With so many moving parts in your business, it’s virtually impossible for everything you’ve negotiated into supplier contracts to be 100-percent embedded in the accounts payable process.
Businesses have made recovery audits standard practice as a way to address the problem. But is there more to recovery audits than just pouring over invoices and double-checking them against contract terms?
The traditional recovery audit is being rapidly replaced, with technologies like AI, machine learning, and big data adding new capabilities and value. A lot is changing quickly, and many people have questions. Here are the ones we encounter most frequently.
- How should a company handle the challenges of a global audit – working across languages, currencies, local customs, and cultures?
Ideally your recovery audit partner will have a global footprint and years of multinational experience to draw from. They’ll be familiar with cultural differences and local business norms that could impact how the audit is conducted or how claims are handled. Currencies are another key issue, with conversion handled fairly when identified claims have been validated.
- How do you manage recovery audits in a post-merger environment where there are multiple ERPs or ERPs are being combined?
Combining ERPs or even just transitioning from one to another post-merger can be very challenging. The PRGX data acquisition process can handle it. We work with all the major ERP systems, and our client data services team routinely works with systems that have been built in-house.
ERPs have relatively standard functions that allow PRGX to obtain invoice and transaction data quickly and with limited or very minimal resources required from the client. Our own data processing then normalizes it, so that when our auditors see the data, they don’t necessarily need to know which ERP it came from. In that sense, it all looks the same to them.
- What should the outcome of a recovery audit be? Is it just about clawbacks?
Every audit will uncover pricing and billing errors that lead to cash recoveries. It is not unheard of for a large company to recover millions of dollars in lost profit. Audits also uncover unique insights and bring issues in accounts payable and other finance processes to the surface. When those are addressed, sustainable long-term improvements can be put in place – stopping losses before they happen.
An audit can lead to better recognition of risk, and new business insights that can become the basis for better contracts. Recovery audits are now one component of a bigger process that can lead to improved sourcing, procurement, and supplier performance management.
- What are the main causes of leakage?
While human error is at the root of most overpayments, poor processes and periods of extreme change – including mergers and acquisitions, new system implementations, software upgrades, IT transformation, and off-shoring initiatives – can also create problems. In times of transition there is significant potential for duplication or corruption of vendor master data and contracts, as systems are either migrated or duplicate data are maintained in multiple systems.
- Don’t recovery audits risk damaging important supplier relationships?
It’s true that recovery audits used to be seen as witch hunts, and there’s no denying that recovery audits will eventually mean contacting a supplier and asking for money back – a conversation which, while a best practice, is never going to be welcome.
The recovery audit vendor needs to approach every claim with sensitivity and patience. It’s essential to keep the business relationship in mind and take the time necessary to secure a supplier’s buy-in for claims. Using data and analysis tools will help provide all the information and back-up needed to justify cutting a check. It’s also vital to pick your battles. If you find evidence that could bring a claim into question, the auditor needs to be proactive and consider if it’s a false positive or unlikely to succeed.
Data-driven but human-led
When it comes to questions about recovery audit, we’ve had more than five decades to find the answers.
At PRGX we blend data, analytics, and human expertise to identify overpayment errors. We also conduct extensive outreach to the supplier base to obtain statements of account, looking for un-applied or missed credits – finding funds due but not recorded in your accounting systems.
Then we work closely with finance teams to investigate and identify root causes, validating claims, securing recoveries owed, and providing insights on process to stop leakage from happening in the first place.
PRGX helps companies spot value in their source-to-pay processes that traditional approaches simply can’t. Having identified more than 300 common points of leakage, we help companies dig deeper and act faster to get more out of their recovery audits.
We pioneered the industry over 50 years ago, and today we help clients in more than 30 countries take back US$1.8 billion in annual cash flow each year. It’s why 75% of top global retailers and a third of the largest companies in the Fortune 500 rely on us.
For more information, please visit www.prgx.com.