Companies are constantly on the lookout for ways to increase cash flow and reduce risk. One often-overlooked method for reducing profit leakage and increasing revenue is through the use of current or long-standing accounts payable (AP) recovery audits.

Within the AP process, errors often occur during the normal course of business, even in highly automated environments. Payment discrepancies and duplicate payments are two common issues that allow cash to slip through the cracks, creating unwanted profit leakage.

An AP recovery audit enables companies to recover erroneously paid funds and identify risk to help prevent leakage from recurring, thus improving their long-term financial position. An experienced third-party audit partner draws on advanced data analytics technology and statement outreach capability to identify potential errors in AP transactions.

These audit partners are well versed in casting a wide net to maximize potential claim findings. This includes conducting a careful investigation and researching all potential claims for validity. When claims are determined to be valid, the audit partner helps to recover funds that otherwise would have been lost, as well as prevent similar mistakes from repeating themselves.

If an AP recovery audit is already underway, companies should consider their audit footprint and audit cycle timing to maximize the value of the audit. Considerations for scope might include determining geographic reach, number of regions or company divisions, and the audit period.

Ideally, the data to be reviewed should be as complete as possible. If the audit is global in nature, consider including all regions and facilities within the geography selected. This maximizes the opportunity for identifying overpayments and recovering lost profit.

If the audit occurs a year or more after the transaction dates, there’s a risk that supplier credits could disappear, be allocated elsewhere, or be accidentally written off. By moving the audit calendar up, companies stand a much better chance of financial recovery. It’s recommended that the audit be conducted no more than 90 days post-transaction date. Doing so also closes the feedback loop; the longer you remain unaware of a process gap, the greater the potential for financial hemorrhaging.

Another way for companies to get more out of an audit is by broadening the review scope beyond payments. Areas for expansion include:

• Third-party payment applications. Understand if payments made through third-party applications, such as P-card purchases and temporary labor tools, are reviewed to identify whether suppliers have been paid from two different payment sources.
• Rebates. Know how rebates are tracked, managed and reconciled. Often, calculations based on data that isn’t readily available causes companies to miss out on discounts.
• Pricing. Compare price-change information against invoices to make sure they’re accurate. This is most helpful with frequent price-change scenarios.
• Returns. Review the process and transactions regularly to highlight potential for recoveries.

AP recovery audits add significant value to a company’s financial wellbeing. However, supplementing them with contract compliance audits and advanced analytics is the best way to reduce risk and optimize business value across the source-to-pay (S2P) process. Although each can be implemented alone, combined they maximize return on investment by using data and lessons learned from each solution.

Contract Compliance Audits

A price contract compliance audit delves into whether companies were charged the correct price or provided with the correct rebates per the supplier contracts. This type of audit can re-calculate charges using company data to ensure they’re accurate.

A commercial contract compliance audit reviews supplier contracts to help ensure that benefits negotiated by the procurement team were received. Where an AP recovery audit looks for errors in the payment process, a commercial compliance audit employs company and supplier data in its review. Types of data include labor rates or cost plus, markup multipliers, pass-throughs and overhead charges.

Advanced Analytics

Advanced analytics combines industry-leading consulting with proprietary secure technology to help companies rapidly uncover insights, act upon findings and achieve bottom-line results. Layering in artificial intelligence, machine learning and data science, advanced analytics can provide insight above and beyond what can be found in traditional S2P audits. This in turn can identify financial windfalls hidden deep inside your data.

While many companies have review processes, they often underutilize the data available to them. While a great tool to have in your financial toolbox, internal reviews alone won’t discover everything. If you have doubts about whether you’re squeezing the maximum benefit out of your supply-chain cycle, consider expanding your audit work. An experienced third-party S2P audit partner can provide added value and insight by implementing a recovery audit, contract compliance review or analytics solution.

Angie Holsen is regional vice president of commercial compliance at PRGX.