CloudX Blog

6 Ways To Improve Accounts Payable Audit Readiness

Posted by Chris Cosgrove

Jul 11, 2019 8:05:00 AM

Audit Readiness in Accounts Payable is Paramount

Let’s face it...some things you have to go through that are just...the worst.

It’s part of life.  Anyone who has ever taken a kid with a sore throat to the doctor’s office for a throat culture knows the pain that awaits all in the room.  Similarly, accounts payable audits can cause the most resolute of people to experience panic attacks. Now obviously we jest, but accounts payable audits are no joke.  So it’s our goal today to explore the most common types of AP audits, some common challenges that most accounts payable organizations face when preparing for and undergoing them, and ways you can improve your readiness for them as you build the strength of your AP department.  Let’s dive in.


The most common types of Accounts Payable audits:


When it comes to audits there are quite a few different types of audits that can be invoked in most business though their scope, with respect to accounts payable, generally narrows in focus to a few types.  If you want a more exhaustive list of the full gamut of audits, check this article out.


Internally, companies can and should choose to run periodic audits to review departmental performance, controls, and accuracy in journaling expenses and getting vendors paid.  These can range from fairly informal exercises to more rigorous audit practices depending on the size and complexity of the company undertaking it. Generally speaking, the more robust the company (from a revenue perspective) the higher the likelihood there will be a more substantial audit process that unfolds.


Externally, there are several types of audits that can occur that we typically see.  


Financial Audits


Often businesses will contract their external accounting firms to run financial audits which essentially are health-checks on the performance of the business in the light of looking at the books.  These can be somewhat comprehensive and cover all areas of the business including accounts payable, accounts receivable and the balance sheet as a whole. Often, the way this manifests for the accounts payable department is that external auditors will work directly with departmental leadership to analyze specific or randomly chosen accounts for review.  In the case of accounts payable it’s common to see auditors home in on a specific vendor account and then select the invoices in question for a period of time to see how certain diagnostics are functioning, namely, how and why was an invoice approved (or not) and paid (or short paid or not paid). Deeper questions can move into the requisitioning process behind said invoice or a look into supporting documentation around the decision to approve (or reject) the payable.  This can easily get into tangential areas like the purchase order, the receiver document that supports the invoice, and the general ledger coding effort and / or the departmental approver(s) that are involved in approving the invoice decision from an authority standpoint.


Many different things can be audited by looking at the document trail, but in essence an auditor is looking to establish and verify the logic of why a decision was rendered and were sound financial controls in place when the invoice was approved and can the decision be backed up with documentation so that it wasn’t solely a subjective approval stuff!


Tax Audits

For starters, many businesses undergo a sales (or sales and use) tax audit periodically.  This is essentially an audit to ensure that the correct amount of sales tax funds are being assessed to the company’s client base though this is more generally centered on the accounts receivable side of the business than accounts payable.  Nonetheless, tax audits are essentially an accounting and reconciliation of the tax collection responsibilities of the business. In other words, Caesar wants to make sure he’s getting his slice of the pie and that tax is being collected and rendered to Caesar in accordance with the tax withholdings of the state in which the business being audited is operating in.  Obviously another component of tax audits is that the business can be assessed for it’s total tax obligation in the light of expenses vs. revenues. AP invoices therefore can directly be associated with the expense obligations of a business and thus relate back to the overall compliance with tax guidelines.

In either of these scenarios, whether a Financial or a Tax Audit, the accounts payable organization is on the hook for being able to produce troves of documentation around the payables themselves and the decision tree in how a payable was addressed, and equally importantly why.


Download The Four Keys To Maximizing The Strategic Value of Accounts Payable


Common Challenges Businesses Face During Accounts Payable Audits


The sticky part about AP audits is that they involve time and effort.  The other thing that is worth noting is that audits often tie up key personnel resources from focusing on their primary responsibilities as it relates to AP.  Where most AP managers and employees are content to work on processing invoices, whether through an automated system or manually, having to be pulled off focus into supporting the auditors.  This generally involves pulling paid invoices and any supporting documentation that was involved in the procurement, matching, or approval processes. We spoke to this a little earlier in the brief, but ultimately an auditor needs to assess the document chain for authenticity, accuracy, and adherence to controls.  This isn’t too difficult if you’ve been wise enough to pursue accounts payable automation and you have a shiny new electronic document management system as a core piece of infrastructure within your process. However, woe be unto you if you’re processing invoices manually! This means finding archived files and making copies and providing those to the auditors...essentially functioning as their shadow and getting them everything they need, which definitely gets in the way of doing your 9-5.

Other challenges that stem from accounts payable audits is the grim reality of what the audit uncovers.


In most cases there is typically an adhered to set of controls or procedures that have been followed to come to a decision on approving and coding an invoice or expense item.  However, if you happen to be undergoing an audit and come up short with respect to the thought process or the controls that the audit trail reveals you could be in for some sobering if not painful conversations about how that happened.  Then again, that’s essentially the function of the auditor, to uncover in a somewhat macabre fashion an autopsy of the transaction. So, one must ask rather than find out the hard way about what’s wrong with a certain transaction, what one can do to avoid the instance of confusion or lack of controls?

We would suggest that the best way to gain mastery over the process so as to avoid issues within the accounts payable audit cycle would be the following:


-implement an accounts payable automation system

-digitize invoices and related accounts payable documents (credit memos / statements / vouchers / check requests / expenses / etc.) at the process outset

-immediately timestamp the digitization of the record within a digital audit trail

-create workflows and validation processes that enforce organizational controls (matching / variance thresholds / exception routing / invoice escalation / etc)

-provide a catch all approver to review / adjudicate the process as necessary

-integrate your payment methodologies as a component of the invoice processing flow

While this is an easy list to draft in a blog format, the reality of bringing this vision to bear is obviously going to be a broader labor of love...nonetheless it’s something that will provide immediate and ongoing practical and strategic benefits to your business.


One of the other key terms you’re likely to hear when any discourse about an accounts payable audit comes to the fore is the definition of standard operating procedures.  Obviously, absents SOPs you’ll have processes that can derail or flex at the whim of an individual actor’s discretion, which is nonideal. So, with that said if you haven’t taken the time to establish your SOPs for your business, it would be a good idea to draft the rules and processes that you want to govern the process.  In many cases the logical way to do this is by creating an org chart with leadership roles / functions and roll-ups. Further, establishing clear process flows and the juncture points where there may need to be triage for invoices and expenses that are less clear would be key.  


This kind of foresight paves the way for a smoother and more efficient process and one that will invariably have less issues and significant events when it comes time for your AP audit.


One of the positive aspects of accounts payable audits is that they can be used to examine scenarios where the potential for fraud exists.  Unfortunately it’s been proven time and again that where there are gaps and lack of controls over financial processes that inevitably some maleficent stakeholder in a process will find a means by which they can exploit AP’s ability to process payments to skim for themselves off the top.  One need not search too far to find many scenarios of improper financial dealings and embezzlement and it’s a bit of a shame that it still occurs, but it’s really just reflective of the fallen state of the human heart and a process that doesn’t have tight controls enacted.


AP audits can be used to isolate sketchy payment approval scenarios or recurring patterns of approval or even payments within a tight threshold of an approvers maximum amount.  Often times would be ne’er do wells would grow in their hubris to be able to exploit their schemes with impunity due to lack of visibility into a process or their perceived ability to skirt controls.  In some cases they will pass invoices through just under the maximum capacity that an approver can affirm and in so doing stay under the radar of secondary or tertiary approvers and in so doing not create any suspicion about their actions.  Typically this kind of scheme involves the complicity of an external 3rd party such as one who could receive and cash said checks. Audits can be used to identify recurring type approvals like this and equally importantly be used as a measure to make sure there is a firm grip on approved vendors for most businesses.  Also, having secondary levels of control and oversight to all things financial is a key deterrent to such power-vacuums and creates transparency which typically leads upward.


So, with that said, accounts payable audits are not necessarily the most fun or earth-shattering activity under the sun.  However, much like an annual physical they are things that are proactive and typically helpful to the long term health of the patient or in this case business.  If you’re actively looking for ways to improve how audits go in your business reference the points above or check out our other posts on accounts payable automation with respect to visibility to get deeper insight into how much of a difference an electronic and optimized process can make for you.

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Topics: accounts payable audit

Have a heart for your loved ones in the Accounts Payable Process

Posted by Chris Cosgrove

Feb 14, 2013 10:29:00 AM

Have a heart for those involved in the Accounts Payable process!


Happy Valentine's Day to all you in the Accounts Payable world!


Valentine’s day is recognized the world over as a special occasion in the year when lovers recognize and direct their affection towards each other through a variety of sentimental means.  Gift-giving, whether it is confectionery, floral, or greeting cards, is the modus operandi for most people that participate in celebrating this romantic day.  So in the context of shedding some appreciation on love towards all of our Accounts Payable friends who routinely save the day (Month/Quarter/& Year for that matter!), we at CloudX thought it would be apropos to send a little Valentine’s love your way.

In our opinion, the best Valentine’s gifts (chocolate aside) for most AP professionals would be the gift of peace of mind.  Seriously, many AP Directors and Managers are beyond stressed with the workload and daily burdens of the AP process and function.  Managing staff, providing reporting, ensuring accurate invoice entry, monitoring KPI’s, preventing fraud, ensuring compliance standards are met, satisfying vendors, improving processes, closing the books, and a litany of other tasks all go into the equation when balancing work/life standards. 


With that said, here’s a quick hit list for any last minute Valentine’s day shoppers looking to give that unforgettable, life changing gift to their AP sweethearts.


1.Accounts Payable Software – To use a broad term loosely, we think that this should encompass the ability to convert an invoice to data (from any native format – paper/pdf/tiff/edi/other) from the outset of the process, then validate the invoice data against ERP data (Vendor Master File/PO Tables/Business Rules – Approval Workflows), automate the routing and processing, and filter out items for exception handling.  Get the mundane stuff that sucks up time and energy out of the way, and isolate the stuff that needs attention and provide visibility to that…pronto!

2. Vendor Portal Technology – Another time consuming and everyday issue that AP leaders face is satisfying supplier inquiries about the status of payment on any given invoice.  At times, AP managers and supervisors are required to get in the midst of vendor disputes to affect positive resolution for both parties.  Unfortunately, this is a time consuming process for both suppliers A/R representatives, as well as AP staff.  With that said, by leveraging Vendor Portal technology, you can facilitate dynamic supplier invoice submission. This way they don’t have to print and mail invoices anymore…saving them time and money.  Also, in conjunction with the technology stack listed under point 1, they can have access to viewing where their invoices are by status…ie. have the been ‘Received’, ‘In Approval’, ‘Approved’, ‘Posted’, ‘Disputed’, etc, and thereby you can cut down on that inbound call volume by promoting a self-serve approach.

3. Dynamic Dashboards – By using the invoice data captured at the process outset with AP software, you can splice and dice the data to your heart’s content and use the data to make your life easier.  With it, you can speed the month/year-end accrual process, by associating invoices with GL data automatically, and make your outstanding spend efficient to retrieve.  In manual environments, this involves tracking down approvers and hodge-podging a forecast.  Also, you can use dashboards to identify chokepoints to processing invoices (especially Non-PO) and to identify early payment discount opportunities (by capturing invoices with terms and prioritizing them chronologically).

4.  Audit Utilities – The Accounts Payable audit is another one of the fun gyrations that AP leaders have to go through on an annual or biannual basis.  Generally speaking, it’s not difficult, but more cumbersome, especially if you’re managing your invoices outside of an electronic AP system.  Paper takes more time to locate records and provide them to auditors, whereas managing invoices and correlating documents in an electronic database format tends to be much faster, promoting a better audit experience and reducing audit cycle times (and your audit bill!).


We know this is a little bit whimsical today, but in the spirit of Valentine’s day, we wanted to give anyone who was on the fence about what to buy their loved one another great option.  I mean who really wants more chocolate, champagne, roses, a dinner out, jewelry, or trinket, when you can have awesome technology like this? ;-)


To learn more about Accounts Payable best practices or whether AP Automation, e-Invoicing, or AP services  (via document process outsourcing) are right for you, check out our eBook below!

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Topics: Accounts Payable Process, AP Process, accounts payable software, document process outsourcing, Invoice Processing, accounts payable best practices, ap software, ap services, accounts payable audit, e-invoicing

Using Accounts Payable Software & AP Services To Improve Visibility

Posted by Chris Cosgrove

Feb 9, 2013 1:13:00 PM


Accounts Payable Process Automation gives you X-Ray vision into all your AP data!

AP Automation gives X-Ray vision to Finance Leaders!


Finance Executives, Shared Services leaders, and AP Managers all pursue Accounts Payable Automation initiatives for a host of different reasons.  Most of these folks know from witnessing inefficient processes that there are ways and means to effectively transform the process especially in light of recent technology advances.  As we’ve discussed in this post, there are compelling gains to be had across three primary areas:

Financial – Reduction of Invoice Processing Costs, Elimination of Late Fees, Increase in Early Payment Discount Capture

Operational – Elimination of Data Entry, Elimination of Manual Validation Steps, Increase in Invoice Turnaround Times, Elimination of Paper in the Process

Strategic – Increase in Process Visibility, Elimination of Process Chokepoints, Increase in FTE Productivity, Promotion of Compliance Standards, Promotion of Green Initiatives (Environmental…not money…that’s already covered!)


Accounts Payable software/services to drive automation creates intangible value too!


For starters, by getting out from under paper, you blaze a trail to transforming the fundamental role of AP from being a data entry shop to being a strategic asset to the business.  With AP automation, and visibility, as we’ll discuss in a second, the role of being a strategic partner becomes one of optimizing business outcomes.  In AP land that means chasing down, promoting, and capturing early payment discounts and providing superior customer service (Internal & External).

In addition to that, just making the Approval & Routing process for invoices electronic is a stress relief for all involved parties.  By going with automated workflow, you lighten the load for Approvers, GL Coders, and AP staff who are constantly chasing invoices in a manual environment.   From an AP management perspective, this will help you isolate and remedy process chokepoints and invoice exceptions that require intervention.


Your vendors will thank you too!


Visibility has implications for your vendor community too.  Through the use of vendor portal technology, you can empower vendors to self serve and check on the statuses of their submitted invoices.  (Sidenote – this is kind of like the checkouts in your local supermarket…have you noticed a trend over the last 3 or 4 years with all the self checkout lanes?  If it’s been largely accepted there, don’t you think your vendors might benefit from the same philosophy?  Just sayin’…)  People like to have control over their stuff…and vendors are not different.  You get the added benefit of cutting down calls into your AP staff that takes them off task by providing visibility into invoice information through automation of the Accounts Payable process.


Your CFO might just be your new BFF!


For Finance & Treasury executives, visibility into AP pipeline (and of course drill down to individual invoices) data ushers in new levels of accuracy and reporting not previously possible.  This can facilitate enhanced cash flow management and truly optimize the use of working capital.  For many organizations (healthcare in particular), capturing early payment discounts is difficult not just because of a lack of visibility, but also because of tight cashflow reasons.  With visibility to invoice data you can selectively choose which invoices can be accelerated for EPD capture within the constraints that present cash positions will allow for better spend management.

Visibility also has impacts upon invoice search and retrieval.  When invoices are indexed and classified within an AP system, the time spent searching for and finding them is drastically cut down compared to manual, paper laden environments.  This can help any internal personnel that need access to AP data, and also can help shorten Accounts Payable audit cycle times as producing the required records is expedited and requires less assistance from AP staff.

For many on the fence about AP automation, certainly looking at core items such as data entry reduction, eliminating manual work (physical process validation steps), and cost reductions are all factors that compel leaders to embrace change and move forward with improvement initiatives.  Visibility in all of these areas that we’ve discussed should be considered as well, and for many will be the icing on the cake after deploying automation through AP software or AP services.


To learn more about visibility and the impacts it can have on your Cost Per Invoice (the cost it takes to move an invoice in your organization from receipt to approval) check out our eBook on Uncovering the 7 Costs to Process an Invoice here!

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Topics: Accounts Payable Process, AP Process, Improve Accounts Payable, ap system, accounts payable software, ap software, accounts payable improvement, ap automation, early payment discount, ap services, accounts payable audit

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