Companies regularly engage auditors to check for financial fraud risks and to help create error-free financial...
statements. To this end, the Materials Management component of SAP ERP Central Component offers several business controls for the procure-to-pay cycle.
A typical procure-to-pay cycle entails a user creating a purchase requisition for the materials or services required that then get approved and eventually converted to a purchase order. Goods are received with reference to a purchase order, followed by the receipt of a vendor invoice for the goods delivered and, finally, a payment to the vendor.
While the list below is not exhaustive, here are 10 tips to build better business controls for the procure-to-pay cycle in SAP Materials Management (MM).
- Make critical information mandatory. When creating a vendor master record, make sure that important fields, such as a vendor's payment terms or bank information, are created as mandatory entries. This ensures nothing critical is left out.
- Configure payment tolerances. It's common to have a minor difference between the purchase order amount and the invoice amount. Setting up upper and lower tolerances, both in value and percentage, ensures invoices aren't unnecessarily blocked for payment, while those exceeding the tolerances must undergo necessary scrutiny to prevent audit objections.
- Create a release strategy. A release strategy is an online and hierarchical approval process for any purchasing document, such as a purchase requisition, a purchase order or a scheduling agreement. A robust release strategy requiring multiple and hierarchical approvals for purchases leads to a lower risk of fraud.
- Require purchase requisition reference. Since a purchase requisition is the first step in the procure-to-pay cycle in SAP MM, all checks and approvals made at this stage ensure greater audit compliance when a purchase order is created with reference to an approved purchase requisition.
- Create procurement quality controls. To ensure a vendor only gets paid for the goods accepted by the company, it is possible to activate an invoice block feature in procurement. This feature ensures that, upon goods receipt, the invoice is automatically blocked until the company approves the delivered goods, at which time payment to the vendor is made. The screenshot below shows the block invoice option, which helps ensure there are fewer audit objections in the procure-to-pay cycle in SAP MM.
- Use source determination only. Source determination is a set of approved vendors from which a company procures. Using source determination in the procurement process ensures no purchase order is created for a random or one-time vendor, which can raise audit objections.
- Prevent goods receipt reversal after invoice processing. This system's setting ensures the procure-to-pay cycle in SAP MM is complete in all respects and that there aren't any unnecessary reversals.
- Eliminate unlimited overdelivery control. Removing the unlimited overdelivery control in SAP ERP Central Component ensures a vendor does not continue overdelivering and getting paid.
- Configure stochastic invoice block. Stochastic invoice block creates the ability to stop an invoice and do sample checks of the procure-to-pay cycle in SAP MM.
- Closely monitor Evaluated Receipt Settlement (ERS). The ERS functionality eliminates the need for a vendor to submit an invoice for the delivered goods or services. While ERS expedites the entire procure-to-pay cycle, it also helps companies to closely monitor automatic invoices clearance to reduce any audit objections.
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