Recovery Library: Why Recovery Auditing?

The Benefits of Recovery Auditing

What is Recovery Auditing? - " Recovery auditing is the methodical process of reviewing disbursement transactions and related supporting data to identify and recover various forms of overpayment and under-deductions to suppliers." That is the definition of Recovery Auditing, and it does include all of the rudimentary information.

But where is the explanation of the benefits of a Recovery Audit?

In a process flow of $100 million, a 0.1% error margin (that is .001 and standard for recovery engagements) translates into $100,000 in recoveries ! The practice is so productive, and the effect on the bottom line so substantial, that many corporations hire more than one recovery auditing firm to analyze the same data. That is in addition to companies' own auditors, who usually find the most obvious errors. Corporations assume almost no risk because auditors are paid a percentage of what they recoup. The auditors only make money if they identify overpayments that are later recovered. Recovered overpayments are literally found money and add directly to a company's bottom line, except for the percentage paid to the recovery auditor.

Profit recovery audits measure the need for improvements within the business process in specific dollar amounts . They improve financial performance by identifying and recovering any overpayments and help improve the procure-to-pay processes. Rather than identifying vague concerns within a business process, a recovery audit finds quantified cash leakages within the process.

Recovery audits provide the company an opportunity to learn from outsiders as to industry best practices . These come in the areas of process, technology, and people skills based on the auditors experience in various other similar companies. Systems (and the demands we make on them) are growing as payment departments are shrinking. Companies merge, change systems, outsource, and have employee turnover. All of these scenarios contribute to potential lost profits and therefore, best practices are needed just to keep pace with the rate of change.

Another more recent motivation for conducting a recovery audit is to help comply with Sarbanes-Oxley. A recovery audit covers much of the same ground a CFO must cover to ensure the integrity of a business; from process controls to contract compliance to payment checks and balances. An asset recovery audit firm will normally provide detailed reports on the financial health and well being of your payments process and contract compliance. You may think of a recovery audit as an extension of your existing strategy. However, in all likelihood, the return on your recovery audit investment will exceed that of other similar pursuits.

Recovery audits create an air of transparency between your company and your vendors. The recovery auditor may find nothing. But even then, you still now know more definitively that there are not any cash leakages being held by vendors. If they do find something, "It's your money" so why not get it back?

Get it before it disappears - As profit recoveries are time sensitive, the longer you wait, the more difficult it is to identify, validate, and retrieve them. A no-risk contingency-based audit is the most cost and time-effective way to recoup your lost dollars.