Recovery Audits Keep Your Business Churning and Money Leakage in Check

The complexity of today’s business environment — from siloed processes and disparate technology to constant changes like mergers, staff reductions, new software implementations and vendor turnover — can leave organizations susceptible to millions of dollars in leakage, even with tightly controlled accounts payable processes in place.

Perfecting the accounts payable process for every transaction can be a costly, time-consuming exercise, one that can reduce employee productivity and slow down daily business operations.

For finance leaders, establishing a streamlined AP process doesn’t have to mean leaving money on the table. In this article we’ll explore how a recovery audit can help companies gain greater insights into their losses and discover strategies for delivering substantial sums back to their bottom line.

You’re losing money, now what?

Insight into the drivers of complexity in your organization is the key to solving for it, so the first step is assessing how your business operates.

Be thorough, but realistic. The goal can’t be 100% perfection when it comes to preventing leakage. Companies should leverage policy and internal control to define a process that limits the risk of errors but is still efficient. Generally, well-controlled companies can achieve higher accuracy with policy and internal controls.

However, best-in-class companies also engage a recovery audit to recapture as much leakage as possible. While the percentage of errors is very small across the transaction base, the dollars recovered if 0.5% or 1% of spend is recovered can be fiscally material.

A recovery audit analyzes source-to-pay data across your entire firm to find the gaps that remain and then work with you and your suppliers to recover that money to your bottom line.

Delivering lucrative wins

Recovery audits are about opportunity, not mistakes, and shouldn’t be ignored or feared. They are a powerful tool in the arsenal of the S2P professional that can be vital to your company’s profitability — unearthing potentially millions in savings.

Recovery audits dig deep into, and analyze mountains of, transaction data that aren’t typically centralized or easily accessible. Third-party recovery audits bring valuable trends to the surface and unearth strategic insights that you can leverage to better understand and improve your accounts payable processes. For example, a third-party auditor might uncover factors about internal company processes that lead to a high incidence of overpaid invoices.

And it’s not just about uncovering the problems. A recovery audit provides visibility that can confirm that a company’s processes are sound, even when cost-savings are found in the review.

How often should recovery audits be done?

Ideally, audits should happen in real time. In-place audits can capture new leakage points closer to when they occur and return value quicker. Leakages can occur during a variety of transition points, including mergers, acquisitions, system changes and personnel turnover — all things that are part of the normal course of business.

Many corporations run recovery audits on a consistent basis, gaining a steady stream of insights into changes in their businesses and trends in the market. One-off audits can provide a snapshot of a company’s issues, but making it a recurring best practice can help finance and accounts payable leaders implement processes that help them get to the root of the problem more quickly.

What types of firms can benefit most from a recovery audit?

Any company that is looking to get a single source of visibility into all of its financial and procurement processes would be a good candidate for a recovery audit.

For many thriving businesses, having a large market or global reach is a reality, but managing it can be cumbersome. Especially strong candidates are companies that have a lot of vendors or complexity in their supply chain. This may come from the nature of their business, global reach or organizational architecture. Whether a company represents all of these factors or just one, it can often still benefit from the data uncovered during the audit.

Audits aid with deluge of data

To stay informed, business must make sense of all the data flooding in these days. And with more and more information pouring in from the digital transformation of every function in every department, it’s helpful to have expert analysis.

ERPs generate a lot of data, but companies don’t often have the technology to make sense of it all or monetize it.

Recovery audits can reveal valuable data that speaks to trends and opportunities for data-driven decision making that can lead to cost-savings as well as other areas of insight.

This is why it’s important to ask deeper questions about transactions, like these:

  • Do you have a standard process to ensure rebates are captured?
  • How do you process returns in the plant?
  • How are credit memos posted?
  • How are pricing changes captured?
  • Do you need to retrain employees on a subject?
  • Are employees circumventing established controls in your ERP or legacy systems?

A recovery audit firm should be able to help with these questions, as well as give visibility into overpayments, input errors and being double billed by a supplier.

What will it cost you?

A company performing reviews internally requires a full-time staff with a budget and managers.

A third-party firm has the technology and expertise to do thorough checks with minimal time needed by a company’s internal staff. Third-party recovery audits should typically be self-funded, meaning that the auditor is paid based on a percentage of the funds recovered, not a flat fee. For most firms, that fee is collected once the audit team helps you recover those funds.

Why do an audit at all?

Communication among suppliers, procurement departments, receiving and accounts payable is effective most of the time, but not always. While corporate systems are designed for the efficient payment of invoices, in an environment with a large volume of transactions, a small percentage of leakage inevitably occurs. These dollars can add up to a significant amount and represents pure lost profit.

For many finance leaders, the feedback gained from a recovery audit helps identify problems and ultimately saves their companies money. By identifying instances where money is being lost, processes can get fixed and future losses can be avoided.

Companies are dynamic places, and errors are going to happen. Instead of slowing down business to have perfect transactions every time, recovery audits can close the gaps, recover overpayments, highlight system weaknesses and give vital performance feedback — all while adding value to the bottom line. The best way to identify problems is not to turn off your flashlight, but to continue shining light on your process.

This Brand Studio article was written for PRGX, not as analyst or editorial content.

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