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AVOIDING ACCOUNTS PAYABLE ERRORS : WHAT TO WATCH OUT FOR

Updated: Aug 26


accounts payable

When you pay a bill in your business, are you 100 percent comfortable that the bill payment is correct and justified? Is there ever a chance that a bill is fake or fraudulent? What about duplicates? With so many fake bills being mailed to businesses these days, it makes sense to think about controls you can put into place to reduce the risk that you might write a check out of your hard-earned profits that should never be written.


Accounts Payable Controls

In the accounting profession, the term “internal controls” refers to processes, procedures, and automations you can put into place to reduce errors. In accounts payable, there is a specific subset of rules and controls you can put into place to reduce risk in this area. Here are just a few ideas.


Approvals

All bills should be approved by the appropriate level of staff in your business. Sometimes a bill gets approved that is fake or shouldn’t be approved, especially in areas where the approver doesn’t have technical knowledge of what they are buying. Be sure to read the fine print on the bill and make sure you know what you are paying for.

Implement Digital Approval Workflows: Utilize digital approval workflows to enhance the approval process. These systems can track who approved each bill and provide automated notifications if discrepancies or unusual charges are detected. This adds an extra layer of scrutiny and accountability.


Segregation of Duties

The person who pays the bill should be different from the person who submitted the bill. These people should be different from the one who signs the check. This reduces employee fraud.

Cross-Training Employees: Cross-training employees on different aspects of accounts payable can prevent potential fraud and errors. By ensuring that multiple individuals are familiar with various processes, you create a system of checks and balances that further mitigates risk.


Receipt Confirmation

A packing slip or other confirmation of receipt of the goods or services should be matched to the invoice, line item by line item.

Use Electronic Receipt Confirmation Systems: Implement electronic systems for receipt confirmation that automatically match packing slips and invoices. This can speed up the process, reduce errors, and provide a digital trail of confirmations.


Math Check

A prudent step is to check an invoice’s math, at least for reasonableness.

Automated Invoice Validation: Employ automated tools that can validate invoice calculations against pre-set rules and thresholds. This reduces the risk of human error and ensures accuracy in invoice processing.


Duplicate Payments

If a vendor emails their bill as well as mails a hard copy, controls should be put in place (usually automated) to avoid duplicate payments on the same bill.

Implement Invoice Matching Software: Use software that matches emailed invoices with physical copies and flags potential duplicates. This helps prevent accidental duplicate payments and maintains accuracy.


Reconciliation

If there are a significant number of transactions between you and a vendor, an accounts payable reconciliation should be performed each month via a statement.

Integrate Reconciliation Tools: Utilize reconciliation tools that automate the process of matching vendor statements with your records. This can streamline the reconciliation process and reduce the likelihood of discrepancies.


Missing Check Numbers

Most systems provide a missing check numbers report that you can use to make sure all checks are accounted for.

Monitor Check Issuance Reports: Regularly review reports on check issuance to ensure all checks are accounted for and investigate any missing numbers promptly. This helps maintain control over payments and detect potential issues.


Bank Reconciliation

A bank reconciliation is a sure way to see exactly what checks cleared your bank account.

Automate Bank Reconciliation: Implement automated bank reconciliation tools that sync with your accounting software to streamline the process and enhance accuracy. Automated reconciliation reduces manual effort and improves financial oversight.


Coding

Coding each transaction to the correct expense account, inventory, asset, or cost of goods sold account is an essential part of the process.

Standardize Coding Procedures: Establish standardized coding procedures and ensure that all employees follow them. This promotes consistency and accuracy in financial reporting and helps in tracking expenses more effectively.


Income Statement Review

Each month, a review of the balances in your expense accounts as well as a disbursements ledger review for reasonableness can provide added peace of mind.

Conduct Periodic Audits: Regularly perform internal audits of your income statements and expense accounts to ensure accuracy and identify any anomalies. This proactive approach helps maintain financial integrity and detect issues early.


Purchase Order

Requiring purchase orders is another control you can add to your process. Purchase orders should be matched to packing slips and invoices before payment or approvals are made.

Enforce Purchase Order Policies: Establish and enforce policies that require purchase orders for all expenditures. Ensure that purchase orders are reviewed and matched with invoices and packing slips to prevent unauthorized payments.


In-depth Knowledge of Your Business’s Numbers

The more you get to know the numbers in your business, the greater chance you’ll have of accurate accounts payable handling.

Leverage Financial Analytics: Utilize financial analytics tools to gain deeper insights into your business’s financial performance. These tools can help you identify trends, track key metrics, and make informed decisions about accounts payable management.


Implementing reliable procedures for your accounts payable will yield accurate financial information that will help your business in the short and long term. If you’d like to discuss your accounts payable function with us and how it can be improved, we’re happy for you to reach out any time.

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