Keeping your accounts payable (A/P) records clean is vitally important to any business. When an auditor comes in he/she will review all documentation of what is happening with a company’s various accounts. When the audit is completed the auditor typically issues a letter to management listing all the issues that were found and commenting on them.

If this issue is actually resolved, and not just a promise to resolve was issued, the issue may be removed from the letter.

Even companies whose books don’t get routinely audited will need to keep them in good shape for when they apply for a bank loan or credit approval.
Below are some suggestions to aid in making sure your A/P accounts are in order.

1.) Ensure that all check requests are accompanied with proper backup.

2.) Make sure that all invoices received are approved by the appropriate party before issuing a check.

3.) If you find that you have a copy of an invoice, and not the original, make sure that you mark it duplicate and double-check that the original one was not paid.

4.) Document all accounts paid by clearly marking the invoice “Paid” and writing the check number and date that was used.

5.) Verify that the check signer compares the check request backup to the check before affixing their signature.

6.) Never write checks early and then save them until the due date arrives. It is not a good idea to leave signed checks floating around. In addition it gives the vendors the impression that your company probably has cash flow problems since the check is several weeks old.

7.) Lockup all signature devices (i.e. digitalized signatures, check printers, signature plates, etc.). All check stock should be locked up, and the person who is responsible for preparing checks should not have access to it.

8.) Institute a policy segregating duties. For example, it is a dangerous idea to permit the people who are responsible for preparing the checks to be the same people who approve payment. Similarly, do not let the person who does A/P do the bank reconciliation.

9.) Accounting/bookkeeping employees should be required to take vacation days. This will allow someone else to fill in for them. This aids in both detecting fraud and cross training employees.

A/P are one of the most important things a company has to do. It is also an area rife with fraud issues. The steps outlined above will help insure that invoices are correctly paid in a timely manner.

Source: “How AP Can Avoid Getting A Black Eye from the Auditors.” www.accountspayable360.com. April, 2010. Institute of Management and Administration.

As reprinted in “The General Ledger” Vol. 27 No. 6 June 2010