For paperless A/P, these internal control best practices must be in place

Many of your peers learned from the pandemic that a paperless A/P department can benefit every level of the organization, putting the focus on individual transactions instead of clusters of documents.

But as consultant, author and former CFO Carl L. Young said in the Premier Learning Solutions workshop “A/P Internal Control Best Practices: Going Paperless,” a paperless transformation in the current work-from-anywhere environment many businesses have right now makes it more challenging to control expenses and cash – along with waste, fraud and misuse of company funds.

Young cited a recent U.S. Dept. of Commerce statistic that 50% of business fraud is linked to weak internal Finance controls.

When moving away from outdated, paper-based processes and replacing them with streamlined, paperless A/P, the digital platform you choose (most likely an automation solution) also needs to be supported by your internal control best practices.

Paperless A/P controls

Here are some of the internal control best practices Young said need to be reviewed and updated if you’re pursuing a paperless A/P process:

1. Create a defined approval authorization chart. “You have to specify who can authorize what, who can approve what [and] what has to be done, in writing by position [not by a specific person],” he said. That documentation can be kept in an accessible digital file.
2. Make sure there’s separation of duties. “No one person can be in complete charge of any one transaction,” Young said.
3. Create a regular rotation of payables process responsibilities.
4. Create in-process approvals and verification, and establish data-related control points at critical parts of the payables process.
5. Implement an identification system for assets brought into the company, with responsibility assigned to a group or person. This includes outlining provisions of purchases and assigning a processing control number to them.
6. Implement a clear data management and file retention policy, including a policy for interfacing files with the general ledger, and
7. Implement a system of independent verifications of authorizations and purchase orders.

Because the place where most A/P errors occur is when companies receive goods and services, according to Young, he also recommends:

• establishing a centralized receiving point
• electronically maintaining pending receipts
• digitally verifying receipts with purchase orders
• generating electronic receiving reports with processing control numbers, and
• ensuring all receiving activities are verified to avoid discrepancies.