Making the Most of an Accounts Payable Recovery Audit
An Accounts Payable (AP) recovery audit is a lot like exercise. As healthy as it might be for you, the mountain of data to comb through can seem like a herculean task. But, without conducting an audit, businesses risk leaving a great deal of profit on the table by not identifying root cause issues. So, how do you make the most of an Accounts Payable Recovery Audit?
Uncover Leakage Based on Three Pillars
An AP recovery audit helps finance professionals uncover the cause of financial leakage. However, management can sometimes mistakenly view leakage as the “cost of doing business.” But with today’s tools and technology, it does not have to be that way. If a business conducts an AP recovery audit to check off a box, it will miss the insight and analysis needed to change and improve processes in the future.
This article will help finance executives and auditors understand three key pillars of AP recovery audits that will enable increased bottom-line success:
- Although recovering cash is important, AP recovery audits extend further to transform processes and help alleviate system issues.
- Leadership can support staff that is reluctant or fearful to take part in an AP recovery audit because it will point out inadequacies.
- Audits can be a positive experience with proper planning, execution, technology, and the right partner.
Accounts Payable Recovery Audits Should Not Be Left Undone
CFOs and other senior finance executives want actionable insight. For instance, they want to know why the company is overpaying or under-deducting. And while the level of recovery is a primary concern, these are valuable byproducts, too.
AP impacts many internal and external functions — vendors, purchasing departments, business units, and cash and banking, to name a few. CFOs continue to move beyond their accounting and reporting roles. In order to have a more significant influence on business strategy, visibility into these areas provides insight into how they can work more efficiently and cohesively to ensure profitability.
Successful AP recovery audits identify systemic issues that can be corrected to improve operations from now on. While an AP Recovery Audit provides insight into what needs fixing is critical, it is equally important to follow through and put the findings to work. Further, to have a genuine impact, AP recovery audits must be a continuous process, not a “one-and-done” project.
The Time to Audit is Now
There is never a bad time to start recovering money and understanding points of leakage. One of the most significant vulnerabilities in the source-to-pay process happens when integrating multiple AP systems. Integration often occurs because of acquisitions and divestitures, or companies that buy and sell numerous divisions.
Companies that move their outsourcing to other countries are also vulnerable to process and system errors. Outsourcing presents another timely opportunity to embrace recovery audits. Often, there are nuances in each country that may be unknown to an offshore business process outsourcing (BPO) firm. This leads to new or continued leakage.
As companies expand their global reach, the AP recovery audit becomes even more crucial to help companies comply with multiple guidelines and regulations on a worldwide basis. Organizations often operate multiple business units with numerous AP systems across different regions. Operating many businesses and systems highlights the need for a holistic view of how the AP function is succeeding. Further, identifying opportunities for improvements need is beneficial.
The challenges to AP recovery audits are plenty — both technical and cultural. But they can be overcome. First, the challenges:
The designs of many of today’s systems cannot handle the amount of data moving through them. And, extracting and analyzing that massive amount of data can be equally tricky without the right scripts or programs to identify, catalog, and manage the data. Technical challenges such as this and the fact that frequently data is spread across multiple systems can hinder recovery audit efforts. However, experienced third-party firms that have the right technology and AP audit expertise can operate transparently and independently once given access to the data.
Aside from technical hurdles, cultural barriers can impede progress. For example, if mid-level managers feel as if they are to blame for reclaimed money, there will be resistance to an AP Recovery Audit. In truth, their superiors want cash recoveries and insight to improve processes and prevent leaks in the future. Therefore, if leadership works with mid-management to foster an open environment, recovery audits can proceed more smoothly.
Having the right third-party vendor could be vital to overcoming these challenges. A skilled AP recovery audit partner has invested in solutions to identify, monitor, and correct common errors before they happen by positioning core audit capabilities upstream in the transaction process and conducting preventative reviews.
Such a partner can produce a detailed, root cause analysis of the financial leakage to identify broken processes. Partners should also have the resources needed to examine and repair the issues. Recovery audits are usually self-funding. That means that the vendor gets a percentage of what it recovers. Recoveries can be used as an investment to stem future leakage where the real savings will occur.
Accounts Payable Recovery Audit – an Essential Business Tool
While an AP recovery audit intends to recover money — not an insignificant goal — there is so much more to be gained. An AP recovery audit can identify operational gaps and areas for improvement. Also, it can highlight compliance to established controls and issues throughout the source-to-pay process, and reduce fraud risk. Remember, the goal is to avoid problems before they happen!
As CFOs expand their roles as strategic business partners, conducting an AP recovery audit is becoming an essential tool to not only save money but identify financial leaks in the future. While recovering cash is a priority of AP recovery audits, leaders are using the insight to pinpoint system problems and address those issues. So, are you going to make the most of an Accounts Payable Recovery Audit?
Thanks to Jeff Lohmeyer, Senior Director of Accounts Payable Audits for PRGX Global, Inc.