Have you heard the term ‘you are only as good as your most recent result’? This is true of finance departments and in particular Accounts Payable functions. Participating in a Recovery Audit is very important in uncovering errors but also identifying areas for improvement to reduce future leakage.

However, to really reap the benefits of this process it is best practice to have a recovery audit at regular intervals, ideally annually. Let’s recap.

What is the purpose of an A/P Recovery Audit?

Ensure payment accuracy and eliminate financial leakage.

The recovery audit process prevents organisations from losing money every year due to financial errors, like:
Unrealised credits,
Duplicate payments,
Cash on account
Discounts and allowances not received, and
Overpayments.

To identify areas of opportunity to improve operational efficiency.

Along with uncovering monetary discrepancies, the recovery audits can also serve to uncover areas to improve operational or financial processes.

Over time it is common for operational gaps to develop within accounting and audit processes and procedures. During a recovery audit review all findings and root causes are recorded and analysed for trends. A large part of this process is identifying operational weaknesses and applying remedies.

Recovering lost money is important. However, it could be argued that reducing the future risk of losses is even more so. By learning from audit results is it possible to highlight the areas of future risks and improve controls to reduce or eliminate them altogether. Another benefit of recovery audits is the potential improvements to sourcing, procurement, and supplier relationship management.

Key Benefits of Recovery Auditing

Recovery Audits can improve your bottom line.

The most important benefit of recovery audits is that it increases cash flow and pure profits through the identification of revenue leakage.

Recovery Audits can contribute to operational efficiency.

By identifying operational gaps and areas of financial leakage, recovery audits offer a unique opportunity to remedy these issues and make an organisations internal processes more efficient.

Recovery Audits can mitigate the risk of fraud.

By investigating deep into a business’s financials, the recovery audit process uncovers errors, performs a root cause analysis, corrects the error, and prevents the issue from happening again. As a result of this enhanced analysis, recovery audits effectively close the window of opportunity for financial fraud.

Recovery Audits can prevent future leakage.

The ongoing benefit of recovery auditing is that the process finds all the gaps in your financial processes. Identifying internal mistakes such as payment issues, contract noncompliance, or incorrect information, can help businesses correct the errors and take action to prevent future mistakes.

Recovery Audits can assist with compliance.

Incorporating a recovery audit regularly into an organisations financial calendar can assist in the compliance of regulations set by authorities or internal stakeholders. It can provide evidence of an organisation’s commitment to process review and improvement.

Summary

Organisations in all sectors who process more than 50k third party invoices per year and/or have third party spend over £250m should consider an annual A/P Recovery Audit as best practice.

I recommend leveraging a specialist provider who has the experience, tools, and expertise to deliver the review without impacting heavily on day-to-day accounts payable activities.

The rewards of such a project can be high, with the risks minimal due to the opportunity to work on a contingency basis.

The question is – why wouldn’t you?