Over the last 15 years, ‘Accounts Payable’ processing has changed beyond recognition, as have the departments. There are very few large organisations which rely solely on manual invoice input into separate company ledgers. Companies have streamlined their ‘Accounts Payable’ departments so that, more often than not, multiple ledgers are processed at the same location. Such ‘Shared Service Centres’ run sophisticated accounting ledgers with built-in or purchased duplicate invoice checking.
Invoice input is increasingly automated using a variety of e-commerce tools and invoice approval invariably requires either 3 way matching (invoice/order/goods received) or specific authorisation (often electronic) which is based on value parameters.
Primarily because mistakes happen – even with the most sophisticated systems. To list a few:
- Human error – Well, we can all have an off day
- Computer error – Contrary to popular belief the computer is not always right. Scanned input / Optical Character Recognition – unable to distinguish a I or a 1 – especially on the second copy
- Multiple input options – for example the document comes across manually and electronically (or the electronic version gets printed to become a manual document)
- Multiple accounts – for the same supplier
- Multiple Versions -The supplier raises multiple versions of the same document (for example an order confirmation paid as an invoice)
- Multiple opportunities to ‘leak’ cash – If there are multiple ledgers or ways of paying an invoice (Cashbook, AP ledger, Subcontract Ledger, Procurement Card) then invariably an invoice will discover it
- Credits not processed – Credits / adjustments are not processed
- VAT – VAT is not accounted for
- Incorrect Invoices – Invoices are for incorrect – prices / quantities / discounts – sometimes even the wrong entity
- Urgent Payments – The ‘URGENT’ payment which bypasses the controls
I could (and often do) go on, but let me reassure the reader that the error rate is seldom anywhere above one half of one percent over the two to six years of data examined – that is an accuracy rate of 99.5% or more; essentially therefore an Accounts Payable Audit validates the controls in place. However that said the 0.5% can be significant – it essentially represents ‘lost profit’.
The nature and volume of each error type has changed over the years; in the early years the leading cause was generally invoice input error. The introduction of automation and invoice approval protocols has reduced the number of these errors (although they still do exist) and today the errors are more commonly found in periods of change (company acquisition / restructure, new systems etc).
The Accounts Payable Audit software of Rockford Associates has also evolved since it was first developed in early 2000/2001. It is no longer sufficient to look for the straight duplication or simple miss-key of the invoice reference number; multiple other fields also need to be examined.
The power of modern computing makes the examination, review and cross referencing of a million invoice lines, which highlight ‘ambiguities,’ surprisingly straightforward. Then, the experienced ‘auditor’s eye’, honed over many years to spot the ‘invoice that is not right’ is engaged, along with the documented processes to confirm and recover the error.
The Rockford Accounts Payable Auditor works on site as part of the Accounts Payable Team concentrating solely on resolving and recovering payment errors made on invoices over 90 days old; enabling the clients’ personnel to concentrate on the current invoice transactions.