How PRGX helps category management and merchandising leaders.
Getting to the root of the problem. It’s a beloved idiom of professional trouble-shooters everywhere.
From engineers to accountants, conducting analysis to understand why something went wrong – and how you can stop it from happening again – is fundamental to success.
The same holds true for recovery audits. They’ve become a go-to mechanism for recouping losses that happen due to erroneous payments and invoice errors. But as good as they are at getting lost money back, wouldn’t it be better if the money never left at all?
After five decades of practice, recovery auditors can now uncover hidden factors that create conditions where leakage can recur and spread. The growing ability to stop errors and loss before they happen is changing recovery audit from a retrospective to a proactive exercise.
Root cause analysis is the key enabler.
Recover and Prevent
Decades of experience combined with advances in technology are enabling auditors to go beyond historical recoveries and use what they learn and uncover underlying process issues that let overpayments slip through. When those are addressed, sustainable long-term controls can be implemented that stop leakage before it happens.
Root cause analysis is the process auditors use to discover the underlying sources of leakage and come up with solutions. In recovery audit, it has three key goals:
- Discover the source of each invoice error.
- Understand how to stop these errors from recurring.
- Use what you learn to stop similar errors from recurring in the future.
Root cause analysis is performed using a blend of best practice methodologies, data analysis tools, and auditor expertise to identify the sources of an event or trend. It looks beyond superficial causes (e.g. ‘human error’) to show where processes or systems failed — or potentially created the issue to begin with.
Where Does Root Cause Analysis Fit?
The reams of data recovery audits capture provide loads of raw material for analytics, but the sheer volume of information would be overwhelming without a methodology for sifting through it. At PRGX we take recovery audits forward using a six stage process:
01 Audit planning: Agree project objectives and build a reliable collaboration between the recovery audit partners
02 Data acquisition: Ensuring the efficient identification and transfer of data. At this stage, it’s vital to ensure that the recovery audit partner you worked with is tracking the information that you’ll need for later analysis.
03 and 04 Discovery and audit plan development: Identify potential process gaps while promoting an efficient and effective plan so the Audit Execution can be delivered with minimal impact on operations.
05 Validation and Recovery: This is where recovery teams will reach out to vendors and begin the process of submitting claims and recouping losses.
06 Reporting and continuous improvement: Steps one to five have traditionally been the main focus because they return cash quickly to the cash bottom line. But as audits become more proactive than reactive, step six has become a powerful source of long-term value.
It’s here in stage six that root cause analysis happens. By looking at the data generated in steps 1-5, auditors can see what triggered claims and establish controls that stop the same errors from occurring in the future.
How PRGX Approaches Root Cause Analysis
At PRGX our auditors begin root cause analysis with a top-level overview of all the claims successfully recovered. Claims might be divided into category, department, and claim type to identify where larger monetary amounts are being lost.
From those basics, the overview can be broken down further to include things like year-on-year breakdowns that make trends in leakage more visible. Are there considerable spikes in a particular area? If so, that would indicate the need for a deep dive to review why that leakage is happening.
The next layer of root cause analysis is the category level. It’s here where a particular category, trading area, or claim type where a higher volume of claims is occurring becomes a candidate for a closer look.
Finally we conduct a claim-level analysis. At this stage auditors delve into the specifics of individual claims to uncover precisely what the root causes have been for each one. The aim is to highlight common issues in particular claim types, vendors or product categories.
Big Savings Often Start Small
Once a systemic or process issue is found to be causing multiple claims, root cause analysis can branch out to uncover further leakage points, either within the spending category or elsewhere in the business. From a few small initial findings, by the end of the process, significant savings can result.
Root Cause Analysis is also a cyclical process. Once the claim level analysis is complete, it’s vital to update reporting to ensure errors don’t recur and then look at the top level again to identify new areas in need of attention. In that sense root cause analysis is turning recovery audit into a process of continuous improvement, and plugging as many leaks as possible rather than chasing the drops.
Want to learn more?
Check out the Root Cause Analysis: The Vital Ingredient In Today’s Recovery Audit e-book or The Overlooked Benefit of Recovery Audit webinar that explores how using proven methods, data analysis, and deep expertise can stop errors and loss before they happen, assisting in changing recovery audit from a retrospective to a proactive exercise.