Whether public or private, most companies undergo an audit about once a year. For healthcare organizations, these audits might occur more frequently, even monthly. Accounts payable audits often seem daunting and even scary. But, when handled correctly, an accounts payable audit can help you find errors, accounting mistakes, and other issues that could affect your healthcare organization’s bottom line. After all, it’s much better to uncover fraud, or opportunities to improve your AP processes, before it’s too late and you start experiencing noticeable losses within your business.
An accounts payable audit typically requires an extensive manual review of your books and can be quite time-consuming. But an AP automation solution can simplify the task, enabling you to leverage the information in the system for a faster, more streamlined auditing process.
With an accounts payable automation solution, AP departments gain complete visibility into their healthcare AP processes, allowing them to extract the critical information needed to support auditors’ requests and make internal system and procedural enhancements that can improve business processes, supplier relationships, and your bottom line.
How to Conduct an Audit of Your Health System’s AP Process
Auditing your AP process will be different from conducting a financial audit of your books. In addition to verifying that the numbers are correct and the books balance, those conducting the audit will also need to ensure the integrity of your AP process.
Follow these steps as you proceed with your accounts payable audit.
Ensure Proper Documentation
Successful accounting processes, including AP, begin with proper documentation. Especially in healthcare, where every billable procedure is tied to a billing code, you must ensure accounts payable and supplier records are accurate.The end-to-end cycle of AP typically involves three elements for execution:
- Purchase Order (PO): The typical PO will list the requested merchandise (medical supplies or pharmaceuticals), quantities of each item requested, and include a final price for the order. This is an optional document for the audit process and may look different for various types of health systems.
- Receiving Report: Also known as a goods receipt, the receiving report is drawn up after a shipment is received and will include any damages or quantity discrepancies associated with the order. This is also an optional document in terms of the audit process.
- Vendor Invoice: This document is sent by the supplier or vendor to the purchasing healthcare organization to request payment for goods or services provided. Your AP team uses this document to begin the invoice management process.
Analyze paper trails to ensure these three elements are in place (if all are required as part of your business practices) and verify each element to make sure it bears the correct line items, vendor names, and dollar figure amounts. When preparing for an audit, it is critical to be able to provide supporting details for any unusual transaction. Invoices, purchase orders, and receipts must be readily available and accurate to demonstrate what was purchased, the price agreed upon for the items, and to confirm what was received by your healthcare organization. AP automation can reduce the paper problem associated with manual accounts payable processes and help store, maintain, and retrieve this documentation quickly and easily.
Examine Operating Procedures and Internal Controls
There are three types of fraud generally associated with accounts payable: check, supplier, and employee. It is important that your healthcare organization has internal controls in place that ensure segregation of duties, dual approvals, and two-factor authentication to protect against these instances of fraud.
In terms of operating procedures, as a general rule, the person who approves each supplier invoice should be a different person than the one who authorizes the payment. Likewise, in healthcare organizations that still use checks, the person who signs the checks should be different from the person who prints them. Lastly, your AP team should be notified when supplier payment information is updated to prevent against vendor email compromise schemes.
Someone in the accounting department should also be on the look-out for duplicate invoices or duplicate payments, which can be an indicator of poor accounting practices or a sign of occupational fraud within your healthcare organization. A best practice for preventing duplication issues or fraud risk would be to convert check payments into e-payments, like virtual cards, wherever possible. If a supplier is unable to accept e-payments, your AP automation solution can print and mail check payments on your behalf, removing the risk of human error. Finally, if your accounts payable team must print and send check payments themselves, be sure to keep physical checks securely stored.
You can leverage an AP automation solution to help maximize the effectiveness of internal controls; automatically flag duplicate invoices; and minimize the possibility of check, vendor, or employee fraud.
Verify Your AP Ledger
As you move through the accounts payable audit process, you’ll want to verify your AP ledger and cross-check against invoices. This will help make sure that all purchases follow proper protocols and approval processes and that the goods you purchased were received as promised. This will also help you recognize duplicate vendor payments that may be costing your health system money.
If you’re still using a manual system, this will be a matter of going through each purchase order, invoice, and payment to ensure they match. However, verifying your ledger can be vastly simplified using automated AP systems. With AP automation, you can automate the approval process and have an electronic record of all approvals made for each invoice. Any time an auditor questions an invoice or payment, you will be able to quickly access the necessary information without having to search through emails or file cabinets. AP automation also makes executing duplicate payments nearly impossible so you are not accidentally sending multiple checks to pay vendors for the same invoice.
Complete a Risk Assessment for AP Processes
Once you’ve reviewed your processes and your ledger, hopefully everything checks out. This is a sign of good AP controls and a solid, streamlined system that likely involves little risk. On the other hand, if managers are having issues viewing invoices for approval, too many people are issuing checks, or you’re noticing your books don’t balance, it’s time to revisit your AP process.
Even if your assessment reveals little risk and very few flaws, you may want to consider some ways you can save your AP staff time, while ensuring the accuracy of your AP records.
For instance, Ruby Linkins, AP specialist at cCARE one of California’s largest oncology groups, noted that it used to take her team five or six hours a day to input invoices into QuickBooks accounting software using manual data entry. Obtaining invoice approvals was also a time-consuming process that involved exporting spreadsheets from QuickBooks once a week and emailing them to department heads. This complicated day-to-day workflows for both department heads and accounting staff and slowed overall business operations.
“They had no visibility into any of the invoices unless they requested them from [accounts payable],” Linkins said. By automating the invoice management process with MineralTree, department managers gained complete visibility into each invoice and the accounting department saved time on data entry. With MineralTree, Linkins says, “We’ve been able to take on a lot more functions within accounting, and organize ourselves to not feel so overwhelmed.”
Leveraging AP Automation Software for Easy Auditing in Healthcare
In addition to the time-saving benefits MineralTree clients in the healthcare sector see on a day-to-day basis when it comes to processing invoices, an AP automation solution can streamline your accounts payable audit process by ensuring:
- Complete access to documentation
- No duplicate vendor payments have been made
- Approvals have been made appropriately
- Solid internal controls are in place to decrease fraud risk
With fewer paper transactions to review and payments processed through virtual cards, your next accounts payable audit may be quicker and easier than you ever imagined. Adopting an AP automation solution will minimize the demands on your AP staff and keep them focused on essential day-to-day operations, enable improved supplier relationships, and ensure your confidence that AP operations are completely under control and able to be verified in your next audit.
