Paperless A/P in your New Year’s resolutions? Make sure these internal controls are in place

Since about 80% of all your company’s transactions go through A/P, if a totally paperless A/P department is one of your goals for 2023, robust controls to prevent waste and misuse of company funds will be essential.

That’s because according to the U.S. Department of Commerce:

• 5% of all companies’ annual revenue is lost to fraud, and
• corporate financial waste, misuse and fraud has increased 292% since the beginning of the pandemic.

In the ResourcefulFinancePro workshop “A/P Internal Control Best Practices: Going Paperless,” consultant, author and former CFO Carl L. Young said that as you build your tech stack to achieve paperless A/P, you still need a level of internal controls similar to what you had in place pre-COVID when Finance staffers were all on site. They’ll be especially important in a hybrid work model with no paper trail of purchase orders, approvals, receiving reports or check requests.

Optimum controls for a paperless A/P environment

To protect company assets as A/P digitally transforms:

• Use a consistent electronic purchase authorization/order/receipt process that defines asset categories and specific item names. Young said, “Make certain you give them (an asset) name that can be recognized – not just ‘chairs,’ not just ‘desks,’ not just ‘computers.’ Give them a specific nomenclature, so you can now go back and understand where they are.”
• Assign company identification tags to assets, including a control number.
• Set capitalization thresholds appropriate for the business. “Some folks set it as low as $100. … It should be set as high as you can reasonably afford. Most folks are setting that bar at about $1,500. … However, even if you don’t capitalize (and you expense the asset right away), you must give them a tag and a number that you can control and still assign (responsibility) to some individual or group,” he said.
• Create procedures for periodic electronic verification of assets and conduct quarterly physical inventory.
• Electronically match inventory numbers with the corresponding cash flow dollar figures in the books and make adjustments as necessary, and
• Update policies to include electronic reporting of transfer, loss, theft or obsolescence of goods.

Young said when companies request his consulting services, he often finds these controls get overlooked during A/P digital transformation.

Even if you have to carve out time to collaborate with your software vendor reps to align these controls with your new tech, it’s worth it to stop cash leaks and head off inventory-ledger discrepancies that can add up and hurt the bottom line.