Key Steps to Implement A Vendor Process Audit

Maintaining accurate vendor information is essential for organizations to effectively purchase goods and services and make payments. Inaccurate or fraudulent data can result in failed payments or payment fraud, yet this function may lack documented procedures. Even with established procedures and controls, audits may not exist to ensure compliance. Implementing an audit program is vital, especially for organizations required to demonstrate fraud prevention processes.

Why The Vendor Process Audit Is Needed

For many organizations, team members responsible for processing vendor additions and changes obtain the necessary information from vendors via regular email, secure email, or a vendor self-registration portal. To prevent inaccurate data that may lead to returned payments, payment fraud, or delays in making vendors available to the organization, additional steps such as validations and controls are incorporated into the process to mitigate these risks. Furthermore, each method presents a degree of fraud risk, prompting organizations to implement further procedures to identify and address potentially fraudulent requests.

Audits are often required to meet agency standards. Insurance companies, concerned about fraudulent claims due to weak controls, now demand evidence that procedures are being followed. For ACH payments governed by Nacha, a rule effective March 20, 2026 and June 19, 2026, will require originators to implement fraud detection processes. While Nacha does not specify how to comply, if fraud monitoring is manual, a vendor process audit can demonstrate the existence of an active process.

Establishing a Vendor Process Audit

The vendor process audit can be considered an internal audit or self-assessment in lieu of external audit.  No two organizations may implement an audit that is the same due factors such as variances in volume of transactions to audit, size of the team, number of accounting systems, and steps in the process. 

Revise the steps below as needed to customize your vendor process audit:

Step 1:  Determine Audit Type

• Internal Audit (Self-Assessment)
• External Audit

Step 2:  Determine Audit Scope

• Vendor Process Adds
• Vendor Process Changes

Step 3:  Establish Frequency

• Monthly or Quarterly Based on Volume
• Create an Audit Calendar

Step 4:  Select and Train the Audit Team

• Internal Auditors or Non-Vendor Team Members
  • No One Should Edit Their Own Work
  • No Add/Edit Access to the Vendor Master File

Step 5: Define Methodology and Criteria

• Review Fields Captured On Audit Tables
  • Add Fields As Needed For Audit
• Identify Audit Reports to Pull
• Identify Audit Criteria  (Desktop Procedures)
  • Accuracy % (98% - Team Member and Team)
  • # or % of Transactions to Audit (5%, Min 
• Determine Corrective Actions
  • Process Errors
  • Team Member Performance
  • Team Performance
• Create Audit Standard Operating Procedures (SOP)
  • Preparing for Audits
  • Conducting Fieldwork
  • Documenting Findings

Step 6:  Establish Review and Documentation Procedures

• Standardized Documentation to Record Finding for Audit Trail
• Reporting to Senior Management
• Follow-Up Process for Corrective Actions
• Continuous Improvement Review of Audit Process

Once Established, Implement a 100% Weekly Audit For New Hires

Not only does implementing a vendor process audit ensure compliance with documented processes, but it also serves as a critical tool for new hires. Implement a 100% weekly audit for new hires until they can consistently pass with a 100% accuracy rate for several weeks.

This proactive training method is more efficient than standard approval workflows because it reduces the time leadership spends repeatedly rejecting and returning incorrect vendor requests.

Use Results to Review the Vendor Process

As corrections and findings are identified, patterns may develop that expose gaps of understanding by the team or by leadership.  If a process was put into place, and the audit revealed that team members are not following that step, it could mean that the team needs to be retrained on that step, or it could mean that the step was not a valid step to implement.  Many times, it’s the performers of a required step that recognizes that it is only successful 10% of the time and stopped doing it but were afraid to speak up.    

Further, the auditors in this process need to understand the vendor process function or confer with a trusted source.  As the audit findings are answered by the vendor team, various explanations provided for a delay in remedying an audit finding may not be valid, and it may be appropriate to require the remediation without delay.

Conclusion

Implementing a vendor process audit strengthens controls, supports fraud prevention, and validates compliance with documented procedures. A well-defined scope, trained auditors, clear criteria, and consistent documentation enable timely corrective action. Ongoing review, management reporting, and targeted audits for new hires ensure accuracy, accountability, reduction of fraud and continuous improvement required by organizations, regulatory agencies and external sources. 

Resource

Nacha Operating Rules: Risk Management Topics > Fraud Monitoring Phase 1