Master Vendor File Practices
How to keep your company out of hot water.
July 12, 2007
by Mary Schaeffer
As a savvy accountant, you know that poor master vendor practices can lead to Sarbanes-Oxley audit issues and make it difficult to get good spend data for contract negotiations. What’s even worse — at least from a bottom line standpoint — is the lack of best practices increases the chances of duplicate and erroneous payments and makes employee fraud easier to commit. While appropriate segregation of duties and strong internal controls should be incorporated into your master vendor file policies, there are other procedures you should incorporate to ensure your practices relating to the master vendor file don’t cause unintended problems.
Master Vendor File: The Wrong Way
Before you skip over this section, answer the following questions and tally up the affirmative responses.
If you answered YES to one or more of the above questions, you need to tighten up your policies. These are not the only potential problems, but the most common ones.
Cleansing Your Master Vendor File
The most difficult change in the above listed practices is cleansing your master vendor file. At a minimum it should be done once a year, although many best practice companies perform this task quarterly. The job should include deactivating (but not deleting) vendors that have not been in use in the last 12 months.
It will be an ugly job, the very first time you conduct your cleanup. During your first cleanup process, make sure you introduce naming conventions (if not in use) and combine duplicate entries into one. This way you can preserve each vendor’s payment history.
The time is ripe for such a massive cleanup when you’re thinking about a system conversion or a system upgrade. Use third-party services, if you feel you lack the staff or resources to handle the cleanup.
Clearly this short article only touches on the issues related to the master vendor file. You can find additional information in the following:
For too long, master vendor files have been ignored by a significant number of companies. If companies continue to do so at their own risk, they are liable to suffer bottom-line consequences.
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Mary S. Schaeffer is the author of a dozen business books including Controller and CFO’s Guide to Accounts Payable. She serves as the editorial director of Accounts Payable Now & Tomorrow, a payment newsletter. Trial subscriptions are available at www.ap-now.com. She leads the organization’s accounts payable consulting endeavors, including services focusing on duplicate payments and master vendor files.