Accounts Payable Internal Controls

A bookkeeping and accounting system needs good accounts payable internal controls in order to minimize the risk of fraud, error and loss.

The purpose of accounts payable internal controls is to ensure that valid supplier and vendor invoices are properly recorded and promptly paid by the business.

The accounts payable internal control checklist below acts as a quick reference, and sets out the most commonly encountered techniques available when dealing with internal controls for accounts payable.

Accounts Payable Internal Controls Checklist


The business should have well documented policies and procedures on accounts payable internal controls to ensure that all staff understand the accounts payable process.

Segregation of Duties

Separation of duties, sometimes referred to as segregation of duties, is an accounting internal control which means that at least two individuals deal with a financial process in order to prevent error, misappropriation or fraud.

In practice the separation of duties means ensuring that the person dealing with physical assets such as cash, inventory, supplies etc, is not the same person responsible for the recording and bookkeeping of the transactions relating to those assets.

In addition, a separate person should ideally be responsible for an overall review of the bookkeeping transactions, as a form of internal audit.

Separation of Duties Example

A common example of separation of duties is dealing with purchases. In a business where three employees are available, the duties could be separated as follows:

accounts payable internal controls separation of duties

Although separation of duties is a useful internal control, it needs to be balanced against the cost and inefficiency of employing additional staff.

In a small business, it is not always possible to separate the duties for all financial processes and emphasis should be placed on the assets most at risk such as cash, and inventory.

Receive Documentation

Most purchase transactions have three documents, the purchase order, the vendor invoice, and the receiving report, sometimes referred to as a GRN or goods received note.

  • Set authorization levels for invoice approval.
  • Receive all invoices centrally in the accounts department.
  • Match invoice prices, quantities and terms to purchase orders, and match invoice quantities to goods received notes. This process is usually referred to as the three way match.
  • Check the accuracy of invoice calculations.
  • Check for duplicate orders and invoices.
  • Verify a vendor exists when receiving an invoice from a new vendor.
  • Check vendors invoice addresses, particularly when a PO Box address is being used.
  • To avoid losing invoices, if approved outside the accounting department they should be date stamped and entered in a register of unapproved invoices when they are sent for approval, and crossed off the register when they return.

Post the Purchases Journal

  • Post the purchases journal from the vendor invoice as soon as the transaction occurs
  • Use the purchases journal totals to post the accounts payable control account in the general ledger.

Post the Accounts Payable Ledger

  • Post the accounts payable ledger from the vendor invoice as soon as the transaction occurs.
  • File unpaid invoices by payment due date to avoid missing early payment discounts and to ensure invoices are not paid late.
  • Reconcile vendor statements to accounts payable balances and the unpaid invoice file.
  • Carry out random spot checks on vendor activity and check for signs of unusual activity.
  • Review debit balances on accounts payable accounts.
  • Produce an aged accounts payable report and review the balances particularly on large and overdue accounts.
  • Review all journal entries to the accounts payable ledger accounts.
  • Review debit balances in the accounts payable ledger on a regular basis.
  • Reconcile the accounts payable ledger with the accounts payable control account in the general ledger.

Prepare Payment

  • Set authorization levels for invoice payment.
  • To avoid duplicate payment only make payments supported by original invoices not copies.
  • When making a payment agree the amount, payee, and date with the approved vendor invoice and supporting documents.
  • Stamp ‘Invoice Paid’ across the original invoice when payment has been made to reduce the risk of the invoice supporting another payment.
  • Check for duplicate payments.

Post Cash Disbursements

  • Record payments promptly in the cash disbursement journal to reduce the risk of double payment.
  • Post the transaction to the accounts payable ledger from the payment documentation as soon as transaction occurs.
  • Use the cash disbursements journal totals to post the accounts payable control account in the general ledger.
  • Reconcile the accounts payable ledger with the accounts payable control account in the general ledger.

This checklist is not exhaustive and each business must develop its own policies and procedures to suit its objectives.

By implementing and using a series of accounts payable internal controls a business can ensure a reduction in the risk of fraud and error, and ensure that the accounting information produced it is accurate and complete. In this way, the business can be confident in using the income statements, balance sheets, and cash flows statements produced by the bookkeeping and accounting system as a basis on which to make operational decisions.

Last modified November 12th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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