Three Essential Steps in Auditing the Vendor Master File

Contract implementation is an integral part of the strategic sourcing process. An important aspect of contract implementation is conducting periodic audits, to make sure all data is accurate and all components of the project are in sync. In this article Source One’s partner Cash Recovery Partners LLC demonstrates how to conduct a Vendor Master File audit.

While payment transactions and potential duplicate payments can be tempting to uncover, cleansing the vendor master file is an important first step in saving time and money for your organization. Allowing the vendor master file to go unchecked can lead to a variety of different issues.

First, duplicate vendors are the leading cause of duplicate payments. Failing to resolve the duplicate vendors in your Vendor Master File can result in the same duplicate payment scenario occurring over and over again. While detecting duplicate payments is important, it can be even more important to stop the cause of the duplicate payments from recurring by elimating any vendors that are duplicated in the vendor master file.

Second, accounts payable fraud often starts with the creation of an imaginary vendor in the vendor master file. As reported in a recent Association of Certified Fraud Examiner’s study, this scheme was the first or second top method that people employed to steal money from companies (depending on the country or industry). Removing old vendor accounts without activity in the last 18 months or reviewing newly created vendors with suspicious vendor information (e.g. blank name or address fields) can go a long way in preventing fraud.

Third, reducing the number of vendors not used recently or with inaccurate information can improve efficiecy of payable operations. Inaccurate vendor information often results in additional paperwork, tax consequences, and costly delays. For example, inaccurate or blank Tax Identification Numbers (TIN) can mean time-consuming management of B notices, and even penalties if the notices are not handled properly.

Since uncovering errors and fraud are sometimes like finding a needle in a haystack, it is important to analyze the data from several different perspectives. For example, duplicate testing on different combinations of fields (name, address, bank account number, tax ID number), as well as sophisticated matching methods (e.g. full name match, part name match, sounds like match) between employee and vendor files work well for this type of analysis.

Auditing vendor files is generally the best way to quickly risk assess where the issues may lie, as auditing transactional data can be overwhelming. Therefore, once you’ve cleaned house within the vendor master file, you’ll be ready to move on to analyzing transactional data, now armed with a list of vendors that are most likely to cause failure.

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