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By Phil Beane, And Senior Vice President of Global Field Operations, And APEX Analytix
While global organizations are strengthening controls with single-instance ERP (Enterprise Resource Planning) systems, greater integration in procureto- pay processes, and increased efforts on the part of internal audit and A/P to conduct procedural audits, profits continue to escape to fraud, erroneous and duplicate payments. Logically, companies would want to do everything possible to detect supplier risk and fraud, and prevent and recover the untold millions of dollars lost each year to inadvertent leaks.Yet the same companies that are watching dollars trickle out their door frequently hesitate to bring on third-party recovery experts.
"An effective outsourcing partner uses automation to generate claim packages, conducts research on the proposed claim or deduction, and handles the communication with a supplier related to an overpayment, gaining approval prior to presenting the verified overpayment to the client"
Why the fear? Vendor risk analysis services and recovery audits encompass a systematic review and analysis of a company’s disbursements in order to help identify supplier risk and recover overpayments and missed supplier credits. A best-in-class recovery audit team can help recoup lost profits, shore up internal controls and even uncover new value streams that can benefit the bottom line—from dynamic discounting opportunities to strategic sourcing. In addition, third-party audits can also fulfill compliance requirements. But despite the many benefits, some companies harbor misconceptions about the audit process and are reluctant to move forward. Below, we separate the facts from fiction when it comes to potential benefits that companies stand to gain from outsourcing fraud detection and asset recovery.
FICTION: Companies believe they have the in-house capabilities needed to do their own vendor risk analysis services and recovery audits.
FACT: Maintaining an internal team to check for overpayments and request statements from suppliers to identify credits is a best practice. Most large companies have some staff resources dedicated to this first-pass audit. However, a disbursement function has to focus on their main responsibility, rather than auditing of their own work. Therefore, a post-payment audit by a third-party serves as a valuable control for ensuring that profits are recovered to the bottom line. Best-in-class fraud detection services subscribe to 60+ external government watch lists, as well as tap into the IRS, SBA and global company address data. Few companies have the in-house resources to incorporate this level of fraud detection on their own. Even companies who conduct their own internal reviews can benefit from a secondary audit to verify findings, identify control weaknesses responsible for recurring errors and determine what new processes, controls or training should be implemented for continuous improvement.
FICTION: An outsourced recovery audit isn’t worth the risk to supplier relationships.
FACT: Although this is a common fear, the reality is that outsourcing to a competent, reputable third-party audit company can not only strengthen client-supplier relationships, it can lead to better long-term relationships. Timely recovery audits ensure that any overpayments can be accounted for within the appropriate fiscal period. A skilled back-office recovery analyst can even uncover systematic process breakdowns, which, when corrected, create a more efficient billing and payment process. Innovative outsourcers are serving the buyer/supplier relationship with value-added offerings such as dynamic discounting and supply chain financing. New portals are taking the priorities of suppliers into consideration by offering bilateral features where suppliers are the ones to initiate early payment/ discounting options with companies. New modules even offer an approach so suppliers know which customers are likely to accept their offer of early payment in exchange for discounting or reject it. Faster payments help improve cash flows, and well-documented claims that can be processed quickly eliminate supplier frustrations.
FICTION: Outsourcing audit and vendor risk analysis services eliminates jobs.
FACT: Accounts Payable staff may worry about an outsourced audit exposing errors or taking work away that might otherwise be done in-house. In fact, a well-executed audit, with feedback on process and system weaknesses that caused the errors in the first place, paves the way for a strategic A/P department with high-value work roles for the staff. More prevalent is the fear that an audit will cost someone their job once mistakes are revealed. However, errors are inevitable in even the best run accounts payable organizations. Rather than throwing a person or team under the bus, an outsourced audit can help return lost dollars to a company’s bottom line, reveal underlying issues and recommend steps to prevent future losses. Benchmark data provided by a third party can be used to show savings and improvements from audit cycle to audit cycle. Far from getting someone fired, an outsourced audit can position a person (or team) as a progressive leader focused on doing what’s right for the business.
FICTION: Outsourcing will create more work.
FACT: Unfortunately, some companies have had past experiences where a continuous monitoring solution didn’t integrate well with existing ERP systems, or an outsourced audit recovery team created more work by asking more questions than they answered, or by providing claims that were poorly supported with documents and details. An effective outsourcing partner uses automation to generate claim packages, conducts research on the proposed claim or deduction, and handles the communication with a supplier related to an overpayment, gaining approval prior to presenting the verified overpayment to the client. Likewise, an experienced vendor risk analysis team applies wellhoned processes and advanced technology to conduct audits and prepare an easy-to-digest yet comprehensive report on the risk scores of all the suppliers in a company’s vendor master. Armed with useful information, your team will be free to pursue other strategic projects while the outsourcer works on your behalf.
FICTION: If a company has an audit once and nothing much was found, there’s no reason to have another.
FACT: Regularly scheduling recovery audits is a best practice—and for good reason. Conditions can change and mistakes can happen. Some issues arise because of process errors. A critical decimal point can be entered in the wrong position. A company’s ERP platform may have an incorrect tax setting. Invoices can inadvertently be paid twice due to process gaps. Mergers, a c q u i s i t i o n s , ERP system upgrades and system changes can also result in spikes in overpayments. You might even have an employee on your team colluding with a supplier to run a fraud scam. At a minimum, a recovery audit will reconfirm that your operations are trouble-free. And if problems are found, you can rest assured that you have made every effort to recover losses, make impactful changes and move forward.
It is important to note that outsourcing among recovery companies continues to evolve. Interestingly, ongoing supplier research is becoming ever more relevant as a key to successful prevention and recovery efforts. New communications engines provided by audit recovery vendors will allow a company to segment suppliers and tailor its communication strategy based on supplier preferences. Do suppliers prefer phone messages, emails, texts or mail? Which contact method should be used and in what order and how many times? Who is the best contact? In addition, value streams such as dynamic discounting modules that have historically thought only of what AP is trying to accomplish will focus ever-growing attention to the experience a supplier has when using a portal. Are they taken to an opening screen that supplies pertinent information for them? Is the language couched in their terms (a “bill” from the supplier end versus an “invoice” from a company’s perspective, a “receivable” for the supplier versus a “payable” for the buyer)? Small differences can make all the difference in supplier adoption. Understanding how suppliers prefer to be contacted leads to faster feedback and improved relations.
A final thought: while AP departments may feel trepidation at the thought of bringing in an outsourced fraud and recovery audit team, these fears remain largely groundless. Outsourcing recovery and audit is now a faster and more comprehensive way for companies to leave no stone unturned in the quest to realize lost dollars. Having these audits can also fulfill compliance requirements.
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