I attended a conference last week with what turned out to indeed be "Procurement Maestros," and it was a great experience. With more years on the Accounts Payable (AP) side of the Procure-to-Pay (P2P) process, I paused to think about my view that AP owns the vendor master file.
My view is in large part due to regulatory requirements based on the vendor master file and the administrative tasks that go along with them:
IRS - Having overseen the distribution of up to 27,000 IRS 1099's and 1042's and the related tax filing for multiple years, I understand the work involved in keeping up to date with valid addresses, vendor acquisitions, etc. to avoid potential backup withholding requirements and IRS penalties and interest due to vendor data errors.
NACHA - There are also the banking details that must be updated timely not only to avoid EFT returns but also for Notice of Change notifications from the bank. The notifications indicate that the bank account or routing number has changed and there is a limited time to update the vendor master file a NACHA violation is received.
Escheatment - Banking details along with vendor addresses also affect escheatment. Escheatment of unreconciled payments (checks or electronic) is becoming the focus of many States causing administrative tasks for companies. According to JD Supra article "Unclaimed Property: 5 Key Developments for 2018", States are viewing escheats as a crucial source of revenue and the 5th key development is the proliferation of unclaimed property audits.
Administrative tasks are not the daily focus of the Procurement team. They are rightfully focused on the vendor relationships that provide products and services, at the best price and quality, that keeps our organizations running efficiently. Also, even with compliance to a purchasing policy, there will be vendors that do not require a Purchase Order (PO) so will not be handled by the Procurement team, but still need to find their way into the vendor master file.
So, no, I did not change my view that AP should own the vendor master file. But, I could be wrong, since that was no longer my question. The real question I determined was, in this digital climate of automated solutions, how can AP better contribute to AP and Procurement working together to build a valid, complete and fraud-free vendor master file that ensures accurate on-time payments? I came with three ways as a start:
Partner with the Procurement team to bring in a P2P solution – Implementing an end to end solution that solves the pain points of both teams is a win-win, even when the inevitable comprise is required. Both AP and Procurement would have a seat at the table, and the collaboration opens the door for future consolidation of the teams either as one group on or under the same leadership.
Share Vendor Data – Today, especially in larger organizations, vendor data can exist in multiple systems outside of the ERPs, to support different functions. Working with Procurement to integrate or sync vendor validated data to ensure we are all working with the same information will help AP as well. AP can leverage the relationship Procurement has with the vendors to be notified of changes before payments are issued, 1099's or 1042's is generated, or payment is escheated to the state. Treatment of confidential data must be taken into consideration.
Communicate vendor master issues/changes. Did a vendor's payment return and AP put the vendor on hold, so no future payments will go out until it's resolved? Communicating this issue can be crucial to Procurement maintaining their vendor relationship, plus that email AP sends out to obtain updated information, may be answered if the Procurement team member is cc'd. In my experience, AP's email to the vendor will go unanswered, only to have the vendor reach out to a blind-sided Procurement team member when they haven't received payment.
If you are a Procurement team member, how else can AP be a better partner? If you are an AP team member, what have you done to be a better partner with Procurement?
Leave your comments below.
Note – A key concern for AP owning the vendor master is segregation of duties. Compensating controls need to be in place in AP to reduce the potential for fraud due to increased access to create vendors, invoices, and payments by the same group. For this reason, some companies have moved the vendor master file to a different group outside of both AP and Procurement. As reported in a December 30, 2014, IOFM article "Who should be entering vendors in the master file, AP or purchasing? Should this task be shared?": 1) 76% - AP owned the vendor master file; 2) 2% - AP and Procurement shared the vendor master file, and 3) In a few cases the vendor master file was handled by a separate group.
Vendor Setup & Maintenance Additional Resources:
For training and information on what you and your team can do to protect your vendor master file from fraud visit my website at www.debrarrichardson.com/training
For assistance with cleaning your vendor master file or reviewing your vendor setup & maintenance process visit my website at www.debrarrichardson.com/services.
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