6 Tips to Maintain a Master Vendor File and Follow Accounts Payable Best Practices – Matt Gardiner, CPA, Auditor

Agribusiness

How often does your company update its approved vendor list? If you are unsure, it is probably a good time to revisit and clean up your listing.

The master vendor file within your accounting system determines which vendors and customers your company has vetted to do business with. Without periodic review, it is easy for this listing to grow, to contain duplicate data, and, ultimately, for someone to take advantage of it. 

We have a few tips to ensure your company has strong controls over this important function by taking care to ensure the master vendor file is up to date and well-maintained:

  • Establish a coding standard
  • Review the listing annually
  • Segregate duties in the AP function
  • Ensure a W-9 is on file for each vendor
  • Verify vendor changes with known vendor contact
  • Require review of changes to the listing

Establish a coding standard

While it is very likely your company is well-past the opportunity to start fresh with the naming convention for vendors, it’s never too late to reevaluate your listing and update vendor names to match a consistent coding standard. This ensures when staff search for a vendor, they find it easily, and when new vendors are set up, they adhere to the standard.

For example, does your company use apostrophes in companies like “John’s Service Shop,” enter it simply as “Johns Service Shop,” or shorten it completely to “JSS”? Consistency in how the coding standard is applied will increase efficiency and make certain new vendors are named in a way every staff member can query easily.

Review the listing annually

Combing through the listing on an annual basis will ensure your master vendor file is always current. At the time of this review, deactivate (don’t delete!) vendors who have not done business with your company during the year. This will prohibit payments to that vendor until they are reactivated by doing business with your company.

Segregate duties in the AP function

Segregation of duties in every organization is one of the most critical controls. Only those employees who need access to the vendor file should have access. Lock this file down with access rights restricted to those individuals.

Ensure a W-9 is on file for each vendor

Getting a W-9 for each vendor you do business with will make sure you have the vendor’s Tax Identification Number (TIN), the correct address, and name. Your company can issue an accurate 1099-MISC at the end of the year, and if a W-9 is required to be added to the vendor listing, it will ensure all vendors have registered their business with the IRS. A further control once a W-9 is received is to utilize the IRS’s TIN-Matching (a free tool) service which validates TIN and name combinations with their database.

Verify vendor changes with known vendor contact

A common and emerging fraud scheme in today’s increasingly digital world is payment interception through a change in vendor banking information. Savvy fraudsters take advantage of unprepared accounts payable departments, emailing staff and requesting bank information is updated for a chosen vendor. When future payments are made with the new banking information, it will go to the fraudster instead of the vendor. Whenever a change is requested, ensure the change is legitimate by calling or emailing a known contact at the vendor – don’t just reply to the email or letter received.

Require review of changes to the listing

Banking information changes, address changes, name changes — all of these can be done to an existing vendor by an employee with access to the vendor file. To ensure payments are only made to those vendors authorized to receive payments, review the changes made to vendor information regularly.

Curious what else your company could implement to improve your accounts payable controls? Give us a call!

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