting Automation can make your accounting department more efficient? Find out how DocuPhase can help you increase the audibility of your accounts payable processes by requesting a free demo.