Pre-audit refers to performing audit procedures before paying bills/invoices. The purpose of the pre-audit is to ensure procedural formalities related to billing and payment are timely fulfilled. The procedural formalities with respect to pre-audit include but are not limited to, verification, validation, authorization, approval, contractual compliance, and other applicable controls related to bill/payment processing.

The best part of a pre-audit is ensuring that no payment is processed without complying with controls and adequate documentation. It helps ensure that fraud and dishonesty related to billing and payment are proactively managed and operations are efficient.

Advantages of pre-audit

Following are the advantages of executing a pre-audit.

1. Pre-audit helps ensure transaction processing is in line with applicable policies and controls.
2. The accounting record and documentation remain updated and error-free when using pre-audit. It helps ensure that the accounting period closing is smoothly executed.
3. It’s considered a proactive strategy for managing accounting processes. Hence, higher efficiency can be expected when using this audit strategy.
4. It’s a great way to enhance control environment.

Disadvantages of pre-audit

Following are some of the disadvantages of pre-audit.

1. Pre-audit against a defined checklist can be a rigid/bureaucratic approach.
2. A delayed payment due to procedural formalities or a pre-audit can distort working relations with vendors and other stakeholders.
3. Additional work, such as pre-audit, consumes time and resources. Hence, cost and benefit analysis needs to be considered.

How it’s different from post-audit?

The pre-audit examines transaction/payment formalities before they are processed/paid. On the contrary, the post-audit is a regular, scheduled, and ongoing assessment to identify and resolve any needed corrections in the accounting record and documentation.

Regulatory and other compliance-related audits are usually post-audit and are conducted at a certain frequency after processing transactions.

Pre-audit as a smart approach

Adopting a smart pre-audit strategy can be a good idea to optimize cost structure efficiently. For instance, pre-audits can be mandatory for transactions exceeding a certain threshold. This helps ensure that they are only performed for significant transactions with higher monetary values.

Is pre-audit different from internal audit?  

Pre-audit can be considered a branch of internal audit. The only essential aspect of pre-audit is the assessment/examination of related documents before payment is processed.

Conclusion

Pre-audit refers to examination/assessment of documentation and other procedural formalities related to transaction/payment processing. It helps ensure compliance with applicable controls and policies on payment processing.

There are various advantages of pre-audit, like ensuring compliance with applicable policies, rules, and regulations. Further, adequate accounting records and documentation are maintained when adopting a pre-audit strategy.

However, there are disadvantages to the pre-audit, like time and resource consumption. Hence, a cost-benefit analysis needs to be made before opting for this strategy.  

Pre-audit differs from post-audit as pre-audit requires pro-active examination/assessment of the transaction payment processing, while post-audit is an ongoing and scheduled audit activity.