... what are the best practices with respect to threshold values or invoice sample audit? In your resources, I have seen info on PO thresholds.
For example, if we set up our system to allow invoices less than $200 to pass through, what would be some best practices? We do have high powered analytics to allow us to see invoice volume by vendor, invoice dollar groups, etc.
We conferred with our practitioner expert, Judy Bicking, on this.
Here's her response:
Best practice is around types of audits rather than limits, because industry, amount of invoice and amount of spend are different based on the size of the company.
Here are some suggestions:
If the invoice has gone through a duplicate check for VIDA (vendor, invoice number, invoice date and amount) and passed, and the invoice is tied to a PO and a three-way match has been completed, this could allow for a much higher random audit.
The percent that your audit should be based on is your number of invoices (such as every xx number of invoices), but I would recommend raising the dollar threshold as well because of the other checks and balances that are in place.
If the invoice is non-PO, I would audit these more carefully, as you may only have the duplicate invoice check in place. Lower the dollar value and number you randomly select, maybe every tenth invoice over a set number of dollars. You also may want to not only put in place a supplier audit (see below), but a check as to "who" (budget approver) is approving to ensure they are approving based on fact and not just pushing things through.
Since you can look at supplier level data: I would suggest an audit if a supplier goes over xxx dollars paid and xxx number of invoices. This would be for your suppliers where there could be a risk: how many invoices are paid because they passed through a three-way match audit tolerance? For example, your tolerance may be 10 percent or less, with a difference not to exceed a certain number of dollars. How many invoices went through because of the tolerance? If a supplier has a lot, they may have figured out your tolerance, or they may be a paper supplier with an agreement of 10 percent +/- variance.
BEST PRACTICE: Definitely have your payables audited by a Recovery Audit Company, as they have software that will catch what your system or auditors missed. Just negotiate: 1. what they find they must recover; 2. the set percentage rate that you pay for the recovery; 3. they tell you how they found it and a best practice to eliminate the error that caused the erroneous payment. This is a win/win.