As a business owner, you may already be aware that some degree of risk is unavoidable in running the AP (accounts payable) department. Here’s where Risk and Control Matrix in Accounts payable is helpful. Faulty records can lead to fraudulent or unnecessary B2B (business-to-business) payments. So, irrespective of the amount of control exerted by a company, a little bit of risk is unavoidable. But yes, if you want to know how to maximize risk-awareness for your company, then read on to understand the importance of the risk and control matrix!
What is risk assessment?
Let’s say a teacher teaches her students to cross a road. Use a zebra crossing; first, look towards your right, then left for any vehicles, and cross the street. That’s what risk assessment is all about in simple terms!
There are two core problems that every AP personnel deals with in accounting. These are inherent risk and residual risk. It’s essential to consider developing an AP risk and control matrix to cope with residual and inherent risks effectively.
Anywhere between hundreds to thousands of invoices are processed by the accounts payable department of organizations every year. A PYMNTS.com survey reported that for traditional invoice management, it takes 2-5 AP personnel to process every invoice over 14 days.
The scope for human error is massive. And if it’s not a routine accounting case, the inherent risk is even higher. Risks associated with misleading or incorrect information in accounting statements and complex calculations are inherent risks. Inherent risk can result in:
Despite careful and cautionary accounting strategies, companies can still face some risks concerning invoice management. After assessing existing controls, the remaining exposure is called residual risk or audit risk.
When an organization has taken some action to deal with potential problems without completely understanding or dealing with them, residual risk occurs. However, residual risk isn’t always indicative of negligence. Just like inherent risk, a bit of residual risk is simply unavoidable.
Calculate risks to reduce them when it comes to residual and inherent risks. AP risk and control matrix can help in minimizing these risks.
Here are the main components of developing an AP risk and control matrix for effective invoice management:
The third step, which entails integrating the matrices into a comprehensive risk assessment strategy, is imperative. Why? To maximize the possibility of error-free invoice management.
Here are the four main tools in accounting that are instrumental for error-free accounts payable and invoice management:
Unplanned and planned audits are essential for judging the transparency and accuracy of a company’s financial records.
Policies and rules are fundamental for avoiding rogue spending situations. Unprincipled AP personnel or other individuals can secretively rack up fraudulent payments in these situations.
Processing and sending invoices in batches ensures that every invoice gets processed following the same procedure. Batch processing also ensures the accuracy of the data entry process, which is a process that has the highest scope for errors.
Invoice automation software is key to minimizing residual and inherent risk. Invoice automation software utilizes machine learning and artificial intelligence for flagging signs of AP fraud. Besides, invoice automation software can execute pre-audit preparation work, control spending, and streamline invoice processing! One can download invoices automatically from various portals, saving time and costs.
Using invoice management software in combination with accounting matrices can lead to multi-faceted and sophisticated risk management.
See the benefits of automated invoice management:
Better overview. Less accounting work. More time for your ideas.