Aug 17, 2017 Chris Doxey
Best practices for setting up suppliers in the master file, not only augment internal controls programs but ensure compliance with tax and regulatory requirements. The list below summarizes nine best practices in detail.
1. TIN matching services
TIN matching utilizes the e-services functionality provided by the IRS. You can convert your supplier master file into the proper format required by the IRS to get actionable results.
- 1099 accuracy
- Eliminates B-Notices
- Provides fraud prevention since the matching process ensures suppliers are “legitimate”
- The TIN matching process identifies duplicate suppliers and catalyzes the maintenance of your supplier master file
- TIN Matching Summary Report
- TIN Matches
- Non-Matching TIN Numbers
- TIN Numbers Not Submitted
2. W-8 and W-9 document acquisition
The W-8 form is required for all foreign suppliers. There are many variations of the W-8 form such as W-8BEN and W-8ECI. In summary, the W-8 is an IRS form that grants a foreigner an exemption from certain U.S. information return reporting and backup withholding regulations.
- Provides an audit trail for your supplier’s TIN information
- Provides proof of exemption from backup withholding
- Backup documentation for an erroneous B-Notice
- A file containing scanned copies of all W-8 and W-9 documents acquired
- All scanned copies will be linked to your supplier name and number
3. Compliance screening and reporting
Compliance screening is a key component of supplier validation. It’s also important to complete the due diligence process to ensure that an issue has resolution. The due diligence process includes researching Better Business Bureau, State of Incorporation data, and other research based on specific supplier information. The minimal screening should include screening against the OFAC, BIS, and SDN files.
- OFAC – Office of Foreign Asset Control
- BIS - Bureau of Industry and Security
- OIG – Office of Inspector General (For Healthcare)
- SDNs - Specially Designated Nationals are considered enemies of the United States. They can be either organizations or individuals who are involved in drug trafficking, terrorism, or other illegal activities.
- Ensures compliance to OFAC and other regulatory requirements
- Avoids penalties due to non-compliance
- Compliance Screening Reporting Package
- OFAC and BIS
- OFAC and/or BIS and OIG
- Supplier Master Screening Results Summary Report
- Detail Per Record Match Screening Results
- Due Diligence Process Results
4. Supplier scrub reporting package
To maintain your supplier master file, I recommend that your database is scrubbed at least every year to remove suppliers inactive in the last 18 months, suppliers with missing information, and suppliers that have duplicate records.
- Provides enhanced internal controls for your master file
- Identifies duplicate and potentially fraudulent suppliers
- Duplicate Supplier Names
- Suppliers with Duplicate Street Addresses
- Suppliers with Duplicate PO Boxes
- Suppliers With Duplicate Phone or FAX Numbers
- Suppliers With Duplicate TINs
5. Supplier master reporting package
This step is an analysis of accounts payable transactions by dollar distribution and the stratification of spending levels. It’s a great way to look into your accounts payable data to determine opportunities to consolidate suppliers, change invoicing methods, or implement P-cards.
- Identifies transactional volumes
- Highlights opportunities for invoice automation, summary billing, and the implementation of P-cards
- Top 30 Suppliers with Invoice Amounts of $0 - $150
- Top 30 Suppliers with Invoice Amounts of $0 - $50
- Top 30 Suppliers with Invoice Amounts of $50 - $100
- Top 30 Suppliers with Invoice Amounts of $100 - $150
- Invoice Payment Dollar Distribution
- Accounts Payable Year to Year Analysis
- Accounts Payable Transactions by Month
- Top 50 Suppliers by Transaction
- Top 50 Suppliers by Dollars
6. ACH account validation
The ACH Account Validation service is most efficient if ACH account information is maintained in the supplier master file.
- Prevents payment fraud and ensures that funds are disbursed to the correct supplier bank account
- Provides an enhancement to current disbursement controls
- A specific supplier master report that reflects the positive confirmation of ACH numbers
- All non-confirmed or accounts with issues will also be reported
7. Diversity coding
Identify from a spreadsheet provided by “Corporation” which suppliers are minority-owned, women-owned, veteran‐owned businesses and service disabled veteran‐owned businesses. A match can be made with your supplier master data against 500,000+ diverse suppliers. These diverse certifications will be used: National Minority Supplier Development Council (NMSDC), Women Business Enterprise National Council (WBENC), Small Business Administration SDB, 8(a) and HUBZone, State and City Agencies (DOT, Dept of Commerce, Economic Development, etc.).
- Provides complete diversity coding for your entire supplier master file
- A fully coded file will be available
8. Insurance certificate acquisition
Overview of Action: Validation of the insurance certificate of the supplier.
- Validating the insurance certificate when you set up a supplier should be an additional step in the validation process.
- A file containing scanned copies of all insurance certificates should be available
9. Supplier industry coding
Overview of Action: The North American Industry Classification System (NAICS) is used by business and governments to classify businesses based on the products and services that they provide.
- Industry coding enables spend analysis and identifies opportunities for strategic sourcing across your supplier master file
- Strategic sourcing analysis is a great way to leverage lower pricing with your suppliers and can help reduce the number of suppliers in your master file
- Each supplier will be coded with the industry coding conventions noted above and will be grouped accordingly to identify opportunities for leveraging
Using these nine validation actions for vendor setup will help ensure that your suppliers are “real” and the additional information will provide meaningful data used throughout the P2P process. A robust validation process can provide the ongoing supplier management controls from sourcing to onboarding to payment, through reconciliation.