Accounts Payable Recovery Audit
An accounts payable recovery audit, also known as an AP audit, is a review of your accounts payable historical data. often accomplished with proprietary software that handles the data analysis without interfering with day-to-day business activity. This review helps to identify errors such as overpayments, under-deductions, duplicate payments, pricing errors, unclaimed supplier credits, etc.
Why You Should Conduct an Accounts Payable Recovery Audit
Even if you feel your organization has optimal controls, systems, and staff in place, there is still plenty of reason to spend time on an audit. The reality is that no system or individual operating within the procure-to-pay cycle is completely error-free. Every ERP and legacy system has the opportunity to bypass established controls.
Most of the time, communication between procurement, receiving, accounts payable and your suppliers is effective, but there will always be times when it is not. Your systems are meant for efficient invoice payment, but in organizations with a large transaction volume, there are some that are bound to slip through the cracks. Over time, though the percentage of transactions is small, errors can end up causing the bottom line to take a major hit.
“Conducting a recovery audit has multiple benefits. Though the primary benefit is that you can find money, you can also identify operation gaps, keep corporate under control, ensure contract compliance, reduce fraud risk, and prepare for state audits.”
Benefits of Regular Audits
Estimates indicate that for every billion in revenue a company earns, there can be a million dollars in overpayments. The found money is worth investing time and resources into the audit, of course, but that’s not the only reason to consider adding them to your routine.
Identify Operational Gaps
Gaps develop over time, and it is common for the AP department to experience sprawl. As the department grows, new branches are added to the system, and technology changes, it becomes more difficult to remain efficient. The audit process can help identify and fix issues in the purchase-to-pay cycle.
Reign in Corporate
When you find overpayments, it’s often because there are too many people involved in the process. In situations where a company uses several non-integrated payment systems, each accessible by multiple departments, it’s easy to see why overpayments occur. By switching to a consolidated billing system, you’re in more control and can reduce the duplicate payment risk.
Maintain Contract Compliance
A great deal of time and attention goes into preparing contracts because of the legalities involved with negotiating, drafting, and signing them. Without a centralized system in place, it becomes too easy for organizations to lose sight of the details within the contract, especially if there are multiple vendors to keep track of.
For instance, a manual contract review can lead to recovered funds because it’s easy to be billed for things that should be free according to the contract, because the agreed upon volume discounts were never given. Contract compliance audits also help to prevent future overpayments.
Reduce Fraud Risk
When departments aren’t running as efficiently as possible, the risk of fraud is greatly increased. Accounts payable audits will find the weak spots in the system along with red flags so they can be resolved.
Prepare for State Audits
Though the audit process is voluntary, there is always the possibility the state will want to take a closer look at your books. By regularly performing recovery audits, you can prepare for the possibility for the state audit in advance.
What the Audit Process Entails
An accounts payable recovery audit takes a backward look at all historical supplier spend. Using reports from within PurchaseControl makes it easy to see everything from a bird’s eye view. The two-way and three-way matching capabilities ensure AP can determine who ordered what from whom, whether or not it was received, and only pay for items that were received as ordered.
Because PurchaseControl integrates with accounting solutions and ERP software, it’s easy for your AP staff to handle the audit on their own, instead of hiring an outside agency to cover the audit. Though many of those agencies charge a contingency based fee, meaning you wouldn’t pay until you realize the economic benefit, often times, conducting the audit internally is a better option for many organizations.
Recovery Audit Expectations
The audit will identify and recapture lost profits as a result of errors within the procure-to-pay process. On average, recoveries range from .05% to .1% of revenue, which may not sound like much. However, when you’re dealing with $1 billion in revenue, that translates to $500,000 to $1 million dollars. For smaller businesses, the revenue amounts may not be impressive, but because every dollar matters to be able to continue operations and growth, they still can have quite the impact.
While the main goal of an audit like this is to recover funds that were lost due to overpayments and improper vendor credits, they do come with a variety of other benefits. And because you can use them to spot and repair inefficiencies in your processes, you’ll end up with increased efficiency and productivity that minimize risk while maximizing cash flow.
Audit services are available for those who want third-parties to handle it for them and are charged on a contingency fee basis so you do not pay unless there are economic benefits to be realized.
PurchaseControl can help make your AP recovery audits much simpler.Find Out How