AP audits can be brutal, and yet many companies and organizations undergo an audit once a year.
AP audits are stressful for both the finance and accounting team and the organization as a whole. However, audits can be a great opportunity to review your operations, ensure you are using best accounting practices, and identify process improvements.
But you can’t accomplish those things if you are wasting all your time during an audit chasing documents, old bills, numbers, and proof of payment approvals all around your office and company.
And that means having well-managed audit trails.
Solid audit trails are a key indicator of good internal AP controls. And thanks to AP automation, modern AP audit trails have transitioned from frustrating manual filing of paper documents to automated electronic data and documents that make historical AP information more accurate, readily accessible, and usable.
Best of all, AP Automation can stop fraud, mistakes, and all the things that audits are meant to find before they happen!
Let’s dig deeper!
Table of contents
What is an AP Audit?
An accounts payable audit is a thorough examination your company or organization’s accounts payable records conducted by an independent third-party auditor.
An AP audit analyzes whether your transactions are correctly recorded and whether those recordings present an accurate view of your company or organization’s financial reports.
An audit typically results in an audit letter that describes the state of your company or organization’s finances and financial reporting, and makes recommendations for improvements.
Why Do an AP Audit?
An AP audit helps you find and prevent fraud and inaccuracy in your finances. And helps you identify inefficiency.
AP audits ensure you have an accurate assessment of the financial health of your business. Furthermore, it analyzes the performance of your accounts payable department. Finally, it ensures the success of your business.
And for many companies in the United States, financial audits are not optional.
The Sarbanes-Oxley Act requires all public businesses to annually submit financial records to a third party for an external audit. The idea is to to protect shareholders, employees, and the public from accounting errors and fraud such as what occurred at Enron.
In addition, creditors also regularly require private companies that apply for credit to have annual third party audits of financial transactions.
But whether an accounts payable is required by law or a creditor, they are still best business practice. Because audits give your organization’s leaders confidence in the financial health of the company.
Why are AP Audits so Hard?
Conducting an AP audit requires the third party auditor to review all of some financial records and samples of others.
Which means that you, as the finance and accounting department, have to be able to produce exactly what the auditor wants to see.
And it’s a LOT. Here are some of the records auditors will ask to see:
- Lease agreements
- Purchase requisitions
- Purchase orders
- Check requests
- Bank statements
- Financial reports including P&L, balance sheet, equity, and cashflow
- Internal controls document
- Disaster recovery plan
So it is critical to keep all of your financial documents readily accessible so they will be available during your AP audit.
Creating this audit trail can be a daunting task in a paper environment. It requires filing every single financial document in file cabinets that can take up an entire room or even floor of a building.
And even with the best organized paper audit trail environments, tracking down one specific document that an auditor asks for can take hours. Or even days! And if you can’t find that document or it isn’t compliant with proper processes and approvals, you will get dinged in your audit letter.
That’s what makes paper-based audits so very stressful and painful.
Streamlining AP Audits
Fortunately, there’s a better, easier, and far less stressful way to handle audits: AP automation.
AP automation achieves three key goals that make AP audits a breeze. They:
- Digitize financial documents and store them electronically in a searchable database creating an electronic audit trail.
- Ensure compliance with all financial/accounting best practices as well as legal requirements during the daily AP process so that you never get dinged in our audit letter.
- Reduce the time and expense associated with an audit.
Let’s examine each of these benefits in more detail.
Digitize Your Audit Trail
Traditional AP audits are cumbersome.
They require sifting through stacks of paperwork, expense reports, old receipts, etc.
A manual paper-based audit is inefficient, costly, and time-consuming.
This is especially true if your business has a high volume of transactions.
That’s why digital documentation has become an integral tool in managing an audit. It allows you to process data quickly, accurately, and efficiently.
AP automation allows for easy access to all necessary documentation (financial reports and records, invoices, receipts, etc.) during an AP audit.
You’re able to quickly locate most documentation with the click of a button.
Even better, use AP dashboards to track KPIs.
Ensure Compliance BEFORE the Audit Even Starts
Implementing AP automation will save your finance and accounting department time and money.
But it will also ensure compliance with all of your AP internal controls on a daily basis.
AP automation will force your accounting process to adhere to GAAP principles for internal control procedures. As well as follow AP best practices for fraud prevention.
It gives you a full suite of internal controls for risk management. Including insight into what is being processed as well as who is being paid in a timely manner.
In addition, it:
- Creates an electronic audit trail.
- Reduces errors through automated document capture and filing.
- Indexes documents for easy search and retrieval.
- Flags suspicious or unauthorized payments.
- Ensures that your auditor is viewing authentic and reliable information.
Procure to pay automation is the ultimate AP process internal control tool.
Reduce the Time and Cost Associated with Audits
AP automation will reduce the time and cost associated with your regular audits.
First, AP automation digitizes financial documents. This significantly reduces long-term document and data storage costs.
Second, AP automation reduces accounting and other staff time spent filing and locating financial documents for an audit. Eliminating these time-consuming and tedious tasks saves you money and allows those employees to do more productive work.
Then the question becomes: what will you do with all the space that used to be filled with endless filing cabinet!?
Finally, since your audit trail is digitized and totally accessible, it will reduce the time auditors need to spend analyzing them. So, be sure to ask your auditors for a discount on your fully digital audit trail audit!
Bottom Line – Streamline AP Audits with AP Automation
Accounts payable carries the highest risk for fraud and data errors compared to other accounting functions.
An annual accounts payable audit is crucial to preventing fraud, finding and correcting errors, and eliminating inefficiency.
And a digital audit trail will save your company or organization time, money, and frustration.
AP Automation will eliminate the stress of an audit.
First, it ensures that you have all the necessary audit documents at your fingertips. It also ensures that there have been no duplicate payments and that approvals have been made appropriately. Plus, it ensures appropriate internal controls are in place to decrease fraud.
Finally, AP automation minimizes both the stressful as well as the tedious demands on your staff in preparing for and participating in an audit. This gives you the time and freedom to focus on potential process improvements during your audit rather than chasing paper around the office.
And best of all, it allows you to demonstrate to your senior leadership that AP operations are completely accurate and under control.
So why not request a demo today and start your journey to a streamlined AP audit?