How to perform an accounts payable audit

An accounts payable audit is an independent review of your company’s accounts payable records. It helps ensure financial accuracy and prevent fraud—and in many cases, it’s required by law. Since the Sarbanes-Oxley (SOX) Act was passed in 2002, publicly traded companies are legally required to undergo an impartial assessment of all relevant records.

But even for small private companies, an AP audit is a valuable risk assessment tool. A 2024 study from the Association for Financial Professionals (AFP) found that 80% of businesses experienced either successful or attempted payment fraud in 2023. Meanwhile, a 2024 report from the Association of Certified Fraud Examiners (ACFE) estimates that businesses lose 5% of their revenue to fraud each year. That kind of loss can affect profits no matter your size.

Here, we explain what an accounts payable audit is and why it’s important to audit AP. We also cover the step-by-step process of how to audit accounts payable to help you improve financial controls and limit the risk of fraud.

What is an accounts payable audit?

An accounts payable audit is an examination of your company's accounts payable records and processes. It verifies the accuracy, validity, and completeness of the payments made and liabilities owed to your suppliers. Managing AP in general is important for fraud prevention, error reduction, and financial health; an audit helps secure those benefits for your business.

AP audits check for compliance with financial regulations, detect errors or fraud, and confirm your transactions are properly recorded. They also help assess the strength of your AP processes and internal controls, highlighting areas for improvement.

AP audit objectives

The goal of any audit is a “clean” outcome. For accounts payable, that means:

1. Verifying accuracy: Ensures the liabilities, payments, and invoices you recorded are accurate and match your supporting documentation
2. Identifying errors or fraud: Helps detect payment errors, unauthorized transactions, or fraudulent activity
3. Ensuring compliance: Confirms your AP records align with company policies, vendor contracts, and regulatory requirements such as SOX, where applicable
4. Evaluating internal controls: Assesses whether your internal controls are effective in preventing errors or fraud
5. Validating completeness: Confirms that you correctly recorded all expenses and liabilities in the right accounting periods

Who performs an AP audit?

Accounts payable audits are typically conducted by:

• Internal auditors: These professionals most commonly perform AP audits as part of routine internal control assessments. They review AP processes, verify proper approvals, check for duplicate payments, and ensure adherence to company policies.
• External auditors: Third parties conduct AP audits during annual financial statement audits, focusing on year-end balances, cut-off testing, and checking for accurate financial reporting. They may also perform these audits for regulatory compliance or special investigations.
• Finance managers/controllers: These internal stakeholders often lead or oversee AP audits as part of their supervisory responsibilities, particularly for monthly or quarterly reviews of the AP function
• Specialized audit firms: These organizations may be hired for forensic audits when you suspect fraud or for comprehensive process reviews

The choice depends on the audit's purpose: routine internal controls (internal auditors), financial statement accuracy (external auditors), or operational oversight (finance management).

Is an accounts payable audit mandatory?

Whether an AP audit is mandatory for your company depends on your business type and industry. While most companies aren't legally required to conduct standalone accounts payable audits, certain situations make them non-negotiable. AP audits are mandatory for:

• Public companies: Securities and Exchange Commission (SEC) regulations require audited financial statements, which include examination of accounts payable balances and related internal controls
• Sarbanes-Oxley compliance: Public companies must maintain effective internal controls over financial reporting for SOX compliance, often necessitating regular payables audits
• Industry-specific regulations: Healthcare, banking, and government contractors face additional audit requirements that extend to their AP processes
• Grant recipients: Organizations receiving federal grants typically must submit to audits that include accounts payable verification
• Loan covenant requirements: Some lending agreements mandate periodic financial audits that encompass AP functions
• Regulatory investigations: Tax authorities or other agencies may require AP audits during compliance reviews

For most private companies, implementing an AP audit program falls into the "voluntary but smart" category. An audit of payables can uncover duplicate payments, fraudulent transactions, and process inefficiencies that save money over time. Many finance teams schedule these reviews quarterly or annually as part of their internal controls framework.

Even when they're not required by law, AP audits provide valuable oversight. They help maintain accurate financial records, prevent fraud, and give management confidence in their payment processes. Think of them as preventive maintenance for your financial operations. Better to catch issues early than deal with bigger problems later.

Why it’s important to audit accounts payable

Accounts payable audits are so important because AP handles outgoing payments, making it especially vulnerable to fraud, theft, or overpayments. An AP audit:

1. Mitigates fraud risks: AP audits help uncover gaps in your internal controls that could leave you susceptible to fraud. Identifying weaknesses is crucial for preventing accounts payable fraud before it happens.
2. Prevents payment errors: Duplicate payments are a significant challenge in AP operations. These issues often occur due to poor visibility throughout your AP workflow. Audits help identify payment errors and provide insight into which steps in your AP workflow need improvement.
3. Fosters confidence in your business practices: An efficient and reliable AP process is essential for your company's credibility. It showcases your ability to mitigate fraud and errors and assures stakeholders that your financial reporting is accurate. Confidence is crucial for attracting investors and maintaining a positive brand impression.
4. Maintains regulatory compliance: Regular AP audits help you stay compliant with tax regulations, industry standards, and financial reporting requirements. This proactive approach protects your company from penalties, legal issues, and potential damage to your reputation.

Regular AP audits protect your bottom line while building stronger financial foundations that support long-term business growth and stakeholder trust. The key to a successful audit is knowing what exactly auditors are looking for.

What do auditors look for in an AP audit?

When you submit your AP records for an audit, you’re making assertions that your records are accurate and complete. The auditor’s job is to evaluate whether your assertions are true. The four main assertions that auditors look at in an AP audit are completeness, validity, compliance, and accuracy, but they'll also evaluate your authorizations, segregation of duties, and disclosures.

1. Completeness

Auditors will verify that you've duly recorded and accounted for all your liabilities and payables balances within the appropriate accounting periods. To do that, they rely on cut-off tests, reconciliations, and audit trails to verify that you’ve accurately recorded all your invoices and that you haven’t omitted any transactions from your records.

2. Validity

Examiners will also audit the validity of your AP transactions. This often involves reaching out to your vendors and suppliers for a confirmation request that corroborates the payments and liabilities listed in your records. Your regular vendors are the biggest target, though the type and number of partners your auditors reach out to will vary based on your size and industry.

3. Compliance

You must record your AP transactions according to Generally Accepted Accounting Principles (GAAP). Auditors will examine your records to ensure that’s the case.

The audit typically starts by scrutinizing year-end financial statements such as your balance sheet and income statement. Then, examiners randomly trace entries from your company's general ledger back to their sources. This process identifies whether you followed the correct accounting procedures.‍

4. Accuracy

Auditors examine the mathematical precision of your AP records by testing invoice calculations, payment amounts, and account balances. They'll verify that vendor invoices match purchase orders and receiving reports, check that discounts were properly applied, and confirm that currency conversions are correct.

This testing helps identify computational errors, data entry mistakes, or system glitches that could affect your financial statements.

5. Authorization

Examiners review your approval processes to confirm that you properly authorized all AP transactions before releasing vendor payments. They'll examine signature cards, approval hierarchies, and spending limits to verify that authorized personnel made payments.

Auditors also check that large or unusual transactions received appropriate management approval and that your company followed established procurement policies throughout the payment process.

6. Segregation of duties

Auditors assess whether your organization properly separates key AP functions among different employees to prevent fraud and errors. They'll review who can approve invoices, process payments, and reconcile accounts to identify potential conflicts of interest.

The examination includes checking whether the same person can both authorize payments and access cash, as this combination creates opportunities for unauthorized transactions or embezzlement.

7. Disclosure

The final focus area in an accounts payable audit is disclosure. Auditors verify proper disclosure by checking all the liabilities, calculations, and footnotes explaining unusual transactions in your year-end financial statements. They may also ask you to disclose a management representation letter that confirms your financial statements accurately represent your AP transactions.

How to audit accounts payable

Step 1: Plan and define the scope of the audit

Before jumping in, outline the objectives and boundaries of the audit. Determine the period the audit will cover, e.g., quarter-end, year-end, and your timeline for audit fieldwork.

Considering the areas relevant to accounts payable—completeness, validity, compliance, accuracy, authorization, and disclosure, as discussed above—you’ll need to identify the documents and systems that need review. These typically include internal controls documentation, the AP ledger, general ledger, invoices, purchase orders, and bank statements.

Lastly, make sure the audit team has access to relevant systems, journal entries, documents, and staff throughout the audit process. This may include:

• Read-only permissions: Access to accounting software, procurement systems, and other platforms
• Interviews: Access to key staff involved in the AP process to ask questions and conduct interviews
• Physical entry: Access to any physical locations where you store relevant documents

With proper planning and access to the right documents and systems, your audit team will be well-positioned to thoroughly evaluate accounts payable processes and make sure everything checks out.

Step 2: Evaluate internal controls

Internal controls are critical to minimizing errors and fraud in AP. Start by examining:

• Segregation of duties: Are different team members responsible for approving invoices, processing payments, and reconciling bank statements?
• Approval workflows: Verify that payment approvals follow the organization’s policies
• Vendor management: Check procedures for adding and verifying new vendors to prevent fake or duplicate vendors
• Three-way matching: Confirm that your team matches invoices to purchase orders and receiving reports before making payments

If you identify internal control gaps or weaknesses, you'll need to create audit procedures to address them. For example, say you find out one person prints checks, signs them, records payments, and reconciles the bank statement—in other words, there’s a lack of segregation of duties in AP.

In that case, there’s a high risk that the employee could commit AP fraud by paying fictitious vendors or intentionally paying a vendor twice and stealing the second check. Your accounts payable audit procedures will need to test for fraud.

Step 3: Analyze the AP ledger and general ledger

A detailed review of the AP ledger is essential to an audit's accuracy and completeness. Perform the following checks:

• Compare AP balances to the general ledger to identify discrepancies
• Review month-end reconciliations and check that all outstanding liabilities have been recorded
• Look for unusual entries, such as large or frequent adjustments, which could signal errors or fraud

Audit software helps you quickly analyze trends and spot outliers, such as duplicate amounts or unexpected vendor activity.

Step 4: Perform vendor and invoice testing

Testing individual vendors and invoices helps verify the accuracy and legitimacy of your accounts payable transactions. Use a sample-based approach to test vendors and invoices. Here’s how:

• Select a sample of vendors and invoices for detailed review
• Verify vendor information is accurate and complete (name, address, tax ID, etc.)
• Match invoices to corresponding purchase orders, contracts, and receiving reports
• Confirm that invoice amounts, due dates, and payment terms align with agreements
• Check for duplicate payments by cross-referencing invoice numbers and amounts

Send confirmation letters to vendors asking them to verify balances owed. You should thoroughly investigate any discrepancies you uncover to determine their root cause for proper resolution.

Step 5: Search for unrecorded liabilities

Identifying liabilities that haven't been recorded yet is a key part of maintaining accurate financial records. Missing liabilities can lead to understated expenses and overstated profits, which throw off the accuracy of your financial statements. Here's how to look for them:

• Review subsequent payments made after the audit period to detect any invoices the company should have accrued earlier
• Check open purchase orders for goods or services received but not yet invoiced
• Examine vendor statements for missed or pending payments

This process helps you catch any missing liabilities and provides assurance that your accounts payable balance reflects all outstanding obligations to vendors.

Step 6: Assess risks and summarize findings

Wrap up your audit by evaluating the overall risk profile and documenting what you've discovered. This final step helps you paint a complete picture of your accounts payable health:

• Perform an accounts payable risk assessment
• Document any issues, exceptions, or risks identified
• Summarize findings and recommend corrective actions
• Provide a summary of procedures performed and key observations
• Make recommendations to address issues, such as improving segregation of duties or adopting AP automation software

Keep your documentation clear and actionable so stakeholders can easily see what's working well, what needs attention, and the specific steps required to address any problems you've uncovered.

AP audit checklist

An effective accounts payable audit helps identify discrepancies, strengthen financial controls, and maintain vendor relationships while protecting your organization from potential fraud and compliance issues. Here's a checklist of tasks to complete:

• Organize and reconcile AP records: Verify that all outstanding balances match subsidiary ledgers and general ledger totals
• Review vendor master files: Check for inactive vendors, validate contact information, and identify any unusual vendor additions or changes
• Validate invoice approvals and payments: Confirm you obtained proper authorization signatures and followed approval limits for all transactions
• Check for duplicate payments: Search for identical invoice numbers, amounts, or vendor payments that may indicate accidental double processing
• Assess segregation of duties: Verify that different team members handle invoice processing, payment authorization, and check signing
• Evaluate internal controls: Test existing procedures for invoice receipt, approval workflows, and payment processing safeguards
• Review compliance with company policies: Compare actual practices against written procedures for purchasing, payment terms, and vendor management

This quick checklist serves as your roadmap for how to audit accounts payable, helping you identify potential issues and maintain strong financial controls throughout your audit process.

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Example: Accounts payable audit in action

Let's look at a simple example of how an audit finding might go.

During a routine accounts payable audit, the auditor notices two identical payments of $2,847 made to the same office supply company within 3 days of each other. Both payments reference the same invoice number for printer cartridges.

The investigation reveals that you processed the original invoice normally through the AP system. However, when the vendor called about a "missing payment," an accounting clerk manually cut a second check without verifying the payment history.

To resolve this, the steps would be:

1. Contact the vendor to request a refund of the duplicate payment
2. Implement mandatory payment history checks before issuing manual payments
3. Require supervisor approval for all manual checks
4. Add vendor payment lookup to the monthly reconciliation process

The new controls can help prevent similar occurrences in subsequent audit periods and prevent the company from losing money through duplicate payments.

Best practices for an AP audit program

A well-designed AP audit program protects your organization from financial losses while maintaining strong vendor relationships and operational efficiency.

Running an effective AP audit program requires consistent processes, the right tools, and well-trained staff. Here are four key practices that will help you build a program that catches errors, prevents fraud, and keeps your financial operations running smoothly.

Automate routine checks

AP automation tools take the heavy lifting out of your audit process by scanning invoices, matching purchase orders, and flagging unusual transactions. These systems work around the clock to catch discrepancies that human reviewers might miss, especially when processing high volumes of invoices.

Automation also creates detailed audit trails that make it easier to track down issues when they arise. You can redirect the time your team saves on routine verification tasks toward investigating complex exceptions and building stronger vendor relationships.

Maintain up-to-date vendor records

Your vendor database is the foundation of accurate payment processing. Set up a regular schedule to review and update vendor information, including addresses, banking details, tax identification numbers, and contact information. Outdated records lead to delayed payments, returned payments, and frustrated suppliers.

Create a process for vendors to submit changes directly through a secure portal, and always verify banking changes through a separate communication channel to prevent fraud. Clean vendor data also improves your ability to negotiate better terms and identify opportunities for early payment discounts.

Regularly train AP staff

Ongoing training keeps your accounts payable staff sharp and aware of emerging fraud schemes. Schedule quarterly sessions covering topics such as invoice verification techniques, red flags for fraudulent documents, and proper approval workflows. Include real examples from your organization's experience to make the training relevant and memorable.

Cross-training team members on different aspects of the AP process creates backup coverage and helps staff understand how their work fits into the bigger picture. Well-trained employees are your first line of defense against errors and intentional fraud attempts.

Monitor for duplicate payments

Duplicate payments are one of the most common AP errors, often resulting from invoice resubmissions, similar vendor names, or processing delays. Set up automated controls in your AP system to flag potential duplicates based on vendor, amount, date ranges, and invoice numbers.

Create a monthly report showing all payments above a certain threshold to the same vendor within a short time period. Train staff to verify that you’ve properly applied credits and adjustments after discovering duplicate payments. Recovery efforts should begin immediately, as vendors may not voluntarily report overpayments.

How to perform an AP risk assessment

An accounts payable risk assessment is a comprehensive evaluation of potential vulnerabilities and threats within your payment processes. It matters because it helps you protect yourself from financial losses, maintain vendor relationships, and stay compliant with regulations while keeping operations running smoothly.

The stakes are high when it comes to AP risks. A single overlooked vulnerability can lead to financial repercussions, damaged supplier relationships, or regulatory penalties. By proactively identifying and addressing these risks, you can prevent costly mistakes before they happen. Common AP risks include:

• Unauthorized payments: Payments made without proper approval or to unverified vendors, often resulting from weak authorization controls or fraudulent activity
• Vendor fraud: Fraudulent schemes, including fake vendors, invoice manipulation, or kickback arrangements where suppliers overcharge or provide substandard goods in exchange for personal benefits
• Duplicate payments: Paying the same invoice multiple times due to poor tracking systems, vendor resubmissions, or processing errors
• Policy noncompliance: Failing to follow established procurement policies, approval hierarchies, or regulatory requirements, which can lead to audit findings and penalties
• Data security breaches: Unauthorized access to sensitive vendor information, payment details, or financial data that could result in identity theft or competitive disadvantage
• Invoice processing errors: Mistakes in data entry, calculations, or coding that can lead to overpayments, underpayments, or incorrect financial reporting
• Vendor management issues: Poor vendor onboarding, inadequate performance monitoring, or lack of contract compliance tracking
• Payment timing problems: Late payments that damage vendor relationships and may incur penalties, or early payments that negatively impact cash flow

Regular AP risk assessments help you protect against financial losses while maintaining strong vendor relationships and regulatory compliance.

How to identify, assess, and mitigate AP risks

Start by mapping your entire AP workflow from purchase requisition to final payment. Walk through each step and ask what could go wrong at every stage. Interview team members who handle different parts of the process, as they often have valuable insights about potential weak spots.

Once you've identified potential risks, assess their likelihood and potential impact using a simple scoring system, like rating each risk from 1–5 for both probability and severity. This helps prioritize which risks need immediate attention versus those you can address over time.

Risk mitigation involves implementing controls and procedures to reduce both the likelihood and impact of identified risks. This might include establishing approval thresholds, implementing 3-way matching procedures, or improving segregation of duties.

Tools for risk assessment

Modern software can significantly enhance your risk assessment capabilities. AP automation platforms often include built-in risk monitoring features, duplicate payment detection, and approval workflow management. Data analytics tools can help identify unusual patterns or anomalies in payment data that might indicate fraud or errors.

Consider engaging external auditors or AP consultants for periodic independent assessments. Fresh eyes can often spot risks that internal teams might miss.

Common weaknesses in AP internal controls

Depending on the size and maturity of your company, an AP audit may reveal certain weaknesses in your internal controls. Here are some of the most common gaps across small, medium, and large businesses:

Weaknesses in small businesses

Small companies face unique AP control challenges due to limited resources and staff constraints that often create vulnerabilities in financial oversight:

1. Lack of segregation of duties: Limited staff often results in a single person handling multiple AP tasks, increasing the risk of fraud and errors
2. Heavily manual processes: Manual data entry increases the likelihood of simple mistakes and leads to inefficient processes
3. Inadequate approval workflow: An informal invoice approval process allows staff to release payments without proper oversight or documentation

These control gaps can lead to audit findings that highlight fraud risks and operational inefficiencies. Small businesses can strengthen their controls by implementing basic approval hierarchies, cross-training staff to enable periodic duty rotation, performing regular audits, and adopting simple AP automation tools that fit their budget and scale.

Weaknesses in mid-sized companies

Growing companies often struggle with transitional control issues as they expand beyond startup operations:

1. Inconsistent segregation of duties: While roles may be more defined than in smaller businesses, staff overlap during high-volume periods can create opportunities for errors or unauthorized transactions to slip through
2. Insufficient matching exercises: Weak controls over invoice matching procedures can lead to duplicate or inaccurate vendor payments
3. Partially manual processes: Incomplete or outdated AP automation software can lead to continued reliance on inefficient and error-prone manual processes

Auditors frequently identify these inconsistencies as material weaknesses that require management attention. Mid-sized companies benefit from documenting clear policies, investing in integrated AP systems, performing regular internal control assessments, and establishing backup procedures for peak periods to maintain control effectiveness.

Weaknesses in large enterprises

Enterprise-scale operations create complexity that can mask control deficiencies and make it difficult to maintain consistent oversight across AP activities:

1. Risk of duplicate payments: Large transaction volumes and complex approval systems make it easier for duplicate invoices or payments to get approved
2. Incomplete system integration: Poor integration between your AP automation software and your enterprise resource planning (ERP) system can result in data integrity issues or incomplete financial reporting
3. Decentralized AP processes: Inconsistent AP policies and workflows across locations or subsidiaries can create gaps in your internal controls

These weaknesses often result in significant audit adjustments and management letter comments about control design. Large organizations should focus on standardizing processes across locations, implementing duplicate payment detection tools, and improving system integration to create comprehensive visibility into AP activities.

Why Ramp Bill Pay is the best way to streamline AP for growing organizations

Ramp Bill Pay is accounts payable software designed to address the most common and time-consuming AP challenges. Whether it’s capturing invoices, automating approvals, or reconciling payments, Ramp digitizes every step and integrates with your ERP, helping your team close the books with greater speed and accuracy.

Unlike outdated systems that struggle with rigid integrations, inconsistent purchase order matching, and fragmented workflows, Ramp Bill Pay delivers end-to-end automation that adapts to your needs. Every invoice and payment is tracked for maximum visibility and oversight, so you’re always in control from submission to settlement.

Ramp continues to be recognized as one of the easiest AP software offerings to use based on G2 reviews (as of August 2025). With over 2,000 reviews and an average rating of 4.8 out of 5 stars, finance professionals across industries use Ramp to eliminate repetitive tasks, prevent costly mistakes, and keep accounts accurate.

Why AP operations often get stuck

Most accounts payable teams face three major bottlenecks:

1. Manually resolving discrepancies between purchase orders and invoices
2. Delays from approvals sitting idle in managers’ inboxes
3. Duplicating data entry to keep ERP records up to date

Ramp Bill Pay removes these pain points with a comprehensive suite of AP tools:

• Automated approval flows with smart routing and custom user roles
• Intelligent OCR and GL code recommendations
• Full visibility and oversight across AP, procurement, and expense processes
• Multi-bill payments, recurring vendor scheduling, and payment status monitoring
• Direct ERP integration that syncs with NetSuite, QuickBooks, Xero, and others
• Versatile payment options, including ACH, physical checks, cards, and domestic or international wires
• 2-way matching between invoices and purchase orders

Businesses ranging from small to mid-sized to enterprise-level choose Ramp for their AP automation and control. Here are a few examples:

• Mix Talent transitioned from BILL to Ramp and now spends just 15 minutes on accounts payable each cycle
• Skin Pharm reduced their approval timelines from weeks to just 48 hours
• Crossings Community Church processed bills 2x faster with Ramp Bill Pay

Why make Ramp Bill Pay your AP solution?

Ramp Bill Pay isn’t just another software. It’s setting the standard for what the best AP automation should deliver. With intelligent AI, seamless ERP connectivity, and workflows designed for real teams, Ramp empowers you to move faster and with fewer errors every month. Get started with Ramp’s AP automation for free, then scale up as needed for $15 per user per month or custom enterprise pricing.

Ready for a better way to manage AP? Get started with Ramp Bill Pay.