For finance departments around the globe, COVID-19’s altered reality has been a massive wake-up call.
Uprooting operations exposed issues and inefficiencies that companies had not expected. From purchase order to goods receipt, invoice receipt and payment, accounts payable teams are now re-evaluating their processes and firming-up their controls.
Even before coronavirus, accounts payable teams faced a growing volume of invoices that got bigger every year. The scope for overpayments caused by unrecognized rebates, duplicate invoices, and other common mistakes was growing along with it.
Some erroneous payments can be explained by human error, but often they signal missing controls that could potentially stop mistakes before they happen.
Whatever their cause, the cumulative impact of invoicing errors erodes margin and eventually leads to big losses. That’s why recovery audits are back on the agenda.
Why recovery audits still matter
A recovery audit recoups funds lost due to overpayments and under-deductions. By conducting a comprehensive review of vendor payments, companies can minimise the steady drip-drip of losses from invoice processing and other disbursement errors.
A large company can expect to recover millions in lost profits. Audits can also uncover issues in accounts payable processes that allow invoicing errors to repeat, and bring them to the surface.
When those issues are addressed, sustainable long-term improvements can be put in place – stopping losses before they happen.
And there will be issues. The chaos caused by changing so much so quickly has raised the risk of invoice errors, missed credits, and overpayments – just as companies are trying to maximize cash flow to manage through the disruption.
No excess capacity
In the aftermath of the 2008 financial crisis, businesses shifted quickly from trying to maintain headcount to extensive layoffs as a matter of survival.
That left many people doing a job that two people would have handled before. The recovery was slow and gradual, meaning what may have been intended as a temporary measure simply became normal. The old positions didn't come back, and finance teams have been trying to keep their heads above water ever since.
When coronavirus landed, there wasn't any excess capacity left to unleash. Adapting to the new reality requires a new approach.
It’s vital that recovery auditors can mirror their clients and work remotely without sacrificing speed and effectiveness. Remote access to data and documents has to be part of the audit process, so auditors can validate and document recoveries without having to be physically present in client offices.
That lightens the load for clients in terms of how they collaborate or make information available to auditors. New technology platforms are being created that enable auditors to automate and expedite the processing of client data, solicit vendor statements, and generally perform accounts payable reviews more efficiently.
Stop money from going out the door
Every business is making daily decisions about what’s really essential. Recovery Audit has to be on that list. Almost every Fortune 500 company relies on them as standard practice. For businesses that haven’t yet embraced them, time is of the essence.
Timelines are a vital success factor in recovery audit, as your ability to identify payment errors and credits owed – then successfully claim them back – diminishes over time.
In the case of credits owed, the sooner you can find them, the more likely you are to realize the value by either applying the credit to an open invoice or getting a check back from the supplier.
When credits age, they tend to get blended back into the vendor’s balance sheet, written off or applied to invalid invoices. For every year, you add to a retrospective audit, the likelihood of successful recoveries drops off dramatically.
The most successful audits happen when new data feeds arrive on a regular basis. That enables the auditor to catch errors quickly and have the best chance to recover the money.
After more than five decades in recovery audit, PRGX knows that change and uncertainty drive increases in invoice processing errors. We saw it during the Y2K furore and after 9/11. We see it today as the impact of COVID-19 rolls on.
2020 has seen a level of change and uncertainty at a sustained level that most of us have never experienced. It is simply not realistic to think processing and payment errors have not occurred as a result. To stay efficient in uncertain times, it's essential to address that issue as quickly as possible.