If you’re in charge of managing your organization’s annual audit, then you know the process can bear stress. However, annual audits don’t need to be dreaded, and they are in fact a great resource for verifying the adequacy of financial procedures and systems your organization already has in place.
Very often, an audit highlights the requirement for more proactive internal controls, transparency and accountability in spending processes.
The key to effective audit preparation is having systems in place that reduce your workload through automation, ensure best practices and provide complete spend visibility. Using a spend management solution, for example, can simplify aspects of your audit with features that enable spend transparency, and internal controls that ensure compliance.
Let’s run through exactly what internal controls are and what they can offer your business.
Internal controls refer to policies and procedures that protect an organization’s resources and ensure accountability, compliance and operational efficiency.
Your internal control framework should assure best practices and mitigate risk by preventing overspending, fraud, and the like. These controls should, however, not reduce productivity, but rather guide your staff to spend responsibly and empower them to make informed decisions. A spend management solution provides a framework that strikes the balance between control and efficiency.
Transparency
Having real-time transparency into how your business is spending encourages a cost-conscious spend culture. It provides you with extra reassurance that your organization’s expenses are accounted for, so you can proactively curb overspending and define company-wide processes and procedures that must be followed during the procure-to-pay cycle. Leveraging your spend management solution’s internal controls and audit trails can facilitate this.
Put simply, an audit trail details the life cycle of expense reports and purchase requisition approval workflows, down to the date and time stamps of user activity. It records all purchase approvals, changes and rejections so you can immediately view authorized and unauthorized spend, and the users involved in transactions. It also provides you with additional verification information that was requested at the time of approval, such as additional documentation or context.
Having transparency across all transaction life cycle stages with digital documentation in one centralized database not only drives staff accountability, but eases your finance and accounts payable departments’ workloads.
Let’s explore the many benefits of audit trails.
The top 3 benefits of transparent audit trails
1. Prevent procurement errors
While some of your organization’s financial transactions may be simple, many can become complex and filled with lagging quotes, errors and the accompanying revisions. Plus, if you’re currently using a manual system and the mistakes aren’t revised, audits will always resurface any inaccuracies.
Luckily a spend management solution that provides audit trails can track transactions, improve accuracy and audit coordination because, in the case of an audit query, you’ll have a reliable resource to easily answer any questions.
2. Ensure spending policy compliance
Procurement and purchasing are dispersed among many departments and touchpoints across your organization, which can lead to data silos, poor visibility, inaccuracies, and non-compliance. It's essential to implement methods of promoting accountability and transparency among your team to ensure compliance with spending policies.
Audit trails drive accountability throughout your organization by giving you full oversight of requisition processes and approvals. With a simple look through a transaction's history, you can learn exactly who requested, obtained quotes and approved a transaction, with visibility of any changes.
A spend management solution provides internal financial controls including audit trails that encourage staff to keep your organization’s spend within compliance. Not only does this help you maintain and renew profitable contracts, but it also ensures you meet SOX and regulatory compliance so you can avoid costly audit fines.
An internal control framework can diminish any potential of internal fraud, such as embezzlement or theft, while helping your staff carefully avoid accidental noncompliance, like using an unauthorized supplier. As a result, your staff are empowered to spend responsibly and they’re accountable for their purchasing decisions. It also enables transparent reporting on all procurement and expense authorizations to boards, funders and regulatory bodies, like the IRS.
3. Improve your organization’s audibility
Verifying financial activity with clear audit trails can make overseeing an audit a lot simpler and can even help you accelerate the entire process. With transparent financial records, you can improve audit efficiency, which enables you to lower your expenses and go back to business as usual faster.
To make things easier, all transactions are easily searchable for quick questions or more in-depth analysis. Search criteria is easily accessible and includes:
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Requisition ID
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Purchase order receipt
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Invoice number
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Date
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Status
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Vendor
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Cost
How spend management solutions enforce spending policy compliance
Of course, audit trails are an excellent asset for enabling spend transparency and providing detection controls, however, an effective spend management solution should also provide preventive internal controls that enforce policies, spending limits and budgetary alerts to prevent unauthorized expenditure and overspending from occurring in the first place. Proactive internal controls eliminate the need for corrective action.
Set policies for travel and expense management
These internal controls are necessary for effective travel and expense policy management. By leveraging software to manage policies and standardize request creation and approval processes for travel and expense claims, employee spending is more predictable. You can ensure the adequacy of supporting documents, enforce pre-approval for travel requests and define the types of expenses employees will and will not be reimbursed for.
Meanwhile, you get the benefits of real-time alerts and email notifications for expense claims that have been flagged for noncompliance or that need to be reviewed and approved. This method of travel and expense management speeds up the reimbursement process and gives you the highest transparency of incurred expenses. You can reduce the risk of overstated expenses and human error, while having clear oversight of employee spend, should any audit queries arise in the future.
Now let’s explore how automation is used within spend management solutions to provide efficient processing, and maximum compliance and convenience.
Achieve compliance with automation on your side
Having a spend management solution that automates approval workflows offers additional financial controls in the procure-to-pay cycle.
Despite the entire procurement process being accelerated, compliance steps are enforced at each stage of the transaction. From simple structures to escalating multi-level approvals, automated workflows route requests according to configured rules, approval limits and ensure segregation of duties. Having access to a mobile app for approvals further streamlines processes. You can reduce delays and bottlenecks by empowering managers to approve on the go. Alerts notify users when action is required and approvers have access to real-time budget insight to review the potential impact of their spending decisions, along with historical audit trails that detail the actions leading up to the request for approval. It all adds up to spend transparency and accountable financial activity.
Make your annual audit painless
Leverage spend management software to achieve proactive spending policy compliance and transparency throughout your organization in preparation for your next audit. Curious to learn more about optimizing your spend management strategy throughout this year? Check out our recent blog on five questions every CFO should be asking themselves about their financial strategy.