Most companies don’t like to talk about overpayments or duplicate payments of vendor invoices, but the problem is real and growing. It may be caused by inadequate controls over spending, pricing or even outright fraud by employees or vendors. One large equipment manufacturer recently overpaid $70 million in one year for incorrectly priced invoices.

Historically, wholesalers’ common control procedures required manually matching quantities and prices on purchase orders, and receiving reports and invoices before paying vendors. While quite effective, this process was also expensive and time-consuming. The explosion of automation and alternative communication and payment processes has reduced the costs of these invoicing and payment transactions. But it has often eliminated these historical control procedures. They must be replaced with new ones.

New Methods and New Controls

Many ways now exist to initiate transactions and payments, such as electronic data interchange (EDI), electronic funds transfer and procurement cards. New methods require new controls. Some companies use authorization limits to control purchases. Others segregate duties -- limiting who can order goods,  who can receive them and who can authorize payment -- to make sure that one person cannot control an entire transaction.

Many software packages have some built-in controls, and you can often add other custom controls.  Software programs can:

•    Check for duplicate invoices,
•    Flag prices outside specified ranges,
•    Flag quantities exceeding specified maximums, and
•    Limit some types of transactions to specific authorization codes.

But computers can only monitor transactions. You must control them. Most applications require human intervention in the data input and in responding to noted exceptions. Human operators can also override or bypass many of the controls. For example, simply adding a letter or digit to an existing invoice number can bypass duplicate invoice controls. In many cases, both operators and their supervisors can override error notices.

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