Recovery Audit – Helping Businesses Stay Efficient During the Pandemic

Recovery Audit – Helping Businesses Stay Efficient During the Pandemic

Over the past eight months, finance teams had to embrace an abundance of new technology tools almost overnight. From document sharing platforms to new cloud services and virtual meeting rooms, many things had to change just to get work done.

Now that the dust has settled, COVID-19 has delivered a lesson in how unforeseen events can impact entire business models.  Awareness of hidden and unexpected risks has become painfully acute.

In finance departments around the globe, the reality of a pandemic has driven new risks for business to be concerned about. From purchase order, to goods and invoice receipts, and payment, accounts payable teams are stepping back and taking a hard look at their processes and controls to ensure they have mitigated the risk associated with the process changes that have occurred.

By maintaining your recovery audit process during such times, you can keep tabs on the process catch any gaps as they occur. In addition, improving cash flow and protecting margins has become mission critical, alongside the need to manage team workloads. Recovery audits deliver on all three requirements. Any business that isn’t looking again at their value needs to reconsider.

Here’s why.

 

Recovery audits matter more than ever

Even before COVID-19, accounts payable teams faced a growing volume of invoices, creating significant opportunity for overpayments caused by unrecognized rebates, duplicate invoices, and other common mistakes.

Recovery audit regularly helps large companies recoup millions of dollars in lost profit. Audits also uncover unique insights and bring issues in accounts payable and other finance processes to the surface.

Through the pandemic’s fluctuations, companies are monitoring recovery audit claim output, watching for the results and measuring process effectiveness, thereby ensuring that their controls are up to the challenge.

For example, claims that accumulated at the beginning of the pandemic can be analyzed for trends to potentially uncover gaps in efficiency or opportunities for leakage caused by overpayments and un-realized credits.

 

Getting more out of the audit cycle

If your business is new to recovery audits, a vendor statement audit is a great way to begin.

By soliciting statements of account from your suppliers, an experienced recovery audit partner can identify and recover open credits to help increase cash flow.

Credits typically arise from:

  • Duplicate payments
  • Improper or wrong vendor payments
  • Overpayments due to pricing errors, tax, or shipping paid incorrectly or in error
  • Unprocessed or incorrectly processed returns

These types of errors have likely spiked in recent months given the many changes to business operations.

 

For businesses where recovery audit is a standard practice, these are ways to increase recoveries and value:

  • Examine transactions completed during the initial work-from-home transition. The transition was abrupt. Teams were scrambling to get their home office and VPNs set up, re-arranging child-care, trying to figure out new processes. Some things may have slipped through the cracks.
  • Add audit escheatment. Review all stale checks to decrease liability and free-up cash.
  • Implement rolling audits. Feed data to your recovery audit provider regularly. Ideally audits will happen 90-days behind transactions.
  • Look for pandemic-related errors. The sudden closing of office environments may have caused chaos. Were notes left on someone’s desk and forgotten? Did every credit memo get entered? What mistakes happened due to distraction?

 

Errors we expect to find due to the pandemic include:

  • Overpayments or duplicate payments for purchases specific to COVID-19 and setting people up to work from home. In the rush to order, duplicate vendors may have been entered into systems, leading to duplicate payments. It’s also possible that multiple purchase orders were issued for the same products.
  • Missed quantity discounts for purchases like laptops, monitors, keyboards, printers, or anything else needed to kit-out a home office quickly. Most companies benefit from supplier discounts, but if they were ordered in a hurry, the discounts might have been missed.
  • Lost credits for returns. Lost credits are common in normal times, so it stands to reason they’ll have been amplified under the stresses and disruption of the events in 2020.

 

Don’t delay

Timelines are a vital success factor in recovery audit, as your ability to identify payment errors and credits owed – then successfully claim them back – diminishes over time.

In the case of credits owed, the sooner you can find them, the more likely you are to realize the value by either applying the credit to an open invoice or getting a check back from the supplier.

When credits age, they tend to get blended back into the vendor’s balance sheet, written off or applied to invalid invoices. For every year you add to a retrospective audit, the likelihood of successful recoveries drops off dramatically.

The time is now to realize the value recovery audit can bring to your organization.

 

Want to learn more?

Check out the Why Recovery Audit Remains Essential in 2020 E-book or Webinar.

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