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Financial literacy
5 min

A Small Business Owner’s Guide To Accounts Payable Audits

Learn how an accounts payable audit keeps your business payments accurate, on time, and error free.

Published at | Updated:
A small business owner preparing for an AP audit by reviewing her books on a laptop.

Key takeaways

  • Run an internal accounts payable audit at least once a year to catch errors before they grow.
  • Follow the four stages of planning, fieldwork, reporting, and follow-ups to keep your audit organized.
  • Use an audit checklist to confirm invoices, approvals, payments, and vendor details are correct.
  • Adopt a digital payment tool to keep records in one place and make every audit faster.

What’s accounts payable?

Accounts payable (AP) is the money your business owes for goods or services already received but not yet paid for. It’s typically due within 30 to 90 days, so it sits as short-term debt (a liability) on your balance sheet.

Depending on a company’s size and structure, AP may be handled by a dedicated team, an external accountant, an in-house bookkeeper, an office manager, or even the owner. The responsibilities of whoever deals with accounts payable at a company include:

What’s an AP audit?

An accounts payable audit is a systematic review of your AP records to confirm every invoice is recorded, approved, and paid correctly. An audit can be external (prompted by tax authorities) or internal (run by your own team to improve processes).

Accounts payable involves one of the most important functions of any business: money coming out. So, it’s crucial to periodically review it to ensure everything is in order. The process entails making sure that all invoices are properly recorded, handled, and paid out.

Even if you don’t work with an accountant on a regular basis, it may be a good idea to hire one to do your audit. This way, you’ll get a professional outsider’s perspective on how to handle this critical aspect of your business.

Why AP audits are important

AP audits matter because they keep your books accurate and your payments clean. Regular audits confirm AP is recorded correctly, give an accurate view of your liabilities, and show your business is run by the book.

Major benefits include knowing your bills are paid on time, ensuring the process is smooth, and avoiding issues like:

  • Duplicate payments

  • Unrecorded liabilities, which result in a false bottom line

  • Defaults and fines on missed payments

  • Noncompliance with tax and other legal regulations

Stages of an AP audit

A successful accounts payable audit moves through four stages, each building on the last to surface errors and improve your process.

Planning

For an internal audit, the first thing you need to do is to establish its main goals and covered time frame. Then, assign auditing tasks within your team or hire external assistance and auditors, if needed.

Fieldwork

Gather all the necessary information and documents, including bills, invoices, payment records, receipts, balance sheets, purchase orders, bank statements, vendor lists, etc.

Once you have all the information, the auditor will review it to search for inconsistencies, errors, missed payments, or any other issues and inefficiencies in the way AP is handled in your company.

Due to the potential volume of data contained in these documents, the auditor will likely only review random samplings to get a representative picture of the company’s AP process.

Reporting

The auditor will create a report outlining what’s being done right and what needs to be corrected. Their suggestions may include digitizing your accounts payable process to eliminate errors and inefficiencies.

Follow-ups

Make the audit a periodic (preferably annual) habit for your business. This helps make sure recommendations and conclusions from the previous audit are implemented and all issues addressed.

Performing an audit every year also allows you to pinpoint potential problems in time before you file your annual reports.

Your accounts payable audit checklist

An audit checklist keeps your review organized and makes sure nothing slips through. Work through these checks each time you audit your accounts payable:

  • Confirm every invoice has a matching purchase order and receipt.

  • Check that each payment was approved by the right person.

  • Look for duplicate invoices or duplicate payments.

  • Match recorded amounts to what you actually paid.

  • Verify vendor details and bank information are correct.

  • Make sure payments went out on time and none were missed.

  • Review that all bills are recorded in the correct period.

How digital tools help simplify accounts payable audits

A digital payment tool like Melio makes AP audits easier by keeping everything in one place. Here’s how it helps:

Visibility

All your invoices are recorded in the same place for easy reference, and their payment status is always clear. This helps avoid mistakes and oversight. It also makes it easy to gather the necessary information for an audit.

Sync

With an online payment tool, you can sync your AP information with your accounting software, for more accurate bookkeeping. The status of each payment automatically appears on both platforms, saving you time and the need for manual dual input, which is prone to error.

Automation and scheduling

Automate recurring payments and schedule bills to go out on time. Fewer missed or late payments means a cleaner audit trail and fewer issues to fix later.

Streamline your accounts payable

Melio helps you keep accounts payable clean and audit ready all year. Sign up for Melio today to improve your accounts payable process and make life easier when it’s time for an audit.

Accounts payable audit FAQs

How often should you do an accounts payable audit?

Most businesses run an internal accounts payable audit once a year, often around year end. You may also audit after a change in accounting software or a jump in invoice volume.

What are the five C’s of auditing?

The five C’s are criteria, condition, cause, consequence, and corrective action. They give auditors a simple way to frame each finding and recommend a fix.

Is accounts payable hard to audit?

Accounts payable is straightforward to audit when your records are organized. Scattered invoices and manual entry make it harder, which is why a digital payment tool helps.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.

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