7 Auditing and Compliance Challenges – and How Stampli Can Help

CFOs face a number of risks, and the most important risks have changed in recent years. The CPA Journal identifies three major risks for businesses:

• Fraud and theft: Companies face the risk of fraud and theft, including cybersecurity risks.
• Remote work: Can remote workers collaborate, work productively, and keep company data secure?
• Speed of innovation: “The pandemic accelerated the broader use of digital technologies. This took the form of how customers shop, bank, make payments, and even entertain themselves.”

As this podcast episode points out, managing risk must be addressed, in order to raise additional capital. Automation can help CFOs address and minimize risks, and automating Accounts Payable is one area of focus. Auditing and compliance tasks require the AP department to gather and review data to verify transactions, and automation makes the process faster and easier.

Stampli is a complete Accounts Payable Automation (AP Automation) software that brings together accounts payable communications, documentation, corporate credit cards, and ACH or check payments all in one place, allowing AP to have full control and visibility over corporate spending. 

By centering communications on top of the invoice itself, AP departments collaborate and communicate better with approvers, vendors, and any stakeholder involved with purchases, allowing approvals to happen 5x faster.

Here are seven auditing and compliance issues that relate to AP. As you’ll note in the examples below, auditors perform test work on a sample of large dollar amounts first. If there are exceptions or problems with the items selected, the auditor will review more items with lower dollar amounts. 

#1. The Search for Unrecorded Liabilities

Auditors need to verify that a company’s total liability balance is correct, and the search for unrecorded liabilities is an audit procedure to test the liability balance. 

The auditor requests a sample of large payments processed in the first few weeks after year end, and the documentation (invoices, shipping receipts) related to the payments. If the payment was for an expense incurred before the end of the year, the company should have an expense recorded in the proper year. 

Assume, for example, that a company receives an invoice on 12/27/21 for a $4,000 IT repair completed on 12/15/21, and the invoice is paid on 1/5/22. The expense was incurred in 2021, and the company should record the repair expense in ‘21.

An auditor will also review interest payments and principal repayments on debt, in order to confirm each year-end debt balance.

#2. Large Asset Purchases

An audit requires the CPA firm to analyze each asset account balance, including cash, accounts receivable, and fixed assets. One procedure is to review payments made for expensive assets, and to determine if the business has title to the asset. Items on consignment, for example, are not owned by the business and should not be listed as assets.

In this example, assume that a business purchases a $100,000 piece of equipment. It’s very likely that a large purchase requires a purchase order (PO), and multiple approvers (given the dollar amount). Auditors will review the PO, and determine if the proper number of managers approved the invoice. The business will also need to provide the title, proving ownership.

#3. Related Party Transactions

The Securities and Exchange Commission (SEC) requires public companies (those with publicly traded stock outstanding) to disclose related party transactions. Related parties include large investors, board members, key management personnel, and close family members of these individuals. Auditors need to know if related party transactions were done at “arm’s length”, meaning that the price negotiated with the related party is similar to prices charged by third parties. 

To illustrate, assume that Acme Construction purchases concrete from a business owned by the CEO’s son. When the related party relationship is disclosed, the auditors will review invoices to determine if the price charged for concrete was similar to prices charged by third party vendors.

#4. Internal Controls Over Purchases

An audit requires the CPA firm to assess internal controls over each business process, and whether or not the controls are sufficient to protect company assets, and to produce reliable financial statements. Auditors must assess whether or not the purchases and accounts payable controls are sufficient. Here are some controls that must be tested:

• If POs are required, is a PO generated for each purchase? In some cases, POs are required based on a minimum dollar amount (all purchases greater than $500, for example).
• Is each vendor invoice compared with the shipping receipt (or evidence that a service was provided)?
• For purchases requiring POs, is each PO matched with the shipping receipt and vendor invoice?
• Does the business provide documentation and obtain approval from the correct approver? If multiple approvals are required for larger purchases, is the policy followed?

As explained in prior examples, the auditor will select a sample of purchase transactions (starting with large dollar amounts), and determine if the controls were followed by employees. If not, the auditor will document the exceptions and may review a larger sample of transactions.

These controls prevent theft and ensure that each purchase is approved based on company policy.

#5. Progress Billing Verification

Long-term projects, such as construction projects, are often managed based on a progress billing arrangement. The builder bills the customer when certain construction milestones are completed, and invoices are part of the documentation used to confirm a particular milestone.

Let’s assume that Reliable Construction is building a new branch location for a bank. The contract states that Reliable must be paid $100,000 when the foundation is poured. Before the payment is made, bank officials inspect the building site and review invoices and payments related to the foundation work.

#6. Compliance-Related Payments

There are a number of other payments that businesses make to comply with federal, state, or local laws. Here are some examples:

• Tax payments: Tax deposits made for federal, state, and local income taxes
• Tax withholdings: Tax payments submitted for federal, state, and local income tax on employee wages
• Benefit payments: Health insurance premiums, and retirement account payments on behalf of employees
• Professional licensing fees: Many professions require individuals to maintain licenses by paying fees and completing continuing education

Businesses may need to verify payment and provide documentation for these expenses, and firms need an efficient process to complete these tasks.

#7. Vendor Payments

Well-organized vendor payment records help a business maintain good vendor relationships. If the vendor offers a discount for timely payment, the invoice and payment records will support your request for a discount. Some companies order items from the same vendor each week or month, and buyers need organized records to track which invoices have been paid.

AP Automation with Stampli can help you manage accounts payable and minimize the time required to find documentation for a particular transaction.

How Stampli Can Help

Stampli’s end-to-end AP platform gives you full control and visibility over all your corporate spending from cards to invoices to payments — all in one place. The auditing and compliance challenge is to locate and provide access to a large amount of data, and Stampli automates the process to save time and effort.

Your accounting software or ERP system is the source of truth for transactions, and Stampli uses your payables data to speed up approvals and to increase collaboration. With Stampli, you can access invoice, shipping receipt, payment data, as well as supporting documents, on a single screen, and review all communications related to an invoice.

Use Stampli to grow your business, and to stay in compliance.