Accounts Payable Internal Audit Checklist – Everything you need to know

Audits in general can seem a little scary. But when you perform audits, particularly on your accounts payable (AP) operations, including AP automation, you can catch fraud, mistakes, bottlenecks, and more before they even occur – saving your company precious time and money. AP auditing isn’t only a means to ensure compliance; it’s a way to streamline your operations, harnessing the power of AP automation, and increase efficiency.

AP Audits

What is an accounts payable audit?

An AP audit is a deep dive into an organisation’s accounts payable (AP) records. Through an AP audit, all transactions and associated document are checked for compliance. You can also use this as an opportunity to improve business operations.

Why AP internal controls matter.

For similar reasons that define an AP audit, AP internal controls matter greatly to a business. Controls simply make sure that all transactions and associated documents are within compliance and that your finance processes are operating as efficiently as possible.

How often should you conduct an internal accounts payable audit?

Though there’s no rule on how often a business should perform an AP audit, it’s wise to conduct one during year-end reporting or if your company has undergone changes in, for instance, financial software.

Conducting a successful accounts payable internal audit

Generally, audit procedures will vary depending on your company, but they will all have a few things in common – they’re aiming to bring transparency, compliance, and completeness of vision to accounts payable.

In general, an accounts payable audit encompasses 4 steps:

1. Planning

The first step in an AP audit is meet with all relevant stakeholders to discuss and decide upon what sort of outcomes everyone requires from the audit. This will then become the outline of topics that will drive the audit.

2. The audit

Using this information, your auditors are ready to get to work. They’ll perform tasks such as reviewing AP procedures, comparing budgets, reviewing financial documents, perform vendor verifications, and check for any signs of fraud.

3. Audit reporting

Once everything has been reviewed, an audit report is developed and shared among the stakeholders. These results can be examined to then suggest changes to current operations and locate areas that may be falling short.

4. Follow-up/Audit review

Finally, during the next accounts payable audit, it’s important to compare the results from the prior audit to changes made in the AP department. Hopefully, your company will have made proper adjustments and will come out a leg ahead in the new year’s audit.

Accounts payable internal checklist

1. Obligation to Pay Controls

Obligation to Pay controls are the main defense against AP fraud and mistakes. These important controls make sure that the correct people are paid the correct amount.

This section is composed of 4 controls:

  • PO approval
  • Invoice approval
  • Three-way matching
  • Duplicate payment search

2. Payment Controls

AP Payment is without a doubt the most fraud-prone area of any AP process. Because of this, most AP controls fall under this section. There are a lot of factors to consider in this step, including who makes the payments, how those payments are processed, and determining if further signoffs are needed.

If you’re doing this manually, you’ll need to focus on finding fraud in the stacks of paper documents. But if you’ve automated your accounts payable, it becomes substantially easier to avoid invoice fraud as there are safeguards built into your automated solution.

3.Fraud Prevention Controls

It’s no easy feat to catch accounts payable invoice fraud before it occurs and even more difficult to regain the money after it’s been paid. But Automated AP solutions includes extensive verification protocols to ensure that all invoices are correct, making it virtually impossible to pay duplicate or fake invoice. Everything becomes audited, including:

  • Receipt, contract, and PO matching
  • Vendor name verification
  • Vendor address verification
  • Checking for duplicate invoices.

How to make your AP audit easier?

The easiest way to make AP audits easier is by automating your AP processes with an accounts payable automation solution. By automating, you’ll avoid the many challenges of manual AP and gain faster, cheaper, and simpler auditing due to your financial records being stored in a central location. By eliminating paper and adopting AP automation, you also avoid misplaced, lost, and disorganised transactional information.

How to detect fraud in an AP Audit?

Implementing an automated electronic invoicing (e-invoicing) solution is the best way to tackle fraud. Automated procedures create an instant audit trail of your AP documents that make it easier to search for common indicators of fraud.

Most importantly, automating empowers you to stay on top of your AP game and pursue strategic endeavors to boost your company’s financial future.

Accounts Payable Internal Control Checklist Summary

With the steady rise of invoice and AP fraud, it’s vital to have internal controls in check. And the easiest way to do this is by implementing an AP Automation solution. Not only will your company save time and money, but it will also become equipped with a full suite of internal controls to easily perform audits, eliminate fraud, and gain insight into your payments.

Should you hire an external audit company?

You might be asking yourself, “Should we hire an external audit company to perform our accounts payable internal audit?” And the answer is, “Maybe - if you aren’t as automated in Accounts Payable as you could be.” If you find yourself worrying about your accounts payable process, chances are when you perform your audit you will find that the answer is “more automation.” In these circumstances there might be a need for an external audit, but at the end of the day the easiest and most beneficial way to ensure AP compliance is by automating.

At Basware, we offer as much automation as possible for your processes. With 100% touchless invoice processing and 100% of your company’s spend under control due to automation, there’s really no need for an audit as you always have total transparency of your accounts payable processes.

What are the primary objectives in the audit of accounts payable?

Auditing accounts payable is an extremely important part for any business. Primary objectives of this process include detecting potential fraud, ensuring compliant financial procedures, and locating areas for improvement that could impact the greater organisation in a positive way.