📊 Audit Strategy for Businesses With High UPI Transactions: A Professional Guide

With the explosion of digital payments in India, UPI (Unified Payments Interface) has become the preferred transaction mode for businesses—small and large alike. As of 2025, UPI processes over 12 billion transactions monthly, and many businesses see over 80% of their transactions routed through this platform.

While convenient and efficient, this shift presents new auditing challenges. In this article, we explore the risks, key focus areas, and a comprehensive audit strategy for businesses that handle high volumes of UPI transactions.

🔍 Understanding UPI in a Business Context

UPI is an instant real-time payment system developed by the National Payments Corporation of India (NPCI) that facilitates inter-bank transactions via mobile devices.

Common UPI Use-Cases in Business:

• Customer purchases (POS or QR-based)
• Vendor payments
• Employee reimbursements
• Inter-branch or intra-group transfers

⚠️ Why Audit UPI Transactions?

Despite their digital nature, UPI transactions are not immune to risks. Auditors must look beyond just reconciliation and consider:

• Fraudulent transactions
• Unauthorized access
• Misuse of personal UPI IDs for business receipts
• Cash-back misuse
• GST implications on unaccounted UPI receipts
• Lack of proper accounting integration

🧭 Audit Strategy Framework

To ensure a robust audit approach, businesses and auditors should follow a 5-Step Strategic Framework:

1️⃣ Planning & Risk Assessment

📝 Key Activities:

• Understand the volume and nature of UPI transactions.
• Identify UPI platforms used (PhonePe, GPay, Paytm, etc.).
• Assess internal controls in place for recording and monitoring.
• Identify departments using UPI (sales, procurement, HR, etc.).

⚠️ Risks to Note:

• Use of personal UPI IDs by staff
• Non-integration of UPI with accounting software
• Lack of audit trails

2️⃣ Control Evaluation

🔐 Focus Areas:

• Are UPI transactions routed through business bank accounts?
• Are UPI QR codes linked to official accounts?
• Dual-authentication and access control for UPI apps
• Mapping of UPI receipts to sales invoices or customer orders

✅ Suggested Controls:

• Restrict personal UPI usage for business
• Daily reconciliation with bank entries
• Auto-forwarding of UPI confirmations to ERP/email

3️⃣ Substantive Testing & Verification

🔎 Verification Methods:

• Reconcile UPI transactions with sales/GST records
• Match daily settlement reports from UPI aggregators (e.g., Razorpay, Paytm)
• Verify UPI charges, merchant discount rates (MDRs), and GST impact

📂 Documents to Verify:

• UPI bank statements
• Sales records/invoices
• Payment gateway settlement reports
• Cashbook entries

4️⃣ Reconciliation and Reporting

📘 Best Practices:

• Daily or weekly reconciliation of UPI settlements

• Break down UPI transactions by:

  • Date
  • Customer/vendor
  • Amount
  • Purpose

📈 Reporting Format:

• Summary of UPI inflow vs. sales revenue
• Outstanding settlements
• Suspicious or mismatched entries

5️⃣ Compliance & Regulatory Checks

⚖️ Must Comply With:

• Income Tax Act – Ensure UPI sales are reflected in reported income
• GST Laws – Match UPI receipts with GST filings (GSTR-1, GSTR-3B)
• Companies Act/LLP Act – Proper disclosure and audit trail in books
• Digital Payment Mandate – Check if Section 269SU (mandatory UPI acceptance) applies

🧾 Special Focus: Red Flags for Auditors

🚨 Watch Out For:

• Sudden spikes in UPI refunds
• UPI receipts not matching GST returns
• Manual UPI entries in books
• Multiple QR codes linked to personal accounts
• Round-figure transactions lacking invoice backing

📚 Integration With Technology

Businesses should consider using:

• 🔗 UPI-integrated accounting software (Zoho, Tally Prime, QuickBooks)
• 📱 Payment aggregator dashboards for reports and reconciliations
• 📥 Auto-import UPI entries using APIs or plugins
• 📊 Data analytics tools to detect anomalies in UPI flows

🛡️ Role of Internal Audit

An effective internal audit program for UPI transactions should:

• Conduct periodic UPI transaction sampling
• Audit access logs of UPI-enabled mobile devices
• Recommend system-driven checks and alerts
• Educate departments on digital fraud prevention

📌 Real-Life Case Study (Illustrative)

Business Type: E-commerce
UPI Volume: 20,000+ transactions/month
Issue Found: Customer service team using personal UPI QR codes for refunds
Audit Finding: Approx. ₹7.5 lakhs of unaccounted transactions
Action Taken: QR remapping to official accounts, automation of refund process

🧩 Conclusion

The rise of UPI has revolutionized business payments but also introduced unique auditing challenges. A traditional audit strategy is no longer sufficient—auditors must adopt data-driven, technology-backed, and risk-based approaches to ensure transparency and compliance in UPI-heavy environments.

✔ Proper controls
✔ Real-time reconciliation
✔ Regulatory compliance
✔ Strong internal audit procedures

…are key to building confidence in your financial statements.

Sales and Marketing Executive at TAXAJ

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