US Entity: Validations Required to Setup a US Vendor

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If you work in a Finance, Accounting, Purchasing or Accounts Payable Department of a US Agency or Entity and are responsible for setting up vendors in your Accounting System or ERP – this blog post is for you.  The information below will keep you compliant with regulatory agencies and will also ensure that you are validating that the vendor is real, and the data is not fraudulent prior to adding the vendor to the vendor master file. 

Basic Requirements

Vendor Legal Name and Tax ID Validated Against Internal Revenue Service (IRS) Records

 Vendor Legal Name against Specially Designated Nationals List (SDN) from the Office of Foreign Assets Control (OFAC)

 Vendor Address Validated against US Postal Service (US) and Google Earth

  • Reason to Validate:  Confirms that vendors are not fraudulent attempting to use addresses that do not exist.  Also reduces the potential that check payments or distributed 1099 will not be returned causing rework for the team.  Standardizes address formats in accordance with US Postal Service (US) For PO Boxes, also require a street address and validate both.

  • Required Document:  IRS W-9 (US) or Invoice (if remit address is different) or Fully Executed Contract

  • How to Validate: 

Additional Requirements If the Payment Method is ACH/Wire

 Vendor Bank Name and ABA Routing Number against the Federal Reserve

Vendor Bank Name against Specially Designated Nationals list (SDN) from the Office of Foreign Assets Control (OFAC)

  • Reason to Validate: Banks that appear on this list should not be setup in your vendor master file. If there is a bank match, please notify your leadership for further action. Compliance with OFAC regulations is required for all US individuals and entities.  Failure to comply can result in both civil and criminal penalties.

  • Required Document:  Vendor Letterhead, Bank Letter or Company Branded Banking Setup Form (recommended)

  • How to Validate: 

 Additional Requirement if the Vendor is a Non-Profit Vendor

 Vendor Legal Name and Tax ID validated against Internal Revenue Service (IRS) Records for Exempt Organizations (EO)

  • Reason to Validate:  Confirms whether the vendor is registered for tax exempt status which can protect against a request to set up a fraudulent charitable organization.  It can also identify those vendors that are classified as a 501c3, whose tax-deductible contributions may be monitored and require approval due to reporting tax requirements for your company.

  • Required Document:  IRS W-9 (US)

  • How to Validate: 

Additional Requirement If You Are a Government Agency or Entity

Vendor Legal Name Against System for Award Management (SAM)

  • Reason to Validate:  Governments are prohibited from awarding contracts to contractor entities that are on this exclusion list. Search by name to verify the vendor is not on this list.

  • Required Document:  IRS W-9 (US)

  • How to Validate: 

 Additional Requirements If Your Company is a Healthcare Organization

 Vendor Legal Name Against Exclusion List of Office of Inspector General (OIG)

  • Reason to Validate:  OIG has the authority to exclude individuals and entities from federally funded health care programs. Search by name to verify the vendor is not on this list.

  • Required Document:  IRS W-9 (US)

  • How to Validate: 

Please 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. This could include verifications for Insurance Certificates, checking with the Better Business Bureau, Dunn & Bradstreet,  Denied Persons List or more.  

 If you have a vendor self-registration portal, review and supplement as needed. 

Want a handy Cheat Sheet that includes the links to the validation resources listed here and more?  Sign up for my mailing list below, download the Vendor Validation Reference List and share with your entire team! All Subscribers are entered into a monthly drawing to win a Putting the AP in hAPpy coffee mug.

Vendor Setup & Maintenance Additional Resources:   

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