An accounts payable recovery audit is a comprehensive review of procurement to payment transactions. The purpose is to recover funds sitting with vendors due to a variety of overpayments.
PCR generally recovers $1000/staffed bed in a typical healthcare system.
Before delving into the specifics of recovery audit, it is essential to understand accounts payable. Accounts payable refers to the money a business owes to its vendors, suppliers, or creditors for goods or services received. Managing accounts payable efficiently is crucial to maintaining healthy financial operations.
Exploring Accounts Payable Recovery Audits
Conducting an accounts payable recovery audit involves a thorough examination of a company’s financial records and transactions to identify and recover any overpayments, duplicate payments, pricing errors, unclaimed credits, or vendor contract compliance issues. It is a proactive approach that helps healthcare systems uncover financial discrepancies and rectify them to maximize cost savings.
Overpayments in the healthcare industry occur for a variety of reasons, including:
- Duplicate payments
- Vendor pricing errors
- Products returned but the credit not issued
- Missing capital purchase order equipment trade in allowances
Additionally, rebates may not have been issued when earned, freight terms and payment terms may not have been honored per contracted agreements, and sales tax may have been charged when the facility is a non-profit. As a result, a full review involves working with both accounts payable teams and supply chain teams.
Historically, PCR recovers overpayments as follows:
- 32% Supplier Returns
- 22% Item Pricing
- 18% Duplicate payments
- 10% Supplier Rebates
- 8% Trade-in Allowances
- 6% Sales and Use Tax
- 4% Cash Discounts
An accounts payable recovery audit works with both Accounting and Supply Chain by following the flow of the P2P cycle:
- Are purchase orders properly used when placing orders and making returns?
- Are invoices being entered correctly in the accounts payable system and matched against purchase orders?
- Are returns matched against open return POs?
- Are vendor contract terms (pricing, freight, rebates) being adhered to in due course?
Benefits of Accounts Payable Recovery Audits
Implementing an accounts payable recovery audit program can offer several advantages for businesses:
Cost Recovery: The primary benefit of recovery audits is the identification and recovery of lost funds, leading to significant cost savings.
Process Improvement: Recovery audits shed light on inefficiencies in the accounts payable process, enabling organizations to implement better control mechanisms and streamline operations.
Data Analysis and Insights: Recovery audit firms leverage advanced analytics and data mining techniques to identify patterns and trends, offering valuable insights for financial decision-making.
Compliance and Risk Mitigation: Recovery audits ensure compliance with contractual terms, reducing the risk of financial leakage and potential disputes.
The Role of Recovery Audit Firms
Outsource recovery audit firms, such as ours, specialize in conducting accounts payable recovery audits on behalf of businesses. Auditors possess expertise in the industry, or industry segment in which their company operates, along with financial analysis, data mining, and forensic accounting techniques. Outsourcing recovery audits allows companies to reap the benefits of a recovery audit without using internal resources or personnel to run the process themselves.
An accounts payable recovery audit is an indispensable tool for businesses seeking to optimize their financial operations and recover lost funds. By partnering with recovery audit firms, organizations can gain in-depth visibility into their accounts payable processes, rectify errors, and drive significant cost savings. Implementing a recovery audit program can enhance internal controls, strengthen vendor relationships, and provide valuable insights for future financial planning.
