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AP Process Risk Summary — Q3 2025

Based on your Q3 testing workpapers, I've identified 3 significant risks and 2 control gaps:

Key Risks:
1. Unauthorized payments — Segregation of duties gaps in payment approval workflow (rated: Significant)
2. Duplicate invoices — ERP matching logic bypassed for rush payments (rated: Moderate)
3. Vendor master fraud — Insufficient controls over vendor additions/changes (rated: Significant)

Control Gaps Identified:
• AP-CTRL-014: Payment threshold review not operating effectively — 4 of 25 samples exceeded approval limits without secondary sign-off
• AP-CTRL-022: Vendor change log review performed quarterly vs. required monthly

Audit Finding: Payment Authorization Controls — AP-CTRL-014

Condition: During testing of 25 payment transactions above $50,000 for the period July 1 – September 30, 2025, Internal Audit identified 4 instances (16%) where secondary approval was not obtained prior to payment release, contrary to Acme Corp's AP Policy §4.3.

Criteria: Per Acme Corp Accounts Payable Policy §4.3 (revised February 2025), all payments exceeding $50,000 require dual authorization: (1) AP Manager approval and (2) CFO or designated delegate sign-off within the ERP workflow before disbursement.

Cause: The ERP system's approval workflow allows a "rush payment" override flag that bypasses the dual-authorization routing. This override was implemented as a temporary measure during the August 2025 system migration but was not subsequently disabled.

Effect: Payments totaling $1.24M were disbursed without required secondary authorization, creating exposure to unauthorized or fraudulent disbursements. Additionally, Acme Corp is at risk of non-compliance with SOX Section 302/404 internal control assertions.

Recommendation: Disable the rush payment override flag in the ERP immediately. Implement a compensating detective control (daily exception report) until the system fix is validated. Re-perform testing on the 4 exception items to confirm payment legitimacy.

Management Response (draft): Management agrees with the finding. IT has been engaged to disable the override flag by October 15, 2025. AP Manager will review all flagged transactions retroactively.

Severity: Significant · Finding Type: Control Deficiency · Status: Open