Jun 8, 2017 Chris Doxey
Duplicate and erroneous payments are always a challenge within any accounts payable department. The challenge is the detection of the issue before the payment is processed. An additional challenge is the identification of the cause of the error and then the implementation of the needed process improvements.
Finding a Duplicate and Erroneous Payment
But how are duplicate and erroneous payments identified? There are two ways – either through a traditional accounts payable audit conducted by a third party or by using self-audit tools and processes.
Traditional Accounts Payable Audit
Upon confirmation that a correction entry does not exist in the data, a third-party audit firm will be contacting your supplier's receivables department to discuss the potential payment issue. The supplier will confirm whether the item in question is currently an uncollected error. Once confirmed, the third-party audit firm will request a refund check or credit memo for the appropriate amount.
The documentation provided in these types of audits include:
- Reference number assigned to this item by the supplier (in the supplier’s receivables system)
- The supplier’s contact name and number
- Your internal company codes
- Check numbers
- Reason for the erroneous payment
Self-Audit Tools and Processes
Many businesses have utilized the self-audit processes provided by their ERP systems along with standard three-way matching procedures. These methods provide the foundation for the detection and prevention of a duplicate payment, but the results must be reviewed on a regular basis to prevent a supplier from being paid in a production environment.
A self-audit tool for the accounts payable process can provide both detective and preventive controls. Used with standard ERP functionality, this tool can also detect a process issue that creates risk for erroneous payment transactions by combining additional analytics with audit results and by reviewing supplier payment trends.
Examples of Duplicate & Erroneous Payments
|1. Pricing Errors||19. Supplier-sent Duplicate Invoices|
|2. Invoice Paid to Wrong Supplier||20. Insurance Rate Error|
|3. Adjustment to the Quantity on an Invoice||21. Contract Pricing Error|
|4. Escheatment||22. Duplicate Suppliers|
|5. Freight Change Adjustment||23. Invoice Paid in Wrong Currencies|
|6. Credit Memo Paid Rather Than Taken||24. Invoices Paid in Multiple Systems|
|7. Invoice Cancelled but Paid to Supplier||25. Supplier Invoicing Error|
|8. Credit on Closed Account||26. Coding Error - Entering Invoice|
|9. Overpayment on Check||27. Payment to an Incorrect Supplier|
|10. Credit for Warranty Work Not Used||28. Wrong Supplier Payment Stale Check|
|11. Overpayment on Invoice||29. Duplicate Payment - Same Supplier|
|12. Credit for Returned Item Not Used||30. Wrong Supplier Paid in Error|
|13. Overpayment of Invoice||31. Duplicate Payment Stale Check|
|14. Discount Not Taken||32. Volume Rebate Not Taken|
|15. Overpayment on a Lease||33. Duplicate Payment - Different Supplier|
|16. Deposit on Account||34. Duplicate Billing of Invoice|
|17. Stale Credit||35. Sales and Use Tax Error|
|18. VAT Error|
The Power of Analytics
Now that I’ve identified how to find a duplicate and erroneous payment within the accounts payable process and provided you with the types of errors that can be made within the process, how do you ensure that the reason the error occurs is addressed? This is accomplished by reviewing the results of either a third-party audit or your self-audit and conducting a deep dive into your process by reviewing the each of the examples above and asking the following questions:
- Is there a breakdown in the manual billing process that can be addressed by e-invoicing?
- Should a workflow process be implemented for approvals?
- Should you implement invoice coding standards?
- Should you implement standards for setting up suppliers on your supplier master?
- How about updates to your Procure to Pay (P2P) policies and procedures?
- Are your System Access and Segregation of Duties policies of date?
- Are your requisition and purchase order processes disconnected?
- Would a supplier portal help your onboarding process?
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