The nightmare of Auditing Day. The accounts payable audit (AP audits) can be the scary moment of truth for finance departments, showing whether their processes are costing them their financial future, or not. Auditors come prepared to investigate company finances with no exceptions to the rules. The payment secrets and mysteries lurking inside filing cabinets may be back to haunt the business’ financial future without mercy.
The results of an accounts payable audit report keep AP staff up at night with worries of fraud and compliance failures. Even though no one knows when Auditing Day will come, it’s important to be aware of pain points and procedures auditors keep in mind.
Take a Walk in the AP Auditor’s Shoes
Accounts payable audits are in-depth check-ups on all accounts payable processes and payments. Regular AP auditing of processes and payments can save your finance department a fortune in the future. When auditors complete audits, they have specific goals:
- Identify potential fraud or scam attempts.
- Provide data to support process improvement opportunities or additional resources.
- Verify all finances based on randomly selected invoices and payments.
- Review compliance standards and risks.
Auditors spend days understanding the business, finance department, and processes to gain a clear picture of the business structure. To provide visibility and transparency into finance processes, it’s critical for the auditor and AP department to build a healthy relationship with constant communication. Understanding the team’s structure and responsibilities make it easier to pinpoint the right staff member for questions or files. Auditors may ask questions related to reconciliation responsibilities, purchase approvals, and invoice coding. CPA Scribo compiled a list of possible accounts payable auditing questions, including some like these:
- How does the company vet new vendors?
- Who codes invoices and how?
- What controls ensure the recording of payables in the appropriate period?
Having the requested information and answers to these and other questions is conducive to a successful accounts payable audit. For ease and accountability, consider keeping a regularly updated document for the auditor to reference during the audit.
Stay in the Know About Reporting Requirements
Accounts payable departments must have visibility into the accounts payable auditing process—before, during, and after. To quickly address and rectify any AP auditing problems, finance departments must fully understand the auditor’s report; staff members should first understand the auditing strategy, then asses audit findings to create a plan based on the auditor’s recommendations. Although overwhelming, digesting detailed accounts payable audit reports and analytics is essential to improving the auditing process. Accounts payable departments should start by understanding the updated standards of auditing reporting.
The International Auditing and Assurance Standards Board (IAASB) recently released updated auditing report requirements. Accounting Today notes that the most important update is “key audit matters.”
“The international standard requires the auditor to list the areas of the audit that involve the most risk and explain the audit approach to those areas. The PCAOB standard in the U.S. includes a similar requirement for a discussion of “critical audit matters,” although that requirement has not yet taken effect.”
This standard update improves reporting, visibility, and accounts payable auditing for businesses as they uncover less than favorable findings. Other updated requirements include the auditor’s auditing term— specifically, the starting year. Any responsibilities during the AP audit must also be relayed clearly.
The IAASB is not the only organization businesses should familiarize themselves with during an audit. Generally Accepted Accounting Principles (GAAP) provide guidelines for accounting processes and accounts payable audit reports. To keep it simple, GAAP encourages companies to follow ten principles to provide accurate financial reports and visibility into payment processes. GAAP provides finance departments with the standards needed to accurately audit and report financial findings without speculation or uncertainty.
How to Avoid AP Auditing Aches and Pains
Critical Audit Matters Keep the Auditor Awake
Critical Audit Matters (CAMs) are the big elephants in the room. CAMs are the high-risk, critical financial problems the auditor finds during the internal audit. These matters are required to be relayed to the audit committees and appropriate leadership during reporting and assessment. CAMs can include suspicious payments, fraud attempts, or security risks that are a concern or challenge during the internal audit.
The truth is most accounts payable audits won’t be perfect. There may be fraud or payment problems that the auditor finds troublesome for the finance department. Discussing findings and reporting from an auditor’s perspective can lead to many questions and concerns that put the accounts payable department in jeopardy. Exposing potential fraud risks and suspicious payments open the door for questions and concerns from leadership and committees. The good thing is that most auditors can provide recommendations for recovery and future proactive measures.
Ancient AP Auditing Can Waste Dollars and Days
Internal manual AP processes may seem simple and safe for the AP staff, but they come at a cost. Combing through piles of paper and files everywhere to perform an audit can lead to manual mistakes and overlooking potential fraud attempts. When invoices, payments, and notes are not in a centralized location, much can go wrong. It’s difficult to determine whether all compliance standards have been met or verify vendors with lost files.
According to a recent CFO report, APQC findings prove that top performers complete the auditing process six times faster than low performers. The APQC reports on average businesses spend 39 cents for every $1,000 in revenue for an audit. Bottom companies are spending up to $1.40, while the top performers are spending as little as 25 cents. What’s to blame? Ancient accounts payable processes. Manually coding individual invoices or chasing down approvers for signatures can lead to many mistakes the auditor may or may not be able to catch during the audit.
Paper-Based Processes are a Pain
The sad truth is many accounts payable departments are still relying on paper-based payment processes. It’s nearly impossible for an auditor to accurately review all payments and processes during an accounts payable audit when there’s a possibility of lost files or manual mistakes.
Payment automation is the secret to a simple, successful accounts payable audit. All payments and invoices are organized in a centralized, cloud-based hub. Automated solutions provide internal controls that streamline payment processes including signatures, approvals, and fraud alerts.
Accounts payable automation sets the stage for businesses to prepare for auditing all year long.
- Payment automation streamlines workflows to provide visibility. Streamlining the payment process from invoice to payment makes it easier for the auditor to understand your business’ standard payment process. All invoices, vendor information, and payments can be found in one hub.
- Simplified electronic searching saves time. Often, auditors randomly select payments or invoices to review in-depth as a part of the auditing process. Automated accounts payable solutions allow auditors to electronically search for information without filing cabinets and piles of paper.
- There’s less stress about fraud. Most accounts payable automation solutions include fraud detectors that automatically alerts the department of any possible duplicate payments or activity that does not fall under the typical workflow.
- Vendor documentation is always accessible. If there’s ever a question about a payment method, relationship, or requisition, the auditor has all vendor payment and tax information readily available.
- Auditing anytime, and anywhere. There’s no need to prep paper files and forms. With all files and forms being available in one cloud-based hub, the AP department can grant portal access to the auditor for easy, on-the-go access. There’s less worry about miscalculations, duplicate payments, or human errors that make accounts payable auditing a pain.
The Light at the End of the Accounts Payable Audit Tunnel
Savvy finance departments are seizing the day with technology. Deloitte’s survey points out that technology is sure to play a big role in accounts payable auditing. In fact, 76% of surveyed audit committees believe that auditors should use more advanced technologies.
Auditors are being called on to do more than simply review financial documents and procedures. They’re being tasked with assessing auditing results and providing strategies to improve efficiency and visibility. To save time, finance departments are trusting automation solutions to have real-time reporting while cutting down audit time. Automated solutions take the guesswork out of spending and budget while providing a clear financial picture for the AP staff and auditor year-round.
Businesses that invest in technology are investing in the development of their employees. Trusting technology also saves time, so AP departments can focus on strategizing and analyzing processes. Less time spent on manual processes means more is available for real-time reports and documents that auditors will appreciate on Auditing Day.