How to Conduct an Effective Accounts Payable Recovery Audit

For every organization, managing accounts payable can be a challenging task. The reason for this is that accounts payable involves managing a significant amount of financial data, which if not done properly, can result in errors, overpayments, and even vendor disputes. In the long run, these factors can affect a company’s bottom line, and that’s why many companies prefer to conduct an accounts payable recovery audit. Conducting such an audit can help businesses identify and recover errors and over-payments, thereby shoring up their AP controls. This article will outline eight sections that will walk you through the process of conducting an effective accounts payable recovery audit.

Why Conduct an Accounts Payable Recovery Audit?

For many organizations, accounts payable is among the most significant expenses, and as such, errors and overpayments in this area can be very costly. Overpayments can have long-term negative effects on vendor relationships, distrust, and even litigation. Vendors expect timely payments that are accurate, and if a company’s AP process falls short of this expectation, it can jeopardize the relationship. Additionally, for public companies, overpayments can affect their financial statements, thereby leading to a loss of confidence on the part of shareholders and potential investors. A recovery audit can help identify and correct these errors and over-payments.

If they don’t recover anything you don’t pay anything

Recovery firms have experience in dealing with vendors and can help procure recovery amounts that companies might not be aware of. What’s more, they can take any commission directly from the recovered amounts, which guarantees that there is no upfront cost to your company. This makes the whole process a no-risk proposition.

Identifying potential vulnerabilities and shoring up AP controls

During an accounts payable recovery audit, a company can identify weaknesses and vulnerabilities in its AP controls. These audits can help businesses to identify gaps in their AP processing, which can be a source of ongoing errors and overpayments. By correcting these deficiencies, businesses can reduce their financial risks and improve AP performance.

Steps to Conduct an Effective Accounts Payable Recovery Audit

To conduct a successful accounts payable recovery audit, organizations need to hire qualified recovery audit firms with relevant expertise and experience in the market vertical your company operates within. A reputable firm utilizes experienced auditors and investigators who can analyze accounts payable data, assess vendor agreements for rebate and shared revenue compliance, and reach out to vendors to secure lost revenue. A professional recovery audit firm understands the best practices used for a successful audit and can provide expert guidance throughout the process.

Gathering and Analyzing Data

The first step in conducting an accounts payable recovery audit to gather and analyze data. This information should include details of all supplier transactions, such as invoices, payment records, and purchase orders. Besides, it is important to consider the conduct of a “Big Data” analysis of your Oracle or other ERP systems to specifically look for specific data anomalies that might indicate potential fraud, false vendors, or other high risks. This information provides a starting point to identify any payment discrepancies, such as overpayments, duplicate payments and other discrepancies, which may warrant further investigation.

Identifying Potential Errors and Overpayments

The next step in the audit process is to identify potential errors and overpayments in the data. During this step, businesses should compare all aspects of their accounts payable data to determine any inconsistencies or irregular payments. It is worth noting that in conducting an audit, proper reconciliations and strong internal controls can go a long way in reducing payment errors.

Investigating and Resolving Discrepancies

Once your recovery audit firm identifies any payment discrepancies, it is essential to investigate and resolve them. By conducting an investigation, auditors can determine the root cause of the problem and recommend corrective action. This step is crucial since it can help businesses recover funds that would otherwise be lost to them.

Benefits of Conducting an Accounts Payable Recovery Audit

One of the significant benefits of conducting an accounts payable recovery audit is cost savings, as identified discrepancies can be corrected and the associated funds recovered. This approach also promotes cash flow, providing additional financial resources that businesses can use to reinvest in their operations or pay down any outstanding debts.

Improved Vendor Relations and Compliance

By conducting an accounts payable recovery audit, companies can identify and manage their vendor relationships effectively. Identifying and correcting overpayments and errors can help maintain reliable and productive vendor relationships. This results in less strain on the supplier relationship, which is beneficial for both parties, reducing vendor turnover and better purchasing power and pricing to the buyer.

Enhanced Financial Accuracy and Reporting

As earlier stated, overpayments can negatively affect a company’s financial reports. By conducting an accounts payable recovery audit, businesses can address discrepancies that could affect their reports’ accuracy. By shoring up the AP and general ledger accounting for reconciliations, companies can promote accurate account records and enable faster and more informed decisions.

Best Practices for Maintaining Accurate Accounts Payable Records

Maintaining reliable accounts payable records requires regular reconciliation and review. Businesses can implement systems to automatically reconcile transactions, narrow the focus to only those high-risk items needing a manual review, and verify all vendor and price changes before approving them for payment.

Implementing Effective Systems and Procedures

Implementing effective systems and procedures can go a long way in streamlining accounts payable processes. Companies can utilize technology, such as ERP systems to track vendor transactions and invoices, automate payment processing and focus manual AP functions on high-risk and policy violations.

Conclusion

Conducting an accounts payable recovery audit can have enormous benefits for businesses. Companies can use recovery audits to identify and address areas of weakness in their AP control processes to optimize their cost of goods and ensure vendor compliance. By employing a qualified recovery audit firm, utilizing established best practices, and implementing efficient procedures, companies can maximize their potential cost savings, improve vendor relationships, and elevate overall financial reporting accuracy.

As always, until next we meet, I appreciate all you do.

TH

When your organization’s top leadership asks for your best cost reduction ideas by the end of the day, are you ready to make quick, impactful recommendations? Use this Expense Reduction Idea Log regularly and you will never have to stall for ideas again. Order one for each person on your purchasing and sourcing teams today!

Click here so you don’t miss this interesting blog post on ThinkOutSideInSupplyChain: Get Ahead of the Curve: Using IoT Cold Chain Monitoring to Future-Proof Your Logistics.