Erroneous payments and failed AP audits

An industry contact recently told us about a public entity that failed a financial audit due to major issues in their accounts payable processing. The issues identified centered upon making duplicate payments, making payments inconsistent with their contracts and paying an inordinate amount of late fees. Overall, the audit found a lack of institutional control to manage their accounts payable processing.

As we was doing some research, we found dozens of articles from the past twelve months alone where public entities had failed audits due to their accounts payable processing and individuals from public and private entities alike had been charged with embezzlement. While the legal proceedings related to embezzlement would always become public knowledge, we wondered how many other such situations must exist where private entities failed accounts payable audits where the information wasn’t public knowledge. According to the Institute of Financial Operations (IFO), erroneous payments, which include duplicate payments, incorrect freight, and fraud, would typically be 0.2 to 2% of an enterprise’s total AP spend.

The keys to institutional control and successfully passing accounts payable audits center upon establishing strong policies and procedures and consistent business processes, and adhering to those policies, procedures, and processes – regardless of the degree to which automation enters into the equation. Many will establish policies and procedures while a lesser percentage will establish business processes which will be performed consistently across large enterprises – especially in geographically distributed businesses. The less automation an enterprise has in place, the less consistently processes will be followed.

By implementing a strong accounts payable automation solution, organizations can establish and manage a set of business processes to be performed in a consistent manner due to the automation solution’s requirement to adhere to those processes. That solution would help to:

• Minimize late payment fees by reducing cycle times from receipt of invoice to approval for payment
• Minimize duplicate payments by monitoring for duplicate invoices
• Reduce the potential for fraud as compared to situations where things were managed in a completely manual manner due to checks and balances in the system
• Validate compliance with agreed-upon, contract pricing

Organizations can pass accounts payable audits with flying colors by establishing strong policies and procedures and consistent business processes, and managing to those policies, procedures, and processes with strong accounts payable automation solutions.