When I was an Accounts Payable Manager responsible over 140,000+ vendors across 5-7 ERPs, December was go-time. Actually, go-time started in September/October when the IRS issued Publication 1220, and we identified what changes needed to be made to the ERPs to comply with that year’s IRS 1099-MISC form and Fire System updates. By December all the system updates and testing were done, and reality began to set in because (thanks IRS) almost 25,000 1099-MISC forms needed to be accurately generated and distributed to reportable vendors by January 31st. Yes, all 1099-MISC forms (not just Box 7) were distributed and filed by January 31st.
The same was also true for State reporting. The past few years the States have been making changes to filing requirements, due dates and their participation in the IRS Combined State and Federal 1099 Filing program.
Both Federal and State reporting required accurate vendor master file data:
Legal Name & Tax ID Combination – To avoid IRS penalties for correction filings and subsequent team member non-value-added work issuing B-Notices to vendors.
Addresses – to reduce the potential for returned 1099-MISC forms, and subsequent rework logging, identifying the correct address and resending
Click here for IRS filing deadlines for 1099-MISC and Penalty Rates
Now with vendor master file best practices and internal controls for vendor setup and maintenance including new and existing vendor validations and archiving inactive vendors, it should be no issues, right? Maybe, if you have a vendor portal or system that provides continuous vendor monitoring. But what if you have not gone live with your portal project yet? Or what if you are not sure your team has followed best practices all year? What if your vendors “forgot” to inform you that they moved, or were acquired or changed their name but kept their same Tax ID? How confident are you that your vendor master file is clean?
December is go-time.
Here are eight steps toward a clean vendor master that if not done continuously, should be completed at some interval throughout the year, but definitely before the tax filings:
Step 1: Inactivate Vendor Records w/no PO, Invoice or Payment Activity – reduces the volume of vendors in your vendor master file for the remaining steps. Inactivity can be based on 12, 15, 18 or 24 months.
Step 2: Address Standardization – ensures that mailed 1099-MISC will not be delayed or returned due to incorrect entries.
Step 3: IRS TIN Match – confirm the legal name and tax identification number still match. Confirm with the vendor before the change and notify the vendor after the change.
Step 4: Validate Banking Details – validate routing #’s, validate bank account name matches bank account number. Confirm with vendor prior to change and notify the vendor after the change.
Step 5: Validate OFAC/SDN List – confirm existing vendors have not been added to watchlists post vendor setup.
Step 6: Validate VAT for International Vendors – confirm VAT number still active for vendor. Confirm with vendor prior to change and notify the vendor after the change.
Step 7: Validate Other Regulatory Parties - based on your industry/company (Dunn & Bradstreet, Office of Inspector General OIG for Healthcare, etc.)
Step 8: Analyze Vendor Records – research duplicate vendors, add missing information such as emails, industry coding, etc. Confirm with vendor prior to change and notify the vendor after the change
As normal, review these recommendations with your leadership and/or auditing team and adjust based on your Accounting system/ERP, or 3rd Party systems for your company processes and your industry.
I hope this helps those that are still fully or partially maintaining their vendor master file manually. Let me know if I can help.
Vendor Setup & Maintenance Additional Resources:
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Need a Resource for Vendor Setup & Maintenance? eGuide: 3 Step Vendor Setup and Maintenance Process eGuide to protect the vendor master file from fraud and keep it clean. www.debrarrichardson.com/training
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