5 best internal controls over vendor master file
Internal controls over vendor master file keep your data secure with clear rules, audit trails, and consistent oversight for long-term data integrity
At the heart of any well-run Accounts Payable (AP) function is the incorporation of strong internal controls. Without robust internal controls in place, you run the risk of losing money, whether through fraud or simple human error.
However, all too often we see organisations develop internal controls, but fall short when it comes to ensuring they are effective.
In this blog, we explore the 4 stages of internal controls. In particular, we examine the development, implementation, monitoring and refinement of internal controls, so you can make sure your AP function is adequately protected from losses through fraud or error.
Internal controls are defined as the systems and processes you put in place to limit a range of potential risks.
Internal controls are particularly important for an AP function. As custodians of your organisation’s finances, the AP function is often targeted, whether by external cyber-criminals or malicious insiders, who are intent on defrauding you. The best way to prevent being defrauded is through robust internal controls that ensure funds are always handled correctly and in accordance with the organisation’s interests.
Human error within the AP function is another risk that organisations need to mitigate. Simple mistakes can result in funds being misappropriated, which can result in devastating financial losses. Once again, robust internal controls will reduce instances of human error.
Internal controls are not ‘set-and-forget.‘
For your internal controls to be effective over the long term, they need to constantly evolve as your organisation evolves.
Processes need to be in place that address the 4 stages of internal controls:
The development of your AP function’s internal controls should begin with clear expectations and guidance from senior management or the board, around the risks that need mitigating.
Armed with an assessment of the risks the organisation faces, and the extent to which those risks need mitigating, CFOs and AP Managers can go about crafting appropriate internal controls.
Over time, risk assessments will evolve in line with both external and internal factors. This will necessitate revisions of your internal controls to ensure they always remain fit-for-purpose.
Once you have developed a suite of internal controls, you need processes in place to ensure they are being followed.
This begins with the creation of a manual that explains what the internal controls are, how they need to be followed, and the consequences of any breaches. Not only does a manual serve as a guide for AP staff to follow, but it also provides the function’s managers with the necessary documentation to demonstrate to senior executives that measures are in place to mitigate the risks identified during the development stage.
Frontline AP staff should also have input into the manual, so they feel a greater sense of ownership over how the department functions. Their insights and hands-on experience can also enhance the relevance of the manual.
Regular monitoring of the efficacy of your internal controls is essential. This can occur in a variety of ways.
Every time a breach of internal controls is identified, the AP function’s management should undertake a review to identify how the breach occurred, and what can be done to ensure it doesn’t happen again.
Furthermore, by undertaking periodic audits of your AP function, you may identify potential vulnerabilities in your internal controls that need remediating.
Once you identify ways that your internal controls should be strengthened, you should go about refining them to ensure they are always aligned with your organisation’s tolerance for a range of risks.
Many organisations don’t think about internal controls on a regular basis. They may have a range of ad hoc controls in place, but don’t periodically monitor or refine them.
Nevertheless, to be effective, someone in your AP function should assume responsibility for overseeing internal controls.
Whether it’s the CFO or AP Manager, it’s crucial that someone takes ownership of internal controls and prioritises them. Ultimately, the individual who takes ownership of the AP function’s internal controls must be responsible to the board, ensuring that the risks the organisation faces are being adequately mitigated.
Many organisations make valiant attempts to implement internal controls, but struggle when it comes to ensuring they are effective. This could be leaving your organisation exposed to a range of risks, including fraud and error.
With Eftsure sitting on top of your accounting processes, you have an additional layer of defence that helps prevent unauthorised outgoing payments. All outgoing payments are verified against our proprietary database, giving you assurance that cyber-criminals and malicious insiders are not defrauding you. You are also protected from losses as a result of human error.
Speak to Eftsure today for a demonstration of how you can stay protected.
Internal controls over vendor master file keep your data secure with clear rules, audit trails, and consistent oversight for long-term data integrity
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