What is a Recovery Audit?

What is a recovery audit?
However perfect your employees and systems, you will have leakage. It’s a cost of business.
Recovery auditing, often referred to as profit recovery, or accounts payable audit, involves scrutinising an organisation's financial transactions, related data, and operations to recover and leakage and report on process or governeance weakness.

The process
The recovery audit process consists of four phases: scoping, data gathering, delivery and reporting. Your main role is to reassure your team this process is not a witch hunt. No one wants their homework to be marked, but everyone makes mistakes and even the most robust systems have leakage. Buy-in from Exec's is also key.

3 reasons it's vital you commission a recovery audit

1. Protect the bottom line
   Recovery audits aim to prevent organisations from losing substantial amounts of money due to financial errors like unpaid invoices, duplicate payments, pricing and billing errors, missed discounts, allowances, and overpayments.
2. Identify and close operational gaps
   Recovery audits also serve as a means to identify opportunities for enhancing operational efficacy and efficiency. They contribute to improvements in sourcing, procurement, ops and supplier relationship management.
3. Demonstrate good governance – delivered by a specialist
   Your recovery audit partner will be solely focussed on the job of identifying issues and recovering your money with technology and processes, enabling them to do it quickly and with minimum fuss.

5 key benefits of a recovery audit

1. Improving the bottom line - recovery audits significantly boost cash flow and profits by identifying revenue leakage and correcting financial discrepancies.
2. Contribution to operational efficiency - by revealing operational gaps and financial leakage, recovery audits provide an opportunity to enhance internal processes and make them more efficient.
3. Maintain strong supplier relationships - acting as a check on accuracy, recovery audits enable companies to address issues with suppliers, ensuring contract compliance and maintaining strong working relationships.
4. Prevent future leakage - recovery auditing identifies gaps in financial processes, helping businesses correct mistakes and take preventive action against future errors.
5. Mitigate the risk of fraud - through in-depth investigation into financials, recovery audits not only correct errors but also prevent future occurrences, effectively reducing the risk of financial fraud.

What businesses benefit from recovery audits?
Any company with high transaction volumes benefits from a recovery audit - it’s a numbers game. The more transactions processed; the more errors can occur. System changes, employee turnover and process and contract complexity all add the likelihood of errors occurring.

Types of recovery audits
Recovery audits generally fall into three categories: commercial, retail and government, each tailored to specific industry needs.

1. Commercial – an audit of all non-staff related expense. Typically uncovering duplicate
   payments, incorrect data entries, unallocated cash and VAT not treated correctly. Contract compliance audits will identify where suppliers have not charged the customer correctly (utilities, telecom and property related transactions are common culprits) or where there is a breakdown in process e.g. damaged goods or returns.
2. Retail – in addition to the commercial audit practices, these audits interrogate product pricing and promotional activity ensuring all supplier funding is calculated accurately.
3. Government – a cross-over of both commercial and retail audits aligned to specific Government department processes and activities.

Duration and cost of recovery audits
Typically each project last three months - factors such as company size, number of suppliers and data availability impacts this. Typically charged on a contingency basis, fees are based on a percentage of recovered money.

Key Considerations When Choosing a Recovery Auditing Partner
The suppliers experience, reputation, approach, price, and process are key in making this a success for you and your business.

Conclusion
For organisations seeking growth and financial resilience, recovery audits are an essential strategic tool. Recovery audits not only recover money but also provide valuable insights, identify operational gaps, and protect the bottom line.