Which department is the most important in your business?

The answer might vary depending on your specific circumstances, but if we were to create a list of the top five, you can bet we'd include the accounts payable department.

Why?

Well, without it, you won't be aware if that juicy revenue you are seeing at the end of the quarter is accurate or not because you'd be overlooking pending payables. 

So yes, having a strategy in place to audit your accounts payable processes is absolutely fundamental. 

But where should you start and how?

Let's solve that and more right away.

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What's an Accounts Payable Audit? 

Accounts payable (AP) audits involve a detailed examination of your company's payment process. It's basically an assessment of all your AP records.

The goal?

Verify accuracy, detect fraud, and maintain compliance. Doing an AP audit is how you make sure that all financial transactions are legitimate and properly recorded. 

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Key Goals of AP Audits 

• Prevents financial losses: Knowing with precision exactly where your money should go and why is the kind of strategy that can protect your company's financial health.
• Detecting fraudulent activities: What happens if you don't notice that there are some suspicious transactions off the records? There's a high chance of perpetuating a fraud culture.
• Improving processes: And by improving we mean increasing the efficiency of your accounts payable department.
• Maintaining compliance:  It's the best way to actually check that your AP processes are meeting expected regulations or standards.

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3 Reasons Why AP Audits Matter 

Identifies financial risks 

AP audits are a great approach to uncover things that could put your company in a perilous financial situation. Issues like duplicate payments, unauthorized transactions, rogue spending,and inaccurate records could all lead to significant financial losses.  Without constant audits, you could end up losing money only because you overlooked a simple mistake.

More efficient 

Remember how we talked about efficiency as one of key targets of accounts payable audits? 

Maybe the payments aren't flowing in time, or maybe you aren't using those discount opportunities as you should. AP audits improve cash flow and supplier relationships, It's no secret that when people are paid on time, they do feel happier working with your business, building stronger partnerships along the way. 

Internal control

Handling your accounts payable operations with care reinforces internal controls, preventing errors and unexpected financial activities. Establishing clear guidelines for invoice processing and approvals is a practical way to reduce the risk of manual mistakes and fraud. 

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How to Prepare for an Accounts Payable Audit?

Build a good plan 

Everything begins from a solid structure. if you set clear objectives, find mechanisms to identify high-risk areas, and establish reasonable timeframes, then you can successfully define the real scope of the audit and be prepared to handle inconsistencies if needed.

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Work with your accounting people 

Because they're the ones who know the most about your company's finances.  Data collection is complicated as it is, so there's no need to add miscommunication to the mix. Encourage open dialogue between auditors and your accounting staff so that any discrepancies can be solved quickly.

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Maintain updated records 

Is data any useful if it doesn't reflect your current situation? 

Not so much 

Keeping detailed, updated financial records is how you facilitate a better auditing process, while at the same time reducing the possibility of discrepancies. 

A great way to do this is to work with a digital platform so you can have all your relevant documents in one place.

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The Main Stages in an AP Audit 

Checking that your records and actual transactions match is a serious business, so to make things easier to understand, it's quite common to divide the work into four big stages.

Scheduling the audit

The moment of truth starts when you're notified that an audit is required and thus is needed to schedule a meeting so you can sit down with the auditors and establish common procedures beforehand. What are the main goals of the assessment? How will the results be measured?

Who's going to be involved?

The actual work 

Once you've a plan, the next step is to do the work. There's a chance that the auditor will take days or perhaps weeks to go over all the details of your company's financial transactions. The more organized the information is, the easier it'd be to get the desired results in the expected timeline

Depending on your business, there could be more or fewer documents involved but here's a list of the most necessary ones. 

• Vendor invoices
• Purchase orders
• Payment approvals
• Expense reports
• Bank statements
• Contracts and service agreements
• Credit memos
• General ledger 

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Final audit report 

Once the auditor has gathered all the necessary information and concluded the assessment process, it's time to put everything into a final report so the final findings can be easily accessed.

Follow-up 

And what's the purpose of a report if the recommendations aren't going to be listened to?

Approximately one year after the first visit, the auditors will come back to your business to check if their advice has been followed or not.

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What Documents Are Needed?

• Your business’s general ledger is considered as the basis for the whole audit.
• Details about your internal controls.
• Data or documents backing up any liabilities that haven't been properly recorded.
• The main plan of work to put the audit in motion.
• An assessment of your current accounts payable processes.

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What’s the Focus During an AP Audit?

Auditors concentrate on verifying payment accuracy, detecting anomalies, and ensuring policy compliance. Special attention is given to high-value transactions, recurring vendor payments, and any discrepancies between purchase orders and invoices.

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Best Practices for Accounts Payable Audits

Make internal controls work for you

You can consider internal controls as your financial safety net. They help you catch errors before they turn into big problems. Set up clear guidelines for approving invoices and payments so that nothing slips through the cracks. Having different people handle different parts of the payment process also makes it harder for fraud to occur. The more structured and transparent your system is, the simpler your audits will be.

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Keep up with regular audits

Let’s be honest here; nobody loves the idea of more audits, but doing them regularly saves you headaches in the long run. Routine audits help catch mistakes early and make sure everything stays on track. Instead of treating them as a one-time event, think of them as a regular check-up for your finances. Set a schedule that works for your business, whether that’s quarterly or annually. The key is consistency.

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Get your team onboard

Your accounting team isn’t the only one who should be thinking about AP audits. When everyone understands why audits matter, you’ll have fewer issues to fix. Offer training sessions so employees know what to look for when processing invoices and payments. Encourage an open door policy where your staff can ask questions and report any concerns without hesitation. The more engaged your team is, the stronger your financial controls will be.

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Use technology

Automated systems can track invoices, flag duplicate payments, and generate reports with minimal effort. If you’re still relying on manual processes, it might be time to explore software solutions that can save you time and reduce errors

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