Why Every Company Needs a Secure Audit Trail

Remember that feeling of dread that seems to take over just when it's time to get things organised for the tax return? We've all experienced it in some form, especially when things have fallen behind and now there is a looming deadline for matching a particular purchase from months ago with the correct bank or credit card statement, having to assign amounts to a particular project or expense category, or making sure not to double-book items. Perhaps even unearthing an unpaid invoice in the process. When you're not caught up - or even if you are - having well-ordered documentation every step of the way helps. A lot.

It's the same situation for businesses across all industries, where accounting departments or accounts payable teams are constantly processing reams of expense reports, vendor invoices and other documents. For these teams, being behind causes all sorts of reporting issues and greatly increases the risk of error and accounts payable fraud. And, when you consider that they can be handling hundreds or even thousands of expense reports and invoices, not catching faulty or outright fraudulent documents does more than upset management. It can have a direct and substantial impact on the company's bottom line. And the potential for damage is significant. 

Although the problem of accounts payable fraud and errors has always existed, the pandemic clearly exacerbated it and increased the need for continuous internal auditing. Indeed, market researcher Ardent Partners warns that this exposure is only going to increase, stating “Fraudsters aren't going away and the attacks will continue."

For this reason alone, having a secure digital audit trail is a priority.

Automation as the key to capturing every detail

Despite the idea of an audit trail being an important concept with highly practical implications, many companies lack any kind of accurate audit trail capability. Creating this through AP automation can benefit a company in multiple ways, from greatly reducing risk throughout the Accounts Payable (AP) process, to improving operations across the board. 

Having a digitalised accounts payable process in place means that your software system automatically logs every interaction with any document, including as many details as possible. The goal of this activity is two-fold: firstly to automatically and immediately flag (and therefore catch) documents that don't pass muster and second to both log and preserve these interactions for future actions (such as checks and audits) by specific authorised users. Even better, if your software platform is cloud-based, the user can access this information from anywhere at any time. 

Once this digital audit trail (including detailed timestamps) has been securely stored in the cloud, "going to the archive" becomes an instant affair. Searching for document information and tracking its entire path through the accounting workflow is as easy as performing an internet search in a browser. This recording and tracking ability provided by automation ensures that errors and risks, such as paying a fraudulent invoice or expense report, are significantly reduced. At the same time, the business knows that it can meet and offer proof of compliance and operations integrity.

In fact, just having a digital audit trail in place can even reduce the chance of being questioned or audited down the road.

Capturing every detail

Let's review some additional examples of how having a secure digital audit trail in place benefits the company.

Firstly, companies that intelligently automate their Accounts Payable (AP) process see their exception rate drop from one in four to one in ten invoices and also see instances of outright fraud or duplicate payments go down significantly. This is primarily thanks to smart matching and access control, as illustrated in the following workflow:

• When an invoice arrives, regardless of the original format it is captured, the relevant data points are extracted and the information is securely stored as an electronic record in the cloud. If the invoice (or document) came in on paper, the original can now be shredded.
• The invoice information is checked. In the case of Yooz, two- or three-way matching is used to ensure that the incoming data is an exact match with the purchase order (PO) or other documents on file. Once matched, a balance check, a tax amount check (if any) and an expense account check are performed.
• Only users with login credentials can access documents stored in the cloud. Authorised users can see the record history, including who has accessed it, who has approved it and its current location in the workflow process.
• Permission access can be controlled according to the amount in pound sterling and / or the sensitivity of the record, meaning only approved employees will be able to virtually “touch” the document.
• Once the record is in the automated system, it becomes part of an efficient and powerful digital invoice workflow. From capture and data extraction through proper routing for approval to payment, the goal is to enable straight-through electronic processing that requires little to no human intervention. 
• In the final step, the transaction and matching document information is exported to and reconciled with the company's financial or ERP system.

Second, logging every electronic record, relevant click and keystroke when an invoice or expense report is handled also means a huge drop in staff time (and frustration) spent on looking for documents. These employees can then direct their energy to other, more strategic projects. In addition to this, the now easily accessible digitalised business information serves as a reference source to improve service, strengthen communication between buyers and suppliers and help to make strategic decisions (such as a performance analysis to improve operations).

Third, Making Tax Digital, the multi-step plan designed to bring His Majesty's Revenue & Customs (HMRC) and all businesses into the digital age, requires businesses to submit digital tax returns to the government (using MTD-compatible software). Businesses must also keep digitally-linked records and accounts to manage their VAT return. Eventually all businesses (including sole proprietorships) will need to comply.

Fourth, having a secure digital audit trail helps to counter and prevent errors and fraud. PwC's Global Economic Crime Survey 2022 estimated that nearly two in three UK companies (64%) have fallen victim to fraud in the last two years. With such attacks expected to continue, having countermeasures in place is key.

How a digital audit trail counters payment fraud

Because the benefits of having a complete, easily accessible database are clearer than the idea of countering payment fraud, let's explore that a bit further. Specifically, while technology is a fascinating and beneficial tool, its important to remember that an increased use of various technology platforms also creates a higher IT and data security risk, more exposure to (now global) fraudsters and as a result, a greater chance of a data or security breach event. This became a clear problem with the increase in remote operations and virtual work resulting from pandemic stay-at-home mandates. Massive financial blows came on top of the already well-known flaws inherent in expense reports.

When the American GBTA Foundation and German booking platform HRS looked at expense reports back in 2015, they found that almost one in five contained errors. This in turn resulted in an additional 18 minutes and the resulting staff costs per report to correct those errors in order to meet compliance requirements. 

Wouldn't it be nice, then, if a secure audit trail application powered by the latest advances in technology was smart enough to preemptively check and, where possible, verify or match vendors, account and routing numbers, invoice and PO numbers, amounts and other crucial details to weed out error and fraud? Not only for the sake of being accurate but to avoid this type of circumstance?

Especially when you consider that hackers are also hard at work every day honing their skills to keep up with the changes in technology.

What does all this mean for you?

Without question, having a secure audit trail will benefit you (and not just because it will become mandatory). After all, while it might be easy to submit an incorrect expense report or invoice, having an automated process that creates a digital audit trail to catch and record it - maintaining security throughout the entire invoice process - will pay off over and over again.

You don't have to be an accountant or auditor to think that's a good idea!