Skip to Navigation Skip to Content

Fiscal Technologies Blog - 3-Way Matching - The Weak Link in P2P

News and Events / / 3-Way Matching - The Weak Link in P2P

3-Way Matching - The Weak Link in P2P

March 17, 2020 by Sal Murdoch

Across today’s complex Procure-to-Pay (P2P) landscape, legacy analysis techniques are no longer safeguarding an organisation’s hard-earned cash.

For years, AP has relied upon 3-way matching to validate the payment of supplier invoices, it is the most common internal control process in the P2P cycle. However, with the complexity and speed of today’s AP technology, where invoice-related information arrives in a multitude of different formats and payments made in several ways, three-way matching can’t deliver the protection needed.

Where technology and automation remove the need for many manual checks and balances across the P2P transaction, errors can creep in and individuals can bypass, intentionally or unintentionally, the workflow process. Traditional 3-way matching won’t identify these issues and accepts the transaction detail as fact.

For over 17 years, we have seen a wide variety of incidents where 3-way matching has been by-passed. The following six are the most popular:

  1. Frequent exceptions

Investigating exceptions or non-matches can distract staff who spend time investigating and fixing the payment. When tricky exceptions start to accumulate, employees can be tempted to process them without a full investigation because it is time consuming, repetitive and could impact on key performance indicators or early payment discounts.

Frequent exceptions from a specific supplier soon become excepted as ‘the norm’ and less rigor is put against them, or the specific exception reason which increases the risk of fraud.

Using NXG Forensics® to detect and alert AP teams to risk within transaction irregularities, our customers find that they eradicate overpayments and the risk of supplier fraud.

  1. Open purchase orders

When a purchase order remains ‘open’ who is responsible for ensuring it is closed when the original order is completed?

Open purchase orders allow overpayments to occur, sometimes for a significant duration and these can be tricky to unravel. This is common where call-off orders are in place or the purchase order details ‘multiple shipments’, usually for repeat items, and if this is then paid automatically without checks, either until the invoice limit is reached, or the internal audit highlights the issue.

  1. Overreliance on automation

Automating the three-way matching process certainly saves time and manpower, but it also removes the natural checks and balances of human oversight. This creates an overreliance on the automated systems encouraging staff complacency and reduces the benefit of human insight.

  1. Duplicate purchase orders

Duplicate purchase orders can be erroneously created for the same goods, for example by different people in time-constrained situations, or records for the same supplier causing confusion. Duplicate purchase orders can also occur if the purchase order is allocated to the wrong supplier, for a different period of time or for similar orders, by different requestors.

  1. Manual errors

Because procurement staff manually enter most purchase orders into their procurement system they are subject to the inevitable vagaries of typographical errors.

If using digital systems to transact business, manual processing and approval errors still occur, where there are multiple similar orders, or frequent similar orders and those responsible for approval may put too much trust in automation and approve payments without the normal thoroughness of oversight.

      6.  Automated supplier errors

With the advent of online P2P portals, suppliers can now load in their own (potentially incorrect) invoices onto customers’ ERP systems. This adds to the complexity of the procurement process, and also relies on inherent trust and the security of suppliers.

Often however, human nature kicks in and people are willing to please or are pressured to make exceptions to the EPR system and process, they may make changes to the supplier file, bank details etc, without consideration of the effect on the ERP or what errors this may cause.

Taking a FISCAL Forensic View

Almost all companies use some form of three-way matching, but no company should be using it exclusively to prevent fraud and overpayments. Although effective as a first line of defence, finance function processes must bolster the use of 3-way matching with further stringent internal process controls, strict oversight of the master supplier file and forensic analysis of transactions – prior to payment.

NXG Forensics® is a pure-play payables assurance solution. It is used on a continuous preventative basis to monitor 100% supplier transactions prior to payment. The solution undertakes greater range and depth of analysis than the ERP analysis alone, identifying anomalies, defending against fraud, increasing profitability and driving process improvement. This streamlines the payment run, AP staff take just 30 minutes per day to check and release approved payments, knowing that they have been analysed against recent and historic transactions.

Related News and Events

This website uses cookies. By continuing to use the site you are agreeing to our use of cookies.

Return to the Top of the Page