Accounts payable is one of the most routine functions in a business—but it’s also one of the most vulnerable.  A strong accounts payable process isn’t about adding complexity—it’s about creating structure, consistency, and accountability so your financial data remains accurate and your business stays protected.

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Journals & Ledgers manages the accounts payable process for many of our clients.  For any business managing this process in-house, it is important to make sure you have the right internal controls in place.  An internal control is simply a process or step you put in place to make sure things in your business are done correctly, consistently, and safely. Without the right internal controls, even well-intentioned processes can lead to errors, duplicate payments, cash flow issues, or even fraud. Every accounts payable process should include the following internal controls:

• Segregation of Duties - No single person should control the entire accounts payable process. Ideally, responsibilities are divided between entering invoices, approving them, and issuing payments. Even in smaller businesses, adding a second layer of review can make a significant difference.

• Structured Approval Process - Every invoice should go through a clear approval process before payment. This includes verifying that the expense is valid, supported, and appropriate for the business. Setting approval thresholds—for example, requiring owner approval over a certain dollar amount—adds an extra layer of oversight.

• ‍Three-Way Matching - For companies purchasing goods, a three-way match between the purchase order, receiving documentation, and vendor invoice helps ensure you only pay for what was ordered and received. This is one of the most effective ways to prevent overpayments and errors.

• Vendor Verification - Vendor fraud is increasingly common and often starts with a simple email requesting a payment or banking change. A strong process includes verifying new vendors and confirming any changes to payment details using known, trusted contact information—not just what’s provided in an email.

• Payment Authorization Controls - Before any payment is released, it should be reviewed and approved. This may include reviewing a payment report or requiring dual authorization for ACH or wire transfers. Limiting access to your banking systems is also critical.

• Duplicate Payment Prevention - Without proper controls, it’s easy to accidentally pay the same invoice twice. Standardizing how invoices are entered, using system alerts, and regularly reviewing your accounts payable aging can help prevent this.

• Accurate Coding and Review - Every invoice impacts your financial statements. Proper account categorization ensures your reports reflect accurate expenses and profitability. Periodically reviewing your financials helps maintain consistency and accuracy.

• Timely Recording of Expenses - Bills should be recorded when incurred, not justwhen paid. This ensures your financial statements are complete and gives you a clearer picture of your liabilities and cash flow.

• Reconciliation and Ongoing Monitoring - Regular review is key to catching issues early. This includes reconciling your accounts payable balances, reviewing aging reports, and investigating any old or unusual items.

• Secure Documentation and Audit Trail - Invoices, approvals, and payment records should be stored in a centralized system with a clear audit trail. This not only supports internal oversight but is also essential for audits and financial reviews.

• Payment Security Controls - For check and electronic payments, additional safeguards should be in place. This may include restricting access to check stock, using bank tools like positive pay, and regularly monitoring cleared transactions.

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Internal controls ensure that bills are legitimate and properly approved, payments are accurate and authorized, and financials reflect the true activity of the business.  And most importantly, risks—both accidental and intentional—are minimized. When these controls are in place, you gain confidence in your numbers and avoid costly surprises.