Completing an internal audit
How do internal audits differ from external ones?
Internal audits are completed by the company’s own AP employees or internal audit department rather than being outsourced. They tend to encompass a company’s operations and processes as well as aiming to recover overpayments and identify risks.
How to complete an internal accounts payable audit
- Review your internal controls. If there have been changes to process or personnel, your controls may need an update.
- Gather all relevant data, including invoices and supplier statements.
- Verify supplier information. Ensure your supplier data is accurate, complete and up to date.
- Reconcile supplier statements.
- Identify and resolve transaction discrepancies.
- Review payment authorisation. Have they been properly authorised according to your policies? Have the correct people authorised the payment?
- Verify compliance to laws, regulations and company policies.
- Document and report findings.
AP audit best practices
Kick-off meeting.
Make sure everyone understands the objectives. If all staff buy into the process, you set yourself up for far less pain. Not all the data you need may be readily available, so completing this step can speed things up. With that in mind, include staff who regularly review transaction data and understand your financial processes, so they don’t feel left out in the cold, and you don’t miss anything important.
Data collection first!
Collect purchase orders, invoices, and supplier statements. Begin with the highest spend categories, as we’ve found that the majority of your spend is concentrated within the top 250 suppliers, if categorised by highest spend first. So, completing at least this number of suppliers is crucial. However, we have also found that there is a higher risk of fraud in the tail end of your suppliers – those that just hit the thresholds of being too small an amount of money to go through your regular controls. So, if you would like to find every outlier and exception that could pose a risk, we advise you not to overlook those small amounts.
To automate or not to automate?
For large master supplier files, manual auditing can be slow and error prone. However, to increase both efficiency and accuracy, this can be automated.
We recommend using purpose-built risk identification software as opposed to add-on software on an ERP. Unlike basic ERP add-ons like 3-way matching, which only perform limited checks, advanced software can analyse transactions across multiple variables. The best tools employ machine learning, pattern matching, trend analysis, and statistical methodologies to provide a thorough forensic review.
Act promptly post-audit
After cleaning up your data, it’s crucial to implement process improvements quickly to prevent future discrepancies. Regularly check for compliance, especially in the initial weeks as staff adjust to new procedures.
Conclusion.
An accounts payable audit is crucial for financial accuracy and compliance. Internal audits require thorough preparation, including data gathering and stakeholder alignment. Regular updates and prompt action on findings are essential to maintain financial integrity and prevent future discrepancies. To further your controls and overpayment prevention strategy going forward, we recommend implementing automated systems. This also has the benefit of enhancing efficiency and accuracy, making the audit process more manageable.
