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Today, most companies extract about as much value as they can out of their source-to-pay (S2P) cycle. Yet, even after implementing some of the most sophisticated S2P processes, as much as 5% to 10% of value is still lost.
This loss – which can equate to millions of dollars in potential profit – typically occurs due to common billing errors or accounting processes. Think missed discounts, under-deductions, siloed data, manual methods, multiple accounts payable (AP) systems, 3rd party portals to an AP system, and so on.
The profit recovery audit process is not designed to assign blame in any one direction. Rather, its intent is to identify profit loss and bring it back to a company’s bottom line. By conducting a profit recovery audit, finance leaders can leverage audit insights to further enhance the S2P process and create controls to eliminate similar mistakes in the future.
With that said, buy-in from key corporate stakeholders is critical to maximizing profit recoveries and transforming recovery audits. It is crucial for audits to focus on the recovery of unseen profit leakage while helping to ensure similar mistakes do not occur by finding the root cause. Trying to pin blame on a person or department only makes those involved less inclined to actually see the problem and want to correct it.
Usually, the best solution to the problem is to hire an outside party to conduct a profit recovery audit. At first glance, this might seem costly. Yet, how much is being spent on ineffective processes that lead to untold financial leakage? You don’t know what you don’t know. Most work on a contingent basis so all fees are self-funded through the recovery process.
You can learn quite a bit more – and recover significantly more – with the help of a reputable, highly experienced profit recovery audit firm. The following are some of the common challenges of a profit recovery audit and picking the right partner can help overcome them:
- Efficiency though experience – While many organizations overestimate the resources required to conduct an audit, the right provider can operate both transparently and independently if given access to the appropriate data and AP system.
- Consistent reporting across all regions – When it comes to multi-regional or multi-national profit recovery programs, it can be difficult to ensure the audit process and reporting are consistent throughout. When a recovery audit firm lacks a global footprint, scalability across regions or does not have essential language, cultural and regulatory competencies, it can lead to ineffective audits and supplier abrasion.
- Decreasing future payment errors – Understanding why issues have occurred to provide strategic recommendations and prevent future payment errors is a cornerstone of the recovery audit process. Working with a firm that not only has the skillset, technology and scope identify these issues, but also correct them, will benefit companies significantly more in the long run.
- Technology is essential – When searching for a third-party partner to support the AP audit process, ensure such partner equips its auditors with leading-edge technology designed to analyze data across all various systems and platforms. Paper-based systems no longer make the cut.
Companies should never view a recovery audit as a one-off proposition. The true value of a recovery audit is to provide a platform for continuous improvement. The self-funding nature of the project means long-term value for a company without having to budget for it annually.
Want to learn more?
Check out the Hidden Benefits of a Profit Recovery Audit White Paper and Webinar where we explore how profit recovery audits can save your company money and identify process improvements to help mitigate errors in the future.