Accounts Payable Audits: 6 Benefits to AP Teams
AP teams are 99.95% accurate on average. Is there another industry in the world with a success rate that high?
That’s AMAZING – unfortunately, when those payments total to a million dollars or more, that .05% adds up. To counteract that snowball effect, AP teams are still striving for that perfect 100% payment accuracy.
The thing is, EVERYONE has errors, and perfection (especially amid a complex web of technology, people, and processes) simply isn’t possible. According to IOFM, most accounts payable departments (even those with the highest accuracy rates) are challenged at every turn:
Accounts payable professionals have to get creative if they want to completely eliminate erroneous payments. They need assurance that their organization is protected against those hard-to-catch errors. What they need is an accounts payable (AP) audit.
What is an Accounts Payable Audit?
An accounts payable (AP) audit is a historical look back at an organization’s payable transactions so they can identify and remediate any erroneous payments. Some common errors AP audits help accounts payables teams identify include:
Duplicate payments
Payments to incorrect vendors
Payments in incorrect currency
Payments in the wrong amount
Fraudulent payments
Incorrect tax posting
Open credit note recovery
Debit balances
To many accounts payable teams, the historical review defines the AP audit. However, only around 25% of audit recoveries actually come from erroneous payments – the other 75% are found in the statement review. The statement review portion of an accounts payable audit typically involves credit notes that the AP team simply didn’t know about, meaning it would be nearly impossible for them to identify or prevent these losses otherwise.
AP audits can help teams identify root causes of errors, implement corrections and improvements to their operations, and prevent future errors through Statement Reviews. But the benefits of AP audits go far beyond what meets the eye.
There are several misconceptions about accounts payable audits that cause friction among the team: they fear that AP audits can damage supplier relationships, pile onto their workload, or place blame on them for any erroneous transactions that are uncovered. However, with the right AP audit partner, AP audits are actually designed to highlight the success of the accounts payable team, improve their supplier relationships, and even provide them with some much-needed bandwidth.
Accounts Payable Audit Goals: The Hidden Benefits of AP Audits
There are a handful of reasons an accounts payable team would want to undergo an AP audit. AP audits illuminate the efficacy of the team’s hard work and help them boost payment accuracy. They can be a powerful tool used in tandem with accounts payable professionals’ existing processes to prevent errors and correct those that have slipped through.
Benefit #1: AP Audits Enhance AP Processes
Whether accounts payable teams have stuck to the same processes for decades or they’ve recently introduced AI and automation, AP processes can introduce great risk. Relying too heavily on manual methods can increase the possibility of human error, but an emphasis on automation can leave the team blind to untuned technology or unchecked errors.
When errors are caused by systemic causes, like technology, automation, or organizational changes, there’s no way for AP teams to be able to predict them - these errors are completely out of their control. Accounts payable audits can help teams identify the processes that need to be adjusted or replaced. They provide AP professionals with enhanced visibility into the risky areas of their internal and organizational payment processes. Because they can rely on an AP audit to help them catch unexpected, systemic errors, teams that want to automate can do so without the risk of introducing new errors.
Protect your payments with AP Assurance to achieve true error prevention.
Benefit #2: Free Up Precious AP Bandwidth
AP teams are BUSY. They don’t have time to even get to their daily tasks, much less look back and correct errors. The average amount of invoices that flood an AP department per month sits at a whopping 1,000 invoices. Even with a fully dedicated team, AP automation, and technology in place to help them support such a great volume, accounts payable professionals simply can’t dedicate as much time to error prevention and correction as they’d need to for 100% accuracy.
AP audits assure them to take their time back from manually checking each invoice and searching for erroneous transactions so they can focus on the critical components of their day-to-day. By reviewing historical transactions for errors, accounts payable audit teams take the manual checking off of the AP team’s plate and give them assurance that any errors they might have initially missed will be caught and corrected.
Benefit #3: Internalize AP Audits
AP audits are designed to help accounts payable teams, not replace them. With the safety net of an audit, AP teams are empowered to internalize as much of the process as they want.
The preference to internalize the audit is completely up to the accounts payable team. If they’ve got the time and space to take on the responsibility, it can be a great way to save on third-party costs and identify weaknesses in the team’s existing processes. Unfortunately, most accounts payable teams are extremely busy and flooded with invoices, leaving them unable to take on the task of an internal AP audit.
It might sound counterintuitive, but starting with an accounts payable audit can identify any blindspots, systemic weaknesses, and opportunities for improvement before an AP team takes audits in-house. The objective, third-party perspective is essential for AP professionals to ensure they’re prepared for internalized audits, confident that all of their payment accuracy gaps have been identified and addressed.
Benefit #4: Uncover the Value of the Accounts Payable Team
Accounts payable teams are the unsung heroes of their organization: few other departments are aware of their incredible impact, but without them, the business’s profitability and payment integrity would be at stake. Accounts payable audits can highlight the incredible work of the AP team and confirm their value to the greater organization.
The AP department is a high-volume, high-pressure environment that houses an essential business function. The outstanding accuracy of the typical accounts payable team is amazing, yet often goes unnoticed in the greater organization. The confirmation of such accuracy from a third-party vendor can bring awareness and appreciation to the diligent, valuable work the AP team does. Additionally, validation of the true AP error rate can help organizations contextualize and understand their financial performance.
Benefit #5: Improve Supplier Relationships
Many accounts payable teams worry that they’re damaging supplier relationships when they reach out about recovering wrongfully paid funds – so they’re stuck between wanting to protect the relationship, and wanting the money they’re rightfully owed. Accounts payable audits can help teams strike that balance with accelerated recovery periods and the prevention of any erroneous payments even going out the door.
A major barrier to AP audits is that teams worry about bringing a third-party into their sensitive supplier relationships. The good news is, that the right partner can serve as a mediator rather than a disruptor, removing the friction from recoveries so the team doesn’t need to worry about damaging the business relationship.
An accelerated audit timeline can ease the burden on both AP teams and suppliers. There can be employee turnover at supplier organizations in the period between the transaction and its later recovery. When that’s the case, new employees at the supplier’s company lack the context and experience to understand the root cause of the error: they might not have the required documentation, rendering the recovery impossible. That’s why speeding up the timeline and accelerating the audit can help teams ensure they reach the supplier in a timely manner, boosting the likelihood of a successful recovery.
Even better than an accelerated AP audit is error prevention – stopping errors before they even make their way through the system can allow teams to hold onto their money and avoid recovery altogether. With AP error prevention, teams don’t have to worry about hurting supplier relationships because they don’t have to reach out to them at all. By monitoring transactions for suspicious or erroneous activity, accounts payable teams can reach a preventative posture.
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Benefit #6: Identify + Correct Error Root Causes
Identifying root causes allows AP teams to address the issues behind their recurring errors, ensuring unresolved roadblocks don’t continue to weigh the department down.
Errors can come from a variety of sources, including:
Employee challenges / pressure
New processes / technologies
Change in employees
Mergers / acquisitions
Human error
Fraud
Supplier challenges
And more
Once AP teams are aware of the root causes behind their errors, they can address them however they see fit. They might need to refresh some of their outdated processes, check in on their data hygiene and maintenance, or connect with vendors regarding incorrect payments. This may also be a great opportunity to address training within the organization to ensure employees are all on the same page in terms of processes they should be adhering to, and how to avoid repeated human errors.
Regardless, the right AP audit partner will help accounts payable teams go beyond surface level recommendations to ignite real, lasting improvements in AP processes and error rates. By making these long-term improvements, teams can naturally move into a preventative stance against AP errors.
Preventing Payment Errors with an Accounts Payable Audit
Accounts payable audits, at their full potential, can be a powerful tool that elevates the AP team towards complete payment accuracy and error prevention. Further, the right audit partner goes beyond a one-and-done audit and error detection; they can equip teams with the insights and technology to continuously improve financial processes, boost long-term payment accuracy, and even prevent erroneous transactions altogether.
FlexTecs offers both historical reviews through AP audits as well as FlexTrap, a holistic and customizable AP error prevention tool, to meet AP teams where they are in their payment accuracy needs. Get in touch today.