When it comes to managing cash flow, protecting your company's financial interests, and preserving your credit standing, it is important to ensure that your payables are being recorded properly, thoroughly verified, and paid on time. The best way to keep track of this is through periodic auditing. Whether you decide to do it in-house or you work with a commercial account auditing firm, here's what you can expect of the process.
Evaluate What Is on the Books
The very first step to accounts payable auditing is to evaluate what's listed on the payables ledger. This means generating an aging report for the payables account that details how much is owed, who the vendor is that the money is owed to when the invoice was entered when the payment is due, and any other important details.
As you look at this report, make sure that all of the invoices listed in the payables ledger are timely. There should be no outdated, overdue payables recorded. Additionally, every payable should be clearly tied to an invoice number, and the invoice should be on file for a detailed review.
Review Each Account for Accuracy
The next step, once you've done a general review of your payables accounts, is to review each outstanding account in detail to ensure accuracy. Match up the invoice number in the account to the hard-copy invoice. Then, match those to a purchase order or other verification method for the expense.
Make sure that the dollar amount listed is correct, the due date is accurate, and the expense itself is legitimate. This means not only ensuring that the expense was authorized, but also ensuring that the service or product was actually provided. This reduces the risk of paying for something that was actually canceled or overlooked along the way.
Validate Accounts with the Creditor
If you're conducting an in-depth payables audit, another key step is to validate each of the payables balances directly with your creditor. Often, this can be done by appointing an audit officer who will call each creditor directly. Sometimes, it's done by mailing out validation forms to each client and waiting for them to come back. Decide what kind of timeframe you're dealing with so that you can choose the validation method that's right for your needs.
If you're not comfortable doing the audit on your own, you can reach out to a local commercial account auditing company to have the work done professionally.