Organizations make many payouts to the vendors, frequently. For any payment transactions that occur, a payment record is maintained in detail. Accounts payable audit helps to understand the financial health of the organization. Well-Managed audit trails are vital indicators of proper internal business controls. Preparing for an accounts payable audit can be a daunting task. You must have detailed information about your financial transactions and should have all the documents related to it.
However, due to the manual process, a small data mismatch or loss of information can lead to financial chaos. It is always recommended to use the accounts payable automation software to avoid manual errors. The tool not only helps in automating the repetitive data-entry but also stores a digital record of every transaction that involves during the accounts payable process.
In this blog, we are going to discuss the five essential steps helping you to maintain an audit trail and be audit-ready using accounts payable automation software.
Why are accounts payable audit important?
An AP audit is a systematic way to examine your organization’s accounts payable records. The main objective of the audit is to review the financial records, check for its accuracy, keep a check on internal controls, and identify any potential risk or fraud.
CFOs consider AP audit as a must and should process in their organization. AP audit will help to uncover any financial mismanagement, frauds, risks, etc. A well-prepared audit will give a complete report on the financials of the organization.
What are the processes involved in AP audit?
Generally, an AP audit consists of the following process.
►Planning: This is the first stage in the accounts payable audit process. Finance teams involve multiple stakeholders to discuss the scope and objectives of the evaluation. This provides them with an outline about the audit and also discuss any potential frauds or risks. Based on it, the finance team come up with other subsequent plans. In this phase, you’ll have to provide documents like invoices, purchase orders, vendor details, and other transactional information. In some cases, you may also have to provide additional materials like internal accounting procedures manual, and your most recent fiscal year budget.
►Fieldwork: This is the phase where the auditors go through every document thoroughly. Auditors, along with the finance teams, spend days or sometimes even weeks during the auditing process before it gets compiled into a report summarizing all the findings and evaluation of those findings.
►Reporting: Once the above phase completes, the key findings gets aggregated into a report. This comprehensive report consists of all the details, including the financial accuracy of the organizations, areas of improvements, thereby giving CFOs a much better way to control.
►Follow-ups: The audit process isn’t over yet. The finance team will still have to review the same report the following year to see the progress and check whether the desired results are achieved or not.
Detecting Fraud In AP Audit
In a manual accounts payable process, paper-based documents are more vulnerable to get tampered. Finance team might encounter tampered invoices and end up paying more than required. It is better to maintain a book of records and mark all the transactions there. When an invoice is received, you must match it against the purchase order released and validate whether you’ve received an invoice for the precise purchase order. Also, take a photocopy of the invoice and file it so that in case any tampering happens, another copy can be used for cross verification.
The other type of fraud is of duplicate payments. Here, the fraudulent invoices are created, and when the finance team makes the payment without verification, the fraudsters get the benefit out of this. To avoid this kind of fraud, the finance team has to enter the payment transaction details to the accounting software as soon as the payment process is complete.
Finance departments are more vulnerable to frauds as they process a high volume of transactions.
An automated accounts payable automation software is the best tool that helps to detect AP fraud. It ensures a seamless way to audit accounts payable and provide you with comprehensive report.
Paperless Records – Instead of storing paper-based records, the AP automation can store all the documents digitally and can be retrieved at any instant using the smart search feature. This reduces the chance of tampering the records, loss of information, paper misplacements, and many such things. You can provide restricted access according to the user roles, which makes it even more secure.
Automated Three-way matching – You can identify the fraudulent invoices by automating the matching process. With an AP automation tool, it automatically matches the invoices received against the purchase order and ensures that no duplicate invoices records in the system.
Business payment automation – Any payment is processed, a transaction ID gets generated. It automatically captures and gets mapped against the invoice so that three-way matching happens in real-time and payment trail gets created which is used to track at any instant.
Automated Accounting – Once the vendor payment is processed, it has gets accounted in the accounting software. Enter General Ledger code based on different criteria like vendor, amount, invoice category, credit note, etc. This is a simple process but error-prone when done manually. If your organization processes large invoices, there will be thousands of numbers to code, making it highly vulnerable to mistakes. The workflow automation software can auto-code invoices to the proper accounts, following set rules.
Which is the best software to conduct Accounts Payable audit?
Accounts Payable auditing helps you to keep a tab on your company’s financial health. With the comprehensive reports, you can measure and analyze the volume of transaction that happens and also avert any potential risks that poses.
An accounts payable automation tool like Finly can help your finance team to be audit- ready and to reduce business costs. The machine-learning powered finance automation software allows businesses by gaining complete control & visibility in streamlining and automating their accounts payable. The robust software creates audit trails that allow finance teams to get complete visibility on each of the payouts. With the digital footprint, auditors can get a comprehensive understanding of any payment that has occurred along with the timeline.