Accounts payable is a critical portion of your financial records and can be subject to fraud without careful reconciliation and oversight. Strong accounts payable audit procedures can ensure the accuracy and timeliness of your bill payments. The best accounts payable audit procedures allow a mixture of daily checks, routine internal controls and external audit procedures.
Accounts payable should be balanced daily to reconcile payments to recorded entries. Any discrepancy between the total amount paid and the total recorded should be examined and reconciled immediately. Management oversight of every individual involved in accounts payable should be stringent and should include routine monitoring of activities. Managers should be trained to watch for any signs of misconduct by accounts payable staff.
Sign-off procedures that help establish an audit trail should be enacted. These sign-offs should include management review of daily reconciliations, monthly discrepancy reports and individual sign-offs for large transactions to ensure that all information is correct.
Internal controls for accounts payable should include signature requirements according to payment amounts. Consider implementing several tiers of signature requirements. For example, you could require an accounting manager's signature for items of more than $5,000, an executive sign-off for items of more than $10,000 and dual signature requirement for payments of more than $25,000. Match your signature requirements to your revenue totals and the susceptibility of your business to fraud for maximum benefit.
Establish routine control procedures for accounts payable. Include spot checks on individual payments to ensure accuracy. For example, review five payables every day and check the payment amount and payee information and ensure that accounting records have been completed correctly.
During book closing procedures at the end of a month or financial period, include sign-off procedures for all account payable work including summary totals and account reconciliations. Additionally, keep a running report that monitors payment levels from accounts payable processing. If payment levels suddenly increase or decrease, an automatic investigation into the causes can head off potential problems.
Most external audits include accounts payable as a testing area. External audits should take a detailed accounts payable listing and trace totals from the details through all accounting records to the summary total and should include the bank withdrawals. Select items should be chosen for in-depth testing. Select payees should be contacted to verify receipt of payments. Additionally, routine reconciliations should be reviewed for accuracy and logical processing. Any reconciliations with large discrepancies should be investigated completely.
External audits should test for unrecorded liabilities. Consider selecting all invoices over a specified threshold and a random selection of routine invoices for in-depth review. Look at disbursement records, credits for returns, goods received but not invoiced, and any invoice-specific accounts. Ensure that every invoice is recorded properly in the correct time period. Review the account for to see if it was recorded as a liability or if it was properly excluded from the time period.
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