Accounts payable internal control checklist for businesses

Apr 05, 2024

Risks in business are mitigated with the help of what is called internal controls. The same applies to accounts payable.

There have to be standard operating procedures that can help prevent fraud, reduce improper payments, mitigate the risk of human error, and ensure regulatory compliance.

Given that a lot of business revenue is dedicated to accounts payable it makes sense for businesses to want complete protection of accounts payables.


To be precise, what you and your business need is an accounts payable internal control checklist. A well-designed accounts payable internal control checklist can go a long way in helping your business protect itself against potential damages.

What can poor accounts payable internal controls lead to?

In cases wherein a business has a poor implementation of internal controls or a lack of internal controls the issues that could arise include but is not limited to the following:

1. Lack of internal controls can lead to fraud or theft

In case there is a lack of internal controls in your accounts payable process then it will be easier for scrupulous agents to target your company.

The source of fraud may be external, like fraudulent invoices being sent to your organization, or internal, like employees embezzling funds. With the help of internal controls, you can prevent this from happening.

2. Lack of internal control leads to duplicate payments

Errors due to human mistakes are commonplace occurrences in most organizations. These mistakes can become especially costly if they happen in your accounts payable process.

These errors often come out as duplicate payments, i.e., when someone erroneously pays a vendor or supplier twice or more for the same invoice.

3. Tax issues and inaccurate financial reporting

Inaccurate financial reports or lack of proper controls could lead to your company over or underpaying its taxes, neither of these cases is good for your company’s bottom line.

4. Risk regulatory non-compliance without AP controls

Governments often mandate specific rules for financial recordkeeping done by businesses. In case you fail to adhere to these rules and regulations due to poor internal controls you might draw unwanted attention from authorities.

Basically, if you have poor accounts payable controls you will be more susceptible to compliance risks.

What are internal controls for accounts payable?

The system of internal practices and measures using which a business mitigates and limits the probability of financial damage is known as the accounts payable internal control checklist or system.

Internal controls accounts payable checklist can be broken down into three parts:

1. Obligation to pay controls

Organizations use obligation to pay controls as a way of checking whether invoices are accurate and that they are paying for items that have actually been received. Obligation to pay controls typically include the following steps:

• Purchase order approval - This is the step where the purchase order issued by your procurement team is matched and verified against the invoice, therefore confirming the approval of spending.

• Invoice approval - Once the buying organization receives the supplier invoice, the invoice approval process begins. Whether or not the invoice is valid and accurate is signified by an authorized approver before payment is processed.

• Two-way or three-way matching - In the matching process, invoices are matched against POs or Purchase Orders (2-way matching), information received (3-way matching), and information for inspection (4-way matching).

Before authorizing a given payment, this is done because it enables the basis of approvals to be more than just the purchase order and verifies the receipt of goods and services.

• Auditing for duplicates - This is the step where you manually check files to ensure no duplicate payments have been made.

2. Data entry controls

After you’ve gained confirmation that an invoice needs to be paid, to ensure an invoice is successfully recorded in the system there are two different data entry controls in place:

• Record before approval - Once your organization receives an invoice, it is recorded immediately in the accounts payable system to reference and check for accuracy later on.

• Record after approval - Every incoming invoice is assumed to have the potential to be a duplicate or erroneous by this control.

The invoice, therefore, undergoes a process of verification by an accounts payable employee who confirms its accuracy before approval is initiated.

3. Payment controls

Lastly, invoice payment controls are put in place to ensure that only legitimate payment funds are accessible. And also to ensure that these payments are then accurately reconciled within your business’s general ledger.

Accounts payable internal control checklist

To help establish key controls accounts payable process for your business, it is important that you have an internal control checklist for payment processing in place.

Given below are some pointers you can use to build the perfect accounts payable internal control checklist for your business:

Separation of duties

As we’ve already stressed before, use different people for different parts of the accounts payable process. This can help you significantly reduce the risk of fraudulent practices.

To reiterate, tasks such as purchase approvals, receipt of ordered materials or services, invoice approvals for payment, and review and reconciliation of financial records should all be overseen by different people.


When it comes to approvals it is best practice to regularly review and upgrade your approvals strategy. Additionally, make sure the individual involved in making the purchase is involved in the process.

You should also be assigning more than one person for approvals as a way of increasing accountability.


Finally, do not stick to checks as your only method of payment. Use other options as well, such as ACH and wire transfers.

Accounts payable internal controls best practices

1. Establish separation of duties

The risk of fraudulent practices is significantly reduced when different elements of the accounts payable process are assigned to different parties.

To be precise, to ensure an accurate accounts payable process the following tasks should all be overseen by different people:

• Purchase approvals

• Receipt of ordered materials or services

• Invoice approvals for payment

• Review and reconciliation of financial records

Once you have separated your duties your accounts payable process will be cross-referenced by multiple people, therefore reducing the risk of unauthorized payments.

2. Review your approvals strategy

Regular reviews of your approvals strategy can help you identify shortcomings in your approach that may be allowing fraudulent practices to go undetected.

For starters, it is recommended that you forgo the use of paper or even emails for approval. A really helpful option here is automation tools that come with in-built approval capabilities.

Additionally, some of the best practices you can use to improve your approval strategy include:

• For approving your invoices and payments use different people.

• The individual responsible for ordering a product or service must be involved in the expense approval process.

• Purchases over a certain amount must require senior management approval.

• Increase accountability in your AP process by assigning more than one person to approve payments.

• Make sure to do three-way matching before paying invoices.

3. Consider payment alternatives

While the check is the payment method for a significant chunk of all B2B payments, there are other options that not only enable better internal controls but are also more efficient. 

Wire transfers and electronic payments made via ACH, for example, are two alternative payment methods that are both faster and safer than sending a check.

Things to keep in mind when using ACH payments include:

• Always double-check for duplicate payments.

• Reconcile bank accounts daily on accounts where ACH debits are allowed.

• Use a separate device for your online banking activities if possible.

How can Volopay Improve your internal controls for accounts payable?

Automation is your best friend when it comes to streamlining the accounts payable process. Using a platform like Volopay can save you a lot of time and effort.

With Volopay you get access to an AI and ML-enabled platform that can automate your accounts payable process from start to finish.

You can use features like automated invoice processing, approval workflows, and expense reconciliation to ensure your accounts payable internal control checklist is foolproof.

These features ensure that your accounts payables are checked and verified by different parameters that you can customize to your organizational needs.

Additionally, Volopay comes with automated three-way matching features that ensure your invoices are airtight and no duplicate or erroneous payments are made!

Take control of your accounts payable processes with Volopay