Managing accounts payable is a crucial part of any business’s financial operations. However, unauthorized purchases can severely impact an organization’s statements payable and cash flow. From increased costs to decreased efficiency, organizations must remain vigilant in preventing unauthorized purchases. In this blog, we will explore the potential impacts of an unauthorized purchase on our accounts payable and what steps we can take to mitigate them.
What Can Be Classified as Unauthorised Purchase?
Authorized purchases are goods or services that are purchased after proper authorization from the business owner or an authorized business representative. Unauthorized purchases are the ones where an employee, contractor, or vendor purchases goods and services without taking permission from the authorized person.
Overview of Accounts Payable
Accounts payable is an integral part of the financial management of the business. It generally refers to the money owed by a corporation to its suppliers and other creditors for goods or services purchased on credit. A company’s accounts payable balances are usually made up of invoices for goods and services that have been received but are yet to be paid. This can include office supplies, raw materials, payroll taxes, and rent payments.
Impact of Unauthorised Purchase on Accounts Payable
Managing accounts payable is one of the most critical tasks for any business. It is essential to keep an accurate record of all financial transactions, as it helps avoid any potential losses due to mismanagement. However, a lapse in monitoring accounts payable can lead to unauthorized purchases by employees or vendors.
Unauthorized purchases involve an employee or vendor purchasing goods or services without taking permission from the authorized organization. This is done either through fraud or simply because an employee has access to corporate funds or credit cards and chooses to misuse them without permission. In either case, this activity can profoundly affect a company’s accounts payable situation.
By accounts payable outsourcing services, a company can implement more robust internal controls to prevent unauthorized purchases. This can include setting up systems for approving and processing invoices, establishing clear guidelines for making purchases, and implementing stricter protocols for verifying the validity of invoices.
This type of situation can cause significant damage to a business’s reputation and finances and incur substantial legal fees and settlement costs if the case is taken to court. The unauthorized purchases can also lead to internal disciplinary issues within an organization if employees are found responsible for making such purchases without authorization.
Strategies for Minimising the Risk of Unauthorised Purchases
When managing finances, minimizing the risk of unauthorized purchases is a business practice that should always be considered. Unauthorized purchases can easily lead to significant financial losses and a damaged reputation. That’s why it’s essential to have strategies to help reduce the potential for fraudulent activity.
Here are five effective strategies for minimizing the risk of unauthorized purchases:
- Establish an Internal System of Checks and Balances
Setting up internal checks and balances is essential for preventing fraudulent purchases. By creating an internal system with clearly defined roles, responsibilities, and access levels, businesses can ensure that no single person has too much control over purchasing decisions or funds.
- Monitor All Transactions Closely and Regularly
Monitoring all transactions closely and regularly helps businesses quickly identify suspicious behavior or activities that could signal fraud or unauthorized purchases. By keeping a close eye on trades, companies can immediately act if something needs to be put in the right place. They can timely track the discrepancies between what was ordered and what was received.
- Create an Approvals Process for All Purchases
Creating an approval process for all purchase decisions is important. It helps businesses ensure that all purchasing decisions are made responsibly and within established guidelines and budgets.
Outsourced accounting services allow companies to implement more robust internal controls to prevent unauthorized purchases. This can include setting up systems for approving and processing invoices, establishing clear guidelines for making purchases, and implementing stricter protocols for verifying the validity of invoices.
- Utilize Payment Security Solutions
Payment security solutions such as two-factor authentication (2FA) can significantly reduce the risk of unauthorized purchases. It provides an additional layer of protection against fraudsters attempting to gain access to accounts with stolen credentials.
- Implement Proper Training Programs for Employees
Having proper training programs for employees around security protocols is critical in reducing the risk of unauthorized purchases being made on behalf of the business. In addition, employees must understand their responsibilities regarding handling funds or purchasing decisions. They should be aware of the consequences they may face if they fail to abide by rules or regulations set by the management around these activities.
The Conclusion
The unauthorized purchases can significantly impact our Accounts Payable. Therefore, it is essential for us to remain aware of the potential impacts of such things and take steps to minimize them. Regularly monitoring our accounts payable and working with reliable vendors can help reduce the chances of an unauthorized purchase occurring in the business.