Detecting Duplicate Payments: How Internal Audit Can Identify Savings
November 12, 2020
To meet our institution’s academic, research, clinical, and/or operational needs, countless purchases are made each year. Due to the large volume of payments processed, duplicate payments are quite common and sometimes very costly. A duplicate payment occurs when an organization mistakenly pays the same invoice twice. By implementing controls to prevent these errors, universities, especially those with a highly decentralized payment process, can minimize the risk of these transactions occurring and ultimately save the institution money. While the percentage of duplicate payments may be less than .1% of the total payments processed, many organizations underestimate the nonfinancial impact of finding and correcting these errors.
While the percentage of duplicate payments may be less than .1% of the total payments processed, many organizations underestimate the nonfinancial impact of finding and correcting these errors.
Departments with sizeable budgets and a large number of transactions may have different individuals in contact with vendors and, therefore, would be more susceptible to paying the same vendor invoice twice. Being proactive and implementing controls relevant to these areas will help prevent and detect instances of duplicate payments.
Identify the Existing Controls in Place
Many modern payment systems have a built-in control that will prompt an error message to the user and not allow the same vendor, invoice number, and payment amount to be processed. The user may be able to bypass this built-in control by adding a space or character to the invoice number. An audit of duplicate payments can identify instances of departments bypassing this control (intentionally or unintentionally). One method of identifying these duplicate payments is by using the formula @justnumbers or @split on the invoice number field in a data analysis software, such as Caseware IDEA®. These formulas will remove spaces, characters, and punctuation marks, which is particularly useful for invoice numbers that include only numerical digits. Once applied, you can then extract duplicates of invoice numbers and vendors in IDEA to help identify payments to look further into.
Know Your University Payment Methods
Identify the methods available for departments to pay invoices. Most institutions have university purchasing cards, which allows departments to issue payments themselves. Institutions may also have a process to submit a check request to accounts payable to pay vendors. Due to having multiple payment methods, the same vendors could be paid with both a purchasing card and through the check request process. To identify potential duplicate payments, compare payments made through different methods at your institution, especially if they are processed through different systems. Payments processed through different systems generally lack controls for identifying duplicates, unless the systems are integrated and able to share information with each other seamlessly.
Review Liability Accounts
An area that may be of concern is if the institution has a large number of old accounts payable outstanding. When reviewing outstanding payables, look for red flags, such as several payments outstanding for the same vendor or invoices that have a larger dollar amount. This review will help identify if the reason these payables are still outstanding are due to duplicate payments that were made or payments made to the wrong vendor. Vendors with many cancelled or returned checks are typically uncommon and may warrant further review.
Conclusion
In a perfect world, vendors will notice any duplicate payments received and simply not accept the second payment or notify the institution and issue a refund; however, that does not always happen. In addition, enterprise resource planning systems cannot overcome human error with invoice data entry to identify duplicates and mistakes. Therefore, incorporating the detection and prevention of duplicate payments into audit plans should be a priority. Internal auditors have the benefit of understanding the various payment systems that exist within an institution and if/how they interact with one another. Internal auditors also may know which departments are more prone to error and thus have an increased risk for duplicate payments. Detecting duplicate payments is an opportunity for internal audit to provide value-added services by running a few quick tests to identify savings for the institution.
About the Author
Lily Young
Lily Young is a Certified Public Accountant (CPA) and works as a Senior Internal Auditor for Bowling Green State University (BGSU) in Ohio. She has served on the Communications Committee for ACUA and volunteered as ACUA’s conference...
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