Balancing Efficiency and Control: Managing Accounting Automation Risk in Global AP and AR

Automation is causing a profound transformation in the global financial operations, enabling accounting firms and businesses to automate accounting processes and with that, accounts payable teams are emerging as the ones transforming finance departments from cost centres to drivers of strategic value and efficiency. Ardent Partners have released a study that claimed that automating accounts payable can reduce processing costs by even 65%. Each big change comes with its risks though and accounting and finance departments need to first, be aware of the risks associated with the development and adoption of automated processes, and secondly, the strategies to mitigate them. The risks range from algorithm bias in vendor selection to cybersecurity threats in cross-border payments and need to be carefully navigated with robust control and risk management frameworks to ensure security and ongoing compliance.

In this article we discuss the major accounting automation risks as they relate to global accounts payable and provide you with actionable tips on how to mitigate them.

Accounting Processes worldwide have been benefitting from the adoption of automation, particularly through the use of advanced accounting software for cross-border transactions, resulting in faster turnaround times, less manual processes and errors which ultimately leads to improved visibility, compliance and lower operational costs. However, the more automated the accounting process itself becomes, the more risks emerge if not monitored appropriately. The very nature of automation—its speed, scale, and reliance on AI-driven algorithms—means that small errors or overlooked risks can lead to significant issues. Below, we’ll examine specific risks associated with AP automation and the strategies that finance teams can adopt to mitigate them effectively.

The integration of Artificial Intelligence (AI) and Machine Learning (ML) algorithms is essential to improve efficiency and speed in accounts payable processes - they analyse historical data, predict trends and flag any anomalies. Because these systems are indeed trained on historical data, they are not immune to biases, which may result in issues with vendor selection and payment processing. The algorithm bias can look like favouring certain vendors and clients over others, applying harsh penalties for overdue payments because of overlooked communication, or flagging legitimate transactions as fraudulent which can negatively impact business relationships.

In order to protect themselves against algorithmic bias businesses should regularly audit their processes and systems, including AI algorithms to spot and adjust any biases in vendor selection, pricing, payment terms and processing. It is also important to ensure that algorithms are used on a wide range of data that includes representatives of various vendor and customer profiles, transaction types and jurisdictions.

Lastly, while AI and ML are meant to streamline payables and receivables processes they are not meant to replace humans. Because both AP and AR involve sometimes intricate business relationships between your company and your clients and vendors, maintaining a human review layer is always a good idea. Adding human intervention and oversight to payments could also catch potential biases that automated systems may overlook.

These practices can help companies leverage the strengths of AI and ML in accounts payable and receivable without them affecting performance or straining business relationships.

For global businesses the complexity of payables and receivables increases as they frequently send and receive funds across multiple jurisdictions. While automating the flow of funds cross-borders can make a huge impact on business-wide efficiency it can also expose the company as a whole and its assets to new cybersecurity threats. Additionally, businesses must ensure that their automated systems comply with financial regulations to avoid legal penalties.

The vulnerabilities we see most often in automated payment systems are weak authentication protocols or data encryption - with the payment information exposed, cybercriminals are more likely to manipulate the data, intercept or divert the payment. This can lead to devastating financial losses impacting both short and long term financial stability as well as reputational damage of the business as both clients and vendors will be weary of making their financial information exposed.

To mitigate cybersecurity risks in cross-border payments, financial leaders should implement and continuously reassess their cybersecurity measures. This includes: advanced encryption, multi-factor authentication, and real-time transaction monitoring. It is also important to foster a culture of cybersecurity awareness among accounting and AP teams and encourage them to collaborate with IT and information security departments as it will further protect the company against significant threat of cross-border payment fraud.

Operating cross-border means navigating a complex web of regulatory and compliance challenges which all differ in each jurisdiction. Failure to comply may result in hefty fines, legal penalties, and lasting reputational damage and therefore, maintaining compliance across multiple jurisdictions in AP and AR processes is essential.

Automation of payables and receivables can address these challenges thanks to features that continuously monitor and flag any potential compliance issues such as whether invoices, bills are meeting the requirements of a particular country or regions or alerting finance teams to potential payments violations, before the transaction is expedited. The reporting features of automated AP and AR systems allow the generation of detailed audit trails and compliance reports that testify to adherence to regulatory requirements during audit checks.

As with all automated systems, AP and AR need, however, an effective control framework for compliance in order to ensure accuracy. This includes:

Automated Compliance Rules: In order for your automated AP and AR system to work on local, national and international level you need to define compliance rules and enable automated checks for regulatory compliance.

Risk-Based Controls: Set controls based on the risk level of each jurisdiction. Prioritise stricter controls where regulatory compliance is more stringent.

Data Localization and Privacy Controls: Ensure that the AP and AR system complies with data localisation requirements, especially for jurisdictions with strict data residency rules.

Regular Updates: Update the control framework as regulations evolve, ensuring that compliance protocols align with the latest legal requirements.

A good addition to stay on top of regulatory compliance in a multi-jurisdiction environment, is engaging with legal and compliance experts. Collaborating with them can ensure that the business gets the latest information on the evolving compliance and regulatory landscape and the changes are reflected accordingly in the AP and AR processes.

Exactly how finance departments measure efficiency of their automated processes they should also, with an increased awareness of the associated risks, establish a set of actionable metrics and key performance indicators (KPIs) to continuously improve risk management in automated AP and AR. Incorporating data analytics into these metrics can provide deeper insights into the performance and risks associated with automated AP and AR processes.

Essential risk metrics for automated AP and AR processes include:

Transaction Error Rate: Track the volume and frequency of errors in transactions to assess the reliability of automation. This includes duplicate payments, incorrect amounts or vendor details.

Anomaly Detection Rate: Monitor how effectively the system flags suspicious or potentially fraudulent transactions.

Vendor or Client Dispute Resolution Time: Track the average time required to resolve payment disputes with both clients and vendors. Shorter times usually point to more efficient error handling and better vendor satisfaction and client relationships.

Automation Success Rate: This metric tracks the percentage of transactions that are fully automated without any manual intervention. The lower the rate, the more likely the automation is actually inefficient or lacks risk controls.

Keeping an eye on these metrics can allow finance teams to spot issues with the automated processes and systems and identify areas for improvement, as well as implement changes before the situation gets out of hand.

Last thing finance leaders should consider to make their automated AP and AR software systems less susceptible to risks is implementing strong access control frameworks. Access control is critical in AP and AR since both these systems handle increasingly sensitive data and authentication (verifying user identity) as well authorisation (granting user permissions) are necessary to ensure that only authorised members of staff have access to certain financial information or actions.

A robust authentication and authorisation mechanism can reduce risk of internal and external fraud. Some common measures include:

Role-Based Access Controls (RBAC): This means limiting access based on user roles so that members of staff can only access information and actions in the system that is pertinent to their responsibilities.

Regular Access Reviews: User access rights should be regularly reviewed to ensure that t former employees or users with changed roles no longer have unnecessary permissions.

Multi-Level Approvals: For high-risk or high value transactions, it may be worth setting multi-level approvals for extra layers of security.

This framework should be reviewed and developed together with the IT and risk management team to identify vulnerabilities and proactively address them before they can be exploited.

The benefits of cost savings, efficiency and strategic value that automated AP and AR are delivering are undeniable and continue to transform finance functions across the world. It is necessary however, for organisations to be aware of the associated risks and challenges and how they can mitigate them as they continue to embrace this technology.

In the end it’s all about balance - making the most out of the automation while proactively addressing the risks.

By collaborating with IT and risk departments to implement robust control frameworks, monitoring key risk metrics, and navigating the complex regulatory landscape, finance teams can strike a balance between the efficiency and security, governance and resilience.

What are the disadvantages of accounting automation?

The primary disadvantages of accounting automation relate to the risks it introduces. If left unmanaged, these risks can lead to financial losses, legal penalties compliance issues, and reputational damage.

What are the accounting automation risks in AP and AR?

The key accounting automation risks in AP and AR include: algorithm bias in vendor/customer selection and payment processing, vulnerabilities in automated cross-border payment systems, challenges associated with maintaining compliance across multiple jurisdictions, and the potential for errors or security breaches in highly automated workflows.

How can you protect your business from accounting automation risks in AP and AR?

In order to protect the business from accounting automation risk finance leaders should implement robust control frameworks that include regular audits of AI/ML algorithms, advanced encryption and authentication protocols for cross-border payments, automated compliance monitoring, and strict access controls. Establishing a culture of security awareness and close collaboration between finance, IT, and risk management teams is also crucial.