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Audit: Closing the door after the horse has bolted?

February 12, 2019 by Dr Alfred Pilgrim

It is a truth universally acknowledged*, that resolving a problem early in a process is very much cheaper than at the end of the process. This is true in pretty well all cases, whether building a production line, developing software or even in a relationship.

It’s strange, then, that the normal operational practice in many financial functions is to wait until the end of an accounting period, often a full year, before auditing transactional accuracy and process performance. Audit is well-understood, well-entrenched and, until recently, well-respected. It serves a useful purpose with respect to maintaining an honest and even commercial playing-field, but it is arguable whether organisations have benefitted from it as much as they anticipated, and it is clear that technology, methods and legislative frameworks have changed out of all recognition since auditing became the de facto disbursements control method.

Here at FISCAL Technologies, we are great advocates of Account Payable teams. These, often unsung, teams are responsible for the husbandry of much of the organisation’s working capital. When most executive teams are focussed either on top-line growth or on cutting cost to achieve profitability goals they often ignore or are unaware of the opportunities open to them through a more effective Accounts Payable operation. At best, this can result in wasted opportunities to internally fund strategic initiatives or reduce the requirement for expensive external funding or bank loans. At worst, cash-flow can dry up and the organisation ceases to be viable.

In theory, Accounts Payable is a relatively simple transactional process which reconciles the payment commitments made by the broader organisation. The reality, however, is that real-world issues relating to people, process, compliance, and dealing with physical and virtual transaction artefacts means that there are many opportunities for variance between the expected process and actual practice.  

Variance from best practice inevitably leads to incorrect payments and provides opportunities for fraudulent activity. Erroneous payments result in a reduction in available working capital - at least until the audit and recovery activities have completed, which can be a considerable time after the event and with the risk that not everything will be recovered.

Automation has its place, but often this is about labour efficiency and maximising “no touch” processing, rather than operational effectiveness. There can be real benefits to automation but implemented poorly it can make a bad situation worse, and this may not be visible until it’s too late.

Unlike traditional auditing and automation, which serve different purposes, FISCAL’s risk management technology identifies high-risk anomalies before payment occurs by using artificial intelligence (AI) machine learning techniques to forensically analyse each and every Accounts Payable transaction as it is processed.

This prevention strategy means that working capital is protected for better uses, recovery costs are avoided and the audit exercise simplified. A triple-whammy that contributes to lower costs simply by addressing the issue of erroneous payments earlier in the process. What’s not to like?

*Apologies to Jane Austin

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