Why 7 Out of 10 SMEs Fail Basic Audit Checks — And How You Can Avoid It
Audits aren’t just a compliance formality — they’re mirrors showing where your business might be bleeding money, losing control, or heading toward risk.
At PaperCurrency Consultants, after auditing dozens of SMEs every month, we see the same three patterns of failure repeating again and again.
Let’s break them down with real-world insights so you can protect your business better.
1. No Formal Vendor Verification = Open Gates for Fraud
In most SMEs, vendors come in through references, urgent requirements, or emotional trust (“we’ve known them for years!”). But guess what? Fraud, overpayments, and ghost invoices often happen within trusted circles.
Common Mistakes:
- No formal vendor onboarding or documentation.
- Missing GST, PAN, bank verification at initial setup.
- Payments released without matched POs or GRNs (Goods Received Notes).
Smart Control Setup:
- Make a vendor master file updated with approvals.
- Set up dual verification for any new vendor payments.
- Blacklist vendors who fail compliance.
2. Weak Cash and Bank Controls = Daily Small Losses Add Up
In most SMEs, vendors come in through references, urgent requirements, or emotional trust (“we’ve known them for years!”). But guess what? Fraud, overpayments, and ghost invoices often happen within trusted circles.
Common Mistakes:
- No formal vendor onboarding or documentation.
- Missing GST, PAN, bank verification at initial setup.
- Payments released without matched POs or GRNs (Goods Received Notes).
Smart Control Setup:
- Implement maker-checker mechanism for cash approvals above a threshold.
- Reconcile bank accounts daily; not monthly.
- Automate alerts for discrepancies over ₹5,000 immediately.
3. Over-Reliance on External Accountants = No Ownership of Risks
Many SMEs operate under the illusion that once the accountant files returns, everything is “in control.” External CAs/bookkeepers handle reporting, but no one monitors operational risks internally.
Common Mistakes:
- No review of outstanding dues (TDS, GST, statutory payments).
- No internal audit of debtor/creditor aging.
- No internal “control testing” of key processes.
Smart Control Setup:
- Conduct monthly internal reviews of critical financial processes.
- Define a checklist for statutory compliance — don’t depend only on filing deadlines.
- Set quarterly internal health-check audits, even if informal.