Your vendor master file constitutes a critical set of dynamic data.
It continually changes through additions, modifications and expiration of active records. Safe practices include getting complete information from a new vendor and adhering to internal controls on access and changes to the vendor master.
Because vendor master files are ever-growing, like a garden, they need pruning and weeding. Safe practices also include search and elimination of duplicate and deactivation of unused records. Smart companies manage their vendor master files ongoing as one part of their financial operations. Regular maintenance keeps the file under control. However, if an organization neglects the vendor master file, it exposes itself to the risk of mistakes and fraud.
There are two common problems. One is having duplicate records in the file. Adherence to policies and procedures combined with regular maintenance should prevent most and catch any duplicates. But if you have not cleansed your file in a while, unnoticed duplicate records set you up for duplicate payments.
The other problem is that vendors “age out” – you no longer need or use them. Besides cluttering things up, having unused but active records is dangerous. With a quick change to an address or bank information, a perpetrator can execute fraud. Duplicate and aged-out vendors are not the only things to review and fix , of course. There may be missing tax IDs, incomplete or bad addresses and more, all with some level of risk.
If your vendor master has grown unwieldy and the thought of cleaning it up is overwhelming, here’s a tip to make it manageable and to reduce risk.
Divide and Conquer
The key to managing a cumbersome file is to break it down. Begin with the high-dollar-invoice vendors. The vendors you pay the most represent your most significant exposure.
Search for duplicate entries. Find aged vendors—for example, those with no activity in 13 months—and move them to inactive status. (If you’re on an older system without the ability to mark a vendor record inactive, devise a convention such as inserting three asterisks at the front of the name to signify inactive status. Flagging the vendor record is better than deleting it and its history.) If you have not verified vendor tax identification numbers through the IRS TIN match program, do so. And add that as a step when onboarding new vendors, likewise with address confirmation and other validations.
Once you’ve cleansed the top-dollar vendors, step down to your next largest invoice-value group. Continue until you’ve worked through the whole file. Once you have cleansed the entire file, make it a regular part of your process rather than a once-in-a-blue-moon event.
Meanwhile, automation can simplify your vendor onboarding. To learn how to tailor electronic vendor information collection and verification suited exactly to your organization, contact us.